Striking a balance between high rent returns and potential vacancies
Increasing an investment property's rental income is no longer as simple as raising the rent, which is a move that may well prove financially counterproductive for landlords.
As rental markets start to cool in many parts of Australia, property investors are facing a familiar dilemma: should you hold firm on rent increases to protect returns or adjust expectations to avoid costly vacancies?
In a softening market, where supply outpaces demand or tenant affordability is strained, the wrong call can mean weeks (or months) of zero income from your investment property.
That doesn’t mean landlords should rush to slash rents either. The key is finding the point where value meets stability.
The real cost of a vacancy
A $30 weekly rent increase may seem measured but if it leads to just three extra weeks on the market, it could take more than a year for a landlord to recover that lost income.
Example:
- Asking for $680 instead of $650 may cost you $1,950 (three weeks of vacancy)
- It would take 65 weeks to make that back at $30 more per week.
The mathematics is clear. Pushing too hard for higher rent can backfire. This is especially evident in suburbs where renters have more choice. Pricing yourself out of the market, even slightly, can invite avoidable vacancy periods.
What the data tells us
CoreLogic and PropTrack data in early 2025 indicates that:
- national vacancy rates have edged above 2 per cent in several metro areas
- rents are plateauing in outer-suburban and regional areas after sharp rises in previous years
- rental applications per listing have declined, meaning it takes longer to lease a property.
Tenants are not just price sensitive. They’re also increasingly selective, with many choosing properties that offer the best overall value (presentation, flexibility, pet-friendliness and location) rather than just the lowest rent.
Strategies to balance return and risk
Here’s how you can adapt.
- Benchmark with precision
Rather than relying on broad suburb averages, compare your property with similar current listings, not what it rented for last year. Prospective tenants are seeing what’s on the market right now.
- Consider a slight discount to save weeks
Dropping the rent by $10–$20 per week might feel like a compromise, but it can attract higher-quality tenants faster. In many cases, this trade-off is far more profitable long-term.
- Offer flexible lease terms
A 12-month lease might not suit every tenant. Offering shorter leases (e.g., 6 months) during a slower season can help fill gaps, with the opportunity to revisit rental tenures later.
- Refresh, don’t renovate
Low-cost improvements such as painting, replacing blinds, updating lighting or improving outdoor areas can lift perceived value. This helps justify your asking rent without overspending.
- Use feedback from inspections
If you’re not getting quality applications, listen to what prospective tenants are saying. Your rent may be too high, or the property might be lacking something others in the area offer.
- Leverage your property manager’s local insight
An experienced property manager will know the micro-trends in your neighbourhood and can advise if you’re overreaching or leaving money on the table.
- Market early, and market well
Don’t wait until the final week to advertise. Marketing should start at least four weeks before the lease ends to give tenants time to plan. And don’t just list the property; use strong photos, compelling copy, and data-backed pricing to attract quality interest fast.
Striking the right balance
Vacancy impacts cash flow, increases wear and tear from prolonged emptiness and can even affect your insurance cover.
In contrast, a well-priced, well-maintained property with a reliable tenant is the foundation of any successful investment.
It’s not about undercutting value. It’s about securing it. In 2025’s more cautious rental market, a realistic, data-driven approach will deliver stronger and more stable returns over the long run.
