Rent Drop

Discussion in 'Property Management' started by hash_investor, 15th Nov, 2016.

Join Australia's most dynamic and respected property investment community
Tags:
Page 1 of 2
  1. hash_investor

    hash_investor Well-Known Member

    Joined:
    11th Oct, 2015
    Posts:
    2,440
    Location:
    Sydney / Canberra
    I am discussing a rent drop with my PM at the moment to secure a tenant. I want the rent to be dropped as below as necessary to secure the tenant but PM does not like that idea. She thinks it will take years to bring rent back to original levels if dropped that much. The property is vacant for 4 weeks now.
     
    hash_investor, 15th Nov, 2016
    #1
  2. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,415
    Location:
    Gold Coast
    With vacant properties, initially I try to set the rent at market value, with input from PM.

    After first OFI, if no-one turned up or no-one took an application, I typically drop the rent by $10pw. If people took applications but no-one submitted them, then I would drop the rent by $5.

    I wouldn't wait 4 weeks before reducing rent.
     
    kierank, 15th Nov, 2016
    #2
    Whitecat and wylie like this.
  3. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,415
    Location:
    Gold Coast
    Recently, I had a Unit that a tenant was going to vacate. They were a good tenant, always paid their rent on time, never there much as they travelled a lot for work, etc

    They were paying $385pw. Current market rate was $355pw. If I hung onto the current rent and it was vacant for 4 weeks, I would have lost $1,540 in rent and $423.50 in reletting fees (total $1,963.50).

    I offered the current tenant the market rate of $355. They re-signed for 6 months. Some would say that I lost $30pw or $1,560pa.

    Not only was it better for me to drop the rent as we kept a good tenant, it also made sense financially. In 6 months, I will aim to put the rent up as much as possible. Even better financially.
     
    kierank, 15th Nov, 2016
    #3
    Lil Skater, Oscara, Perthguy and 1 other person like this.
  4. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

    Joined:
    1st Jul, 2015
    Posts:
    1,894
    Location:
    Australia
    Hi @hash_investor

    I've written an article on this topic on our website that you may find useful. Site rules prevent me from linking to it but you'll find it under the 'For Investors' tab.
     
    MyPropertyPro, 15th Nov, 2016
    #4
  5. D.T.

    D.T. Specialist Property Manager Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    9,190
    Location:
    Adelaide and Gold Coast
    Needs to be mathematical / scientific, not just guessing.

    Look at ratio of inquiries to viewings to applications :
    - If there's no inquiries then the price is wrong
    - If there's inquiries but no viewings, then PM is probably too lazy to get people through
    - If there's viewings but no applications then there's feedback needed from the PM on what people didn't like about the property (ie needs xyz feature)
    - If there's applications but all of them suck, its probably price related as well.

    Also, like @Andrew Hancock wrote about in his website's article, need to do sums as an investor on whether $10 a week which is $520 a year would match the $X a week you're achieving in getting a tenant that week sooner.
     
    Last edited by a moderator: 14th May, 2018
    D.T., 15th Nov, 2016
    #5
    kierank likes this.
  6. Ed Barton

    Ed Barton Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,229
    Location:
    Brisbane
    Who's wearing the pants in this relationship?"
     
    Ed Barton, 15th Nov, 2016
    #6
  7. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    14,015
    Location:
    Brisbane
    What were you getting, and how much do you want to drop? I find it strange that your PM is telling you to hold out.
     
    wylie, 15th Nov, 2016
    #7
    kierank likes this.
  8. hash_investor

    hash_investor Well-Known Member

    Joined:
    11th Oct, 2015
    Posts:
    2,440
    Location:
    Sydney / Canberra
    Was getting $355. PM is dropping very carefully $5/$10 at a time which I think is not sufficient. And they have no reason to tell me why people are not signing up.
     
    hash_investor, 15th Nov, 2016
    #8
  9. Propertunity

    Propertunity Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    3,476
    Location:
    NSW
    I'd try advertising a 1 or 2 weeks rent free period and leave the rent at market rates.
     
    Propertunity, 15th Nov, 2016
    #9
    Beelzebub, tobe and EN710 like this.
  10. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,415
    Location:
    Gold Coast
    What is the current advertised rent?
     
    kierank, 15th Nov, 2016
    #10
  11. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    14,015
    Location:
    Brisbane
    This is another good idea that I like. However, I suggested this to the agent who found us a tenant at $500 when we'd been getting $615. We advertised at $590, dropped each week until we finally rented it at $500. This property manager's advice was not to advertise one week free as (in her experience) that can make potential renters wonder what is wrong with the place.
     
    wylie, 15th Nov, 2016
    #11
  12. D.T.

    D.T. Specialist Property Manager Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    9,190
    Location:
    Adelaide and Gold Coast
    $5/$10 doesn't really cut it and most tenants watching the rental market wouldn't notice. Need to put a proper dent in it to get someone in pronto as you're losing money every week at the moment.

    Also keep in mind that with Christmas period fast approaching, rental market in some areas drops off substantially so ideally you want to a) Get someone before then, and b) Get them on an odd numbered month lease so that you're not in the same situation again this time next year.
     
    D.T., 15th Nov, 2016
    #12
    wylie likes this.
  13. Propertunity

    Propertunity Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    3,476
    Location:
    NSW
    1 or 2 weeks rent free is just to help a tenant overcome any problems they face with moving expenses and giving the appropriate notice period on their current rental and coming up with a new bond before they get there old bond back. It can mean they will take your property over another one that has no such offer.
     
    Propertunity, 15th Nov, 2016
    #13
    wylie likes this.
  14. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    14,015
    Location:
    Brisbane
    I agree Proportunity. (The PM advised against it.) For me I would have preferred to have lost another week or two and still be getting $550 per week because it is very hard now to increase from such a low base that we had to drop to. By dropping to $500 we are losing more than the equivalent over the year of giving away five weeks for free. And that continues on and on.

    But we were getting nowhere at all with the higher rent and were advised against offering a week free. If we could have snagged a tenant at $550 even offering a month free, we would be better off after the first year. It will take years to get it back to what we were getting. But at the time, the PM said there was simply nobody interested at that weekly rent.

    The thing is that for many tenants - they just see the $500 per week and don't think further. The same people might not even have considered the same house at $550 per week, even with two weeks or even a free month.
     
    wylie, 15th Nov, 2016
    #14
    Perthguy likes this.
  15. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    14,015
    Location:
    Brisbane
    Actually, it is this painful experience, and the fact that we are retired and rely on rents as our income, that has made us postpone for another year the shifting of the two houses that need to be moved to create our townhouse block.

    I've been keeping an eye on rental prices in the area, and we are getting higher rent now than we could get if these tenants leave. So we would be spending possibly $150k to $200k to move houses, lift them, reconnect, new stairs etc and it would be exactly the same house to any potential tenant, but after spending all that, we would possibly get $100 to $150 per week less than we are getting now.

    We cannot risk that.
     
    wylie, 15th Nov, 2016
    #15
  16. Marg4000

    Marg4000 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,421
    Location:
    Qld
    The trouble with such a minor amount you are often following the market down. By the time your PM accepts the new rent is still too high another week or two have drifted by. And the rental market can move very quickly, both up and down.

    If you decide a rent drop is the way to go, I have found that a $20 reduction can often get a tenant, provided the $20 reduction is off an already realistic rent.
    Marg
     
    Marg4000, 15th Nov, 2016
    #16
    Perthguy and wylie like this.
  17. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,814
    Location:
    Melbourne
    This works. It also somehow makes it a 'new' add in realestate.com too I think
     
    tobe, 15th Nov, 2016
    #17
    wylie likes this.
  18. Beelzebub

    Beelzebub Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    822
    Location:
    Lost
    The two weeks free rent would also be better for serviceability and resale too I'd imagine.
     
    Beelzebub, 15th Nov, 2016
    #18
    wylie likes this.
  19. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    14,015
    Location:
    Brisbane
    Absolutely. This is another problem we have with having dropped so much. I'd like to refinance out of the loan attached to this house but with rent now $515 per week when it used to be $615 when I got the loan I have now, I'm probably not going to be able to do that.
     
    wylie, 15th Nov, 2016
    #19
  20. skater

    skater Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    10,281
    Location:
    Sydney? Gold Coast?
    I've used this as well. It works a treat in a slow rental market & keeps your rent at market rates.
     
    skater, 15th Nov, 2016
    #20
Page 1 of 2