Achieving highest rent, not always the best policy

While the market is generally good for rental property owners at the moment, it is easy for (usually novice) investors to think the sky is the limit when tenants are competing over properties and rents are still increasing. But the rules of successful property management still hold true.

Most experienced investors understand that even a few weeks’ annual vacancy usually means a lower net income than if the property had been rented at 95 percent of market value for the whole year. So if maximising income from rental property investment comes from keeping their properties occupied, why do some landlords expect to rent their properties for 110% of market value?

The answer to this question no doubt varies but such landlords sacrifice weeks of rent and create dissatisfied tenants who move on when they find a better value option, thereby creating a cycle of higher turnover and greater vacancy.

Furthermore, investors whose properties are good value get more enquiry and can afford to be more selective when deciding who will rent their property. Being selective means checking references but beware of taking into account irrelevant criteria such as dress style, marital arrangements and other personal choice issues. The bottom line criterion is Does their history indicate that they would be able to pay $x per week for y weeks?

If a property stays empty because the rent is too high, owners can get desperate enough to overlook a tenant’s patchy references; in the effort to get the highest income, they make themselves more likely to get less because poor references could mean greater likelihood of getting behind with the rent.

New investors can avoid a lot of common errors by making use of the expertise of their managing agent. Many novice investors don’t think of asking their managing agent’s advice until something goes wrong. Investors who do their homework and tell their agent up front what their needs are find it much easier to keep abreast of what’s happening and avoid confusion.