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High Rent Costs Property Investors

The correct pricing of the rent for an investment property is critical, particularly in a market where there are more properties available than there are tenants to rent them.

All property owners have personal opinions as to what the rent should be on their investment property. Sometimes this opinion may have been influences by an agent who promised a high rental level to win the account, but if the rent is unrealistic then the landlord will pay for it. When there is excess supply, it is the market that determines what the rent will be.

An experienced agent will conduct research and provide evidence to substantiate a realistic rent that will ensure the property is tenanted rather than being unoccupied for weeks. In this case study the property was vacant for 8 weeks, and research revealed that the rent was overpriced by $100 per week when compared to equivalent properties in the same area. When the rent was reduced to $450 a week the property was relet within days.

The property owner had not done due diligence and persevered by paying advertising expenses in the belief that eventually there would be a market demand. Finally the cost of carrying the holding costs of the investment property with no rental income became unacceptable.

The property was unoccupied for 8 weeks at a loss of $450 per week -the ‘true market’ rent –equalling a loss of $3,600. Instead of picking up a hoped-for $100 per week, or $5,200 per annum, in over-market rent, it lost the landlord $3,600 plus advertising costs.

Take a smaller example, where the rent is overpriced at $360 per week and the true market rent is $350. $10 extra per week = $520 per annum, but at what risk? Just an extra 3 weeks to find a tenant willing to pay $10 over the market rate would lose 3 weeks x $350 = $1,050.

A good property manager knows the local market and does the proper research. If you are dissatisfied with the advice you are getting do your own research by comparing available properties and their rental levels with yours, or find another agent.

Evaluate your property objectively, as though through the eyes of a potential tenant, and see first, if you would rent your own property before others in your area, and, second, based on comparable properties, what rent would you be prepared to pay?

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