Finding tomorrow’s hot property, TODAY

How A Lower Rent Can Mean A Higher Return

While most investor owners want to attract better tenants and have their property pay for itself, many landlords sabotage their chances by charging the wrong rent and not presenting their property as best they can.

Trying to charge too high a rent can actually end up costing the landlord thousands in lost income, according to Mark Shorrock of Bluestone Property Management & Sales.

Sometimes a lower rent can result in a better return to property investors, by filling a vacancy faster, keeping tenants longer and not having to pay a property manager fees to secure a new tenant.

Shorrock says there are many little things that add up to make one property more rentable than another.

Sometimes those factors came at a cost, but they are minor compared with how much can be lost by having an investment property sitting vacant for weeks.

“You need to create yield and cash flow to pay off a mortgage and to do that you need a tenant in the property,” Shorrock says.

“It’s a common misconception that the higher the rent, the higher the yield. I know from experience that a lower rent/higher occupancy strategy yields more rent than a high rent/low occupancy strategy.

“Often with a slightly lower-than-market rent you will have a tenant in place 52 weeks of year, which is a better return than if you have a higher rent but several weeks of vacancy.”

Shorrock says it’s a natural impulse of investors to want to get as high a rent as possible but that can be counterproductive.

“Tenants who rent properties at, or slightly below, market value generally appreciate they are on a good wicket and tend to stay,” he says.

When landlords raise their rents for existing tenants or charge rents well above market average, often tenants don’t stay as long.

That constant turnover of tenants costs money not just in letting fees and vacancies, but also by putting more wear-and-tear on a property.

Shorrock says one of the biggest causes of costly wear-and-tear on a property is tenants moving in and out.

“Moving heavy items like refrigerators, beds, kitchen tables or gym equipment is the biggest contributors to damage – gouging walls, cracking tiles and all those types of things.

“So, do whatever you can to keep a good tenant in place and that might mean a small compromise on rental.”

Landlords can also make their properties more desirable to tenants by making sure they have exactly what the market is looking for.

For example. the items most commonly-searched by tenants in Queensland are air-conditioning and pet-friendly properties.

Adding an air-conditioner cost about $1500 but you should be able to achieve an extra $10 a week in rent which would pay it off in three years, plus the property will be more popular with renters.

Properties which allow pets can generally achieve a higher rent although in some states landlords can’t increase the rent because a tenant has a pet.

Other than those popular demands, renters want a property that is clean, well-presented and well-maintained, with good carpets and paint.

Shorrock says it’s the small things that deter potential tenants – like loose door handles, a rip in a flyscreen, peeling paint or carpets that are past their use-by-date.

“Little things make a big difference to the rent that you can charge, to the length of vacancy periods and the quality of tenant that you can attract,” he says.

“You want to achieve a tenant who is going to stay for three, four or five years.”

Attracting tenants took some skill and ideally should involve spending a little on having professional photographs done.

“Nowadays tenants are shopping with their eyes,” Shorrock says. “It is really important that the quality of the photos that go online is good. I see online some pretty ordinary photos that make the property look dark and dingy.”

Shorrock says he pays about $120 for eight professional photos which are plenty for advertising a rental property.

Properties with professional photos rent faster and for more money to better-quality tenants, even though it may be identical to another home on the market close by.

“Using poor quality photos can result in longer vacancies and lower rents,” he says.

He says he is surprised at the false economy of people who would spend $500,000 on an investment property but refuse to pay $120 for professional photos to increase the chances of letting it to a good tenant at a decent rent.


Subscribe to our newsletter today and receive a FREE copy of How To Identify Hotspots