No Vacancy: Why Holding Out For More Rent Can Cost You Thousands
Investment property owners in Australia know they’re part a growing trend towards renting, so holding out for the highest possible rental price can be tempting.
But doing the sums on long-term vacancies tells a different story. Let’s look at two examples to see how you could be missing out on thousands while waiting for that perfect tenant to apply.
Scenario 1: Holding out for $800 per week
Let’s say you’re the owner of a one bedroom unit. Your unit is newly renovated with a spacious floor plan and particularly stunning views. Putting it on the market at $800 per week seems completely reasonable – in fact you have a feeling you might even be able to get more.
What you haven’t factored into this equation is the temperature of the surrounding market. Unfortunately $800 happens to be right on the tipping point between one and two bedroom properties in your area. So prospective tenants know that by paying a little extra each week they can have a much larger property.
With its price set just out of reach for house hunters who want a one bedroom unit, your property remains on the market for a total of six weeks. During this time advertising costs are also mounting up as your agent works to attract more prospective tenants.
If we assume this advertising campaign cost around $800 over six weeks, add that to $4,800 in lost rent and include the mortgage repayments on the property at an estimated $3000, we’re already looking at a very hefty price tag for just a few more weeks on the market.
Scenario 2: ‘Settling’ for $750 per week
Now imagine you’re the owner of this same property that’s about to come on the rental market at $750 per week. Because your property manager is ahead of the game, an advertising campaign begins well before your current tenants are due to move out. After just two inspections, an enthusiastic couple apply who meet your criteria and move in two weeks after the previous tenants vacate.
With a shorter advertising campaign and just two weeks without rental payments coming in, the $750 per week price tag pays off in the short term, and in the long run. In fact, even if we only compare the two properties in terms of lost rent, the $750 per week unit occupied within two weeks still ends up earning more on an annual basis.
How do I price my rental property correctly?
Setting the best price range for a rental property – one that makes money for you as the investor and won’t sit vacant for weeks – is a matter of knowing your market. Do plenty of research on similar properties in your area, head out to nearby inspections, and watch for properties that have been on the market just that little bit too long. When it comes time to choose a property manager don’t be afraid to talk to multiple agencies before you make your final decision.