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Tight rental market

Discussion in 'Real Estate' started by Simon Hampel, 30th Jan, 2007.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    One of my IPs in Adelaide is a dingy 2BR unit that I call "the dungeon". It's the worst of my rentals, and has always got the lowest rent.

    When we first bought the property 5 years ago, we were getting $145pw rent. It's always been relatively easy to rent due to it's proximity to a university and hospital (longest period of vacancy was when a tenant broke the lease mid-year and it was vacant for about 6 weeks).

    We've never really managed to get the rent higher - and until now has continued to be rented for $145pw.

    With the current tenants moving out in a couple of weeks, I agreed with my PM to advertise the place for $160pw, with instructions to drop to $150pw if there's not enough interest. My PM just informed me that there was so much interest it turned into a rental auction (not by design - it just happened), and it has just been leased for $190pw :eek:

    In this light - I'm going to have to re-assess the rent on my other properties, since I have some that are considerably better and not getting all that much rent (in fact my best property is only getting $230pw ... but that is under-value, with excellent tenants who have been there ever since we moved out 8 years ago).

    Either way - based on current bank valuations, all the rents have a long way to rise before they get back to what I consider to be average yields - will be interesting to see whether the rental market continues to be tight for a while yet.
     
  2. Redwing

    Redwing Well-Known Member

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    Hi Sim,

    A review of current Market Rents shows that our properties are all lagging and will need revision once the current leases expire

    An IP in Clarkson (WA) is rented for $175 p/wk and current rentals are around $215-220p/wk
     
  3. Ian (WA)

    Ian (WA) New Member

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    G'day Sim & All,

    I just got off the phone after my managing agent informed me of a good number of applications for my place at Nth Brighton (3BR, neat but nothing flash).

    It was previously let at $265/wk. I initially instructed it to be relet to existing tenants for $285 for 12 months, or it would go on the market at $295 for new applicants. It was advertised for one week and we have just accepted an application from someone looking for a long term rental (3 - 4 yrs) and they have offered $305/wk!!!

    My other place at Flagstaff Hill, like you, has long term tenants in so I have been generous and have only raised the rent in small increments over the last 6 yrs. Sits at $230/wk (up from $220/wk in June last year). Certainly come June this year I will be reviewing the current burgeoning market with a view to raising this rent too.

    Adelaide metro has in the last ten years been pretty good for landlords (re vacancy rates), looks like it will remain healthy for some time to come.

    Cheers,

    Ian.
     
  4. Zeroman

    Zeroman Member

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    The last time we saw rentals move like this, there was a bail out of the Stock market and a huge move back into property. We can all live in hope as investors that this is the case, especially in stagnant markets such as Sydney and Melbourne.

    Good luck with it all

    Michael
     
  5. Jacque

    Jacque Team InvestEd

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    Interesting that recent media articles have had such an effect on tenants, wanting to secure longer leases and lock in at what they can afford now. We've been looking around the inner north area of Sydney for a client and have been told by many REA's now of the impending rental crisis. One smaller agency has run out of rental listings altogether and we are beginning to see yields creeping up again. The catch up time has arrived :)
     
  6. voigtstr

    voigtstr Well-Known Member

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    This is my year of paying off debt, it will probably take another year or so to get a deposit together. Could there be more cash flow positive (or at the least, not so negative) geared properties about because of better rental yields, by the time I'm ready to buy?
     
  7. Jacque

    Jacque Team InvestEd

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    Depends on where you're looking, what type of property and price bracket.
     
  8. voigtstr

    voigtstr Well-Known Member

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    When the time comes, I may just have to make use of your services as a buyers agent. It would come down to Steve's "rental reality" equation and how much deposit money I had saved. The area, I wouldnt be so concerned about as long as it was capitol gains focussed, so I could try the living on equity strategy that Steve outlines in the articles on this website.
     
  9. dkbook

    dkbook Member

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    Hey you guy's spare a thought for the tenants.
    Bubbles have a bad habit of bursting. You could be the next renter.
    People rent only because they can not afford to buy, jacking up rents just because you can is hardly a fair or decent thing to do, especially to long term tenants who are looking after your property.
     
  10. TryHard

    TryHard Well-Known Member

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    DKBook - property investing is a business. Its probably not realistic to expect investors to choose not to run their portfolio like a business. In our limited portfolio we generally assess how the tenants are looking after the property and how 'low maintenance' they are, because we're in this as much for the lifestyle as profit, and we're often below fair market rental. But that's our 'business' decision - other people will have different drivers.

    :)
     
  11. Glebe

    Glebe Well-Known Member

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    Hi DK,

    Not everyone rents because they can't afford it. I've rented over the last 3 or so years because I figured selling my unit, investing it in the sharemarket and renting something else is better than using it as my place of residence. I was right.

    The other thing I wanted to say was that given the interest bills and taxes on so many properties (outgoings) around the country are greater than the rent (incomings) it doesn't make sense for landlords not to raise rents, so long as they have a reasonable expectation of securing a tenant.

    But yes looking after long term tenants who keep the property in great condition is a smart thing.
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I only "jack up" rents between tenancies ... nothing unfair about that. Increases for the same tenant are generally kept to well under 10% per year (and often there is no increase for 18 - 24 months, depending on the market).
     
  13. Redwing

    Redwing Well-Known Member

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    I was speaking to a friend the other day and apparently in our Suburb (in WA) there's only nine (9) rental properties in total available (they're looking at moving and rent as they are new to Australia), on that topic they were saying that some properties are having up to 20 applications each.
     
  14. dkbook

    dkbook Member

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    No offense intended, sure property investment is a "business" like any other. Likewise any business driven purely by the profit motive and ignoring customer service is unlikely to be there for the long haul. I think "moderation" should be the key word, not "what will the market take?" The property market like many others is cyclical - boom and bust. The more cautious and moderate investors are the ones more likely to survive the inevitable crash.
     
  15. MJK

    MJK Well-Known Member

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    Wow! its been a long time since I've heard anyone talking about an ïnevitable crash" :rolleyes:

    MJK:D
     
  16. Jacque

    Jacque Team InvestEd

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    Hi DKBook

    I don't consider my tenants my customers and nor do I ignore them or their needs- I consider them an integral part of building my way to financial independence (so I don't need to rely on taxpayers money to fund my retirement). I'm providing a product to them (accommodation) for which they're willing to pay rates based on current demand and supply, and I'm willing to take a cash loss for many years and sacrifice aspects of my lifestyle in order for this to occur. It's an investment for my future, not really a business, in my opinion.

    I treat my tenants with respect and do provide a good product, which I regularly maintain and ensure is in good working order. I charge rent which is consistent with the competing market, and for the last five years, in a few of my properties, this rent hasn't even increased with inflation (in one case, the rent is now actually less than it was in 2001!) causing me more cashflow loss, as everything else has increased (insurance, rates, strata fees, land tax). I could have bailed out by now and sold, but I have held on, as I too recognise that property is cyclical :) Should I feel guilty for wanting to compete (finally) in the open market by raising my rents? Absolutely not, and I consider every raise carefully, in light of the current situation and the particular tenants. But let's not forget that, without privately funded housing, the govt would be hitting taxpayers hard to cope with the enormous public housing required.
     
  17. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Any business NOT driven purely by the profit motive is called a charity.

    Profits do not mean that customers necessarily receive less service - indeed, nobody is forcing them to rent our properties - it is an open market and we are not a monopoly. Market forces determine what we can get away with charging we do not choose arbitrary figures based on our own greed.

    The cost of replacing a tenant is not insignificant - it is in my own best interest to keep my tenants longer term ... thus I spend what is required to ensure they have a safe and comfortable property in which to live, and I never increase rent on them beyond what I think is reasonable.

    I am also a tenant - I know how I like to be treated by my landlord, and I treat my tenants the same way.
     
  18. Alan

    Alan Well-Known Member

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    I have a pretty simple policy with the amount of rent I charge. I charge the maximum the market will pay.

    If I try and charge more I will only be the loser, but similarly I have no intention of either undercharging or even 'discounting' for longer term tenants.

    While I only partially self-manage now, I know only too well what it's like to have tenants trying to screw you to the lowest possible dollar. The 'big, bad landlord' often has some pretty stiff competition!

    We negotiate and come to a mutually acceptable arrangment or we both walk. Simple. And I repeat this process every 12 months. Had very low vacancies over the years but they also get very good service.

    I'm not saying they have to stay and pay what the proposed rent is and if what I propose is too much then the market will quickly tell me so.

    With all the talk of 10-20% rent increases I did a check on a villa I have this morning that will be due for renewal soon. It would appear what I'm currently getting is about right in this market so rent won't change too much. Mind you, it would also mean that last year's negotiations may have went my way. :) Not always the case though.
     
  19. dkbook

    dkbook Member

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    IF you are a landlord who keeps his rental properties in good repair and responds quickly to requests from tenants for repairs (not talking about tenant misuse or damage) and are charging the market rate - then you are a responsible and fair landlord.

    However there are a lot of landlords who are charging the maximum the market will take and sod the tenant. ie. will not service evaporative airconditioners (legionaires), rent a property with a dishwasher - that does not work and then will not repair it, refuse to repair electrical light fittings that are "live" or have exposed wires dangling from the ceiling. Is this "ethical" I think not! In these cases "profit is king, sod the peasant".

    I think it is time for ALL investors to take stock of their own investment portfolios and ensure that all of them are up to scratch. What you charge in rent is immaterial compared to what you could lose in a civil law suit should a tenant be injured, by lack of maintenance on your part, in one of your properties.

    You are providing a commodity - all commodities carry a public liability with them.

    Are you a responsible landlord? - think about it!
     
  20. MJK

    MJK Well-Known Member

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    As a mater of fact...I am. :D ;)