Property Investment Tip: When should you decrease rent prices?
While price increase has always been a part of the cycle for rental properties, Managed’s Thom Richards and Nick Bouris believe that going the other way—decreasing rent prices—sometimes turns out to be more beneficial for the overall performance of the property as an investment.
Decreasing rent prices is often a strategy used by landlords to avoid prolonged vacancy and retain their tenants.
“A rental decrease of $10 a week or something like that can save you three or four weeks of lost rent. You'd be crazy not to take the reduced amount of rent," Nick told Smart Property Investment’s Phil Tarrant on the Smart Property Investment podcast.
Mr Tarrant, who is an avid investor himself, remembers initially setting a $300-rent for his property in Mount Druitt, only to find himself in the middle of a sudden influx of property investors in the area. As a result, the demand for rental properties dwindled and he had to bring the price down in order to get a tenant in.
While it may look like a negative impact on his portfolio, Phil believes that getting and retaining a trustworthy tenant by means of decreasing rent prices is far better than losing money due to vacancy, even if only for a short period of time.
Nick advised property investors: “Never do it until you test the market first.”
Establishing a good tenant-landlord relationship
Mr Richards said market cycles often force property investors to adjust the prices of their rents, but maintaining a good relationship with your tenants can help soften the blow of unpredictable changes.
He said landlords must be able to discuss their plans with their tenants, and tenants must also be willing to be open about their intentions.
“If you know you're three months out of the end of the term and they're not happy and they know that there's better options out there for them, a better deal, then you won’t be able to keep them,” he explained.
After all he says, being able to retain tenancy is not only about the price and the condition of the property but also about the level of trust and loyalty established between the landlord and the tenant. Having a good landlord-tenant relationship will also ensure that the tenant is happy while the investment property is performing well at the same time.
“If you're proactive you're getting the best possible deductions, you're getting the best possible rental return for the property, provided you do it an intelligent way and don't overcapitalize.
“If you're on top of your property management you're always going to ensure that the property is performing at its peak in terms of your yields,” he said.
Tune in to Thom Richards and Nick Bouris’ episode on The Smart Property Investment Show to know more about the best tools, tactics, and tips to manage your properties and make the most out of your investment.
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