Dealing With A Drop In Rent

The rent reduction conversation is never an easy one between property managers and landlords. What it simply comes down to is an open line of communication and an education process on current market conditions. There is always a reason why a property won't rent.

Three P’s

In our ever-changing digital world renting a property is no longer about simply putting up a sign. With 95 per cent of tenants searching for a property online, it is the primary source of securing a tenant. From the outset we need to ensure that the property is presented well - photos must be of a high quality, any outstanding maintenance or renovations should be complete, essentially, is it a property you would live in? We then need to promote it, and this comes in varying forms, but generally via a prominent internet ad on leading real estate websites will do the trick. If we still can’t rent it, it simply comes down to the third and final ‘P’, price.

The market

The market ultimately determines what the rent should be. It really is a matter of supply and demand and unfortunately, rental prices do not consider how much rent you as the Landlord, need (or want) to cover your investment holding costs.  While the market will determine the price, getting an experienced property manager to handle rent negotiations for you will optimise your return.  Their knowledge of the current market and expert negotiation skills will ensure you receive the best rent possible for your property.

Less rent better than zero rent

Sometimes lowering your rent to attract/ retain a tenant is a smart move. For example, let’s say your property is available for rent at $400/ week. You decide not to accept an offer of $390/ week from a tenant who will move in right away. If your property is vacant for two weeks, you’re actually worse off in terms of annual rental income received, than if you’d accepted the lower rent straight away.

There’s also a tendency to advertise at a higher rent, with the intention to ‘wait and see’ before lowering it.  If you’ve already come to terms with the idea that you may receive less rent this time, you might as well lower the rent now.  It can help to differentiate your property and minimise vacancy time.

The cycles

We all know very well that real estate goes in cycles. Rents go up and then they go down. And then they go back up again. Rent on your property may have fallen recently, but if you’ve had your property for a while, chances are you’ve received good rent in the past, and chances are, those times will return.

Losing out

When it comes to lease renewals the dilemma is always, do we put the rent up and risk losing a good tenant, or do we leave it as is? Ultimately this comes down to the market, advice and negotiation skills of a good property manager. Generally speaking, it is difficult to justify a rental increase to a tenant if the market doesn’t support it, tenants are savvy these days and know the rental market.

Short term pain, long term gain

This one can be hard to remember, particularly if holding costs have recently risen or you’ve had maintenance issues to deal with making cashflow tight. It’s important to remember your underlying investment strategy, or why you purchased investment property in the first place.  We all need the regular rental income, but is it this, or capital growth in the property over time that you are after? Keep sight of your goals.