I’m a frustrated Landlord. I don’t use a Managing Agent as I’m happy to do it myself and really enjoy it. But in recent years I have noticed something —- your managing agents are not increasing your rents up. Let me give you some examples as to why I’m so angry with YOU ‘property investors’.
As all property investors would do, they keep an eye on the rental market, especially within the area that your property is located. Last year I noticed an ad ‘for lease’ for a property that was in the same building as mine. The one advertised was a 3 b/r, 2 bath. The property is next door to mine (there are only 2 properties per floor). My apartment is a 2 b/r, 1 bath. The price of this property was advertised at $95pw less than what I was achieving. So I did the decent thing and rang the Agent to advise him of what I was achieving – his response “I don’t care, the owners are happy with what he was advertising it for”. He then went about on a rant telling me that he knows why I was calling him because his rental brings all the rents down within the building – arr der – yes that’s right dumbo. It was then “a light bulb moment” that I realised this guy represents one uninformed property investor – it could be one you guys here!
Another example, this week I leased a property in the Eastern suburbs of Sydney. 2 weeks ago I noticed an advert for lease for a property in the same building but 2 floors higher than mine (all apartments are exactly the same) advertising it for $300 pw less than mine. That one got leased and so did mine but at $300 pw difference. That’s $15k LESS. Another property that is managed by an Agent that represents maybe one of you.
I just got a phone call this afternoon asking if this place was still available, he told me that there was a 1 b/r apartment in the building that he missed, I asked how much it was rented for and he said “I would of paid heaps more than that”. Again this is another apartment that an Agent is representing maybe one of you.
My last example – I was chatting to a guy in Qld and it so happened that he owned an IP property next door to mine in a Sydney suburb. He told me that he had an Agent looking after it for 20 years. I asked him how much he was renting it for. It was $475pw (I was achieving $750pw at the same time). He says his agent always recommended a small increase each year as the tenant stayed for a long time and looked after the place. He sold it last year for $990K. He had no idea what the rental was worth. Could this be YOU!
Sorry about my rant, but I hope you property investors are keeping an eye on the rental market yourselves and not relying on the sole advice of an Agent as rents are going UP, UP, UP!
I HOPE MANAGING AGENTS READ THIS TOO – RENTS ARE UP, UP.
Same thing goes for private landlords however. I’ve seen many a private rental agreement which was 30-40% under-market because the private landlords didn’t keep track of the market, or were too soft to increase the rents in line with market expectations.
But the essence of it is correct – keep your rents at market to stop a patchy market.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
It might help to understand the motivation… or lack thereof… behind the property manager’s approach.
Firstly, if the property manager is an employee, they are more than likely on a fixed salary. No extra cashola if the landlords are happy or if the rentals are achieving higher rents. It is MUCH easier to rent things out cheap. Less open for inspections which equals less work for the property manager. It is highly unlikely they get paid extra money if they have to put in more hours to get a particular property rented out. Not saying this excuses apathy, but it goes some way to explaining why the results might be as they are.
Second, a rent roll has a value. Not just the income it produces. It is an asset that can be borrowed against, or indeed on-sold. So long as things are rented out then excellent. There is not a massive difference on the value of the rent roll if you fetch an extra $10-$20 per week on a particular property.
This doesn’t help fix the dilemma you address in your original post, but hopefully helps you understand the motivation of folks behind the scenes. It is not reasonable to expect a property manager cares more about your property just because you do. The wage a property manager earns is not huge, and in return for their troubles they work in an environment where they get their fair share of abuse. A bit of courtesy and gratitude to your property manager can go a hell of a long way and may mean they care that bit more about your property over someone else’s in the portfolio. Food for thought.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
If you see sale prices in your area have gone up 5% in a year……then rents be default should have the same movement. I never understand why landlords aren’t on top of this.
Why do you think rent increases track capital growth rates Dean? There’s no historical evidence of this, and they are impacted by very different market forces.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
If you see sale prices in your area have gone up 5% in a year……then rents be default should have the same movement. I never understand why landlords aren’t on top of this.
They aren’t on par with each other.
A novice economics 101 lesson for you –
Supply and demand affects the price of everything from petrol to houses to rents to milk.
House sale prices may go up and down in price due to a whole bunch of factors going on.
Rents may go up and down in price due to their own factors going on, sometimes together with the above or completely separate. Sometimes not even in the same direction.D.T. | DT Property Management
http://www.dtproperty.com.au
Email Me | Phone MeAdelaide Property Management - whole Adelaide metro
Blackhotel I totally agree.
Jacqui makes some good points as to why.
I have a unit in a big block and notice one agent in the area continually advertises rents cheaper than standard. I’cve pulled them up on it when they try to get my business.As Corey said- it’s not just agents. I bought a villa and went to the first strata meeting. Got chatting to a couple. I said mine was rented at $250 which was under market. I put the rent up to $285 straight away then up again the next year. They said theirs was rented at $235 as the tenant had been there a while. I said that’s crazy and throwing money away. After a little while they then said they had a 3 bedroom villa. Mine is only 2 bedroom. CRAZY!!! Why would you subsidize a strangers rent to the value of $70 a week!!!
And then the problem escalates when the tenants start talking to each other.
Another point to make, I always make sure my leases expire in the months of Feb/March of the year. These are the PEAK months for renters moving and I manage to get the best rents.
I have one property that is Managed (the only one). I got a call from her last year to advise that the tenants will not pay the increase ($20pw) and they are moving on. All good so she advertised right away. About 2 weesk before the move-out day she advised me that she had already received 3 applications sight unseen and was going crazy with inquiries. I advised to put the rent up $40pw. She was stunned by my comment and refused. I sacked her and got another agent, we achieved an increase of $50pw.
RENTS ARE UP UP UP
Why do you think rent increases track capital growth rates Dean? There’s no historical evidence of this, and they are impacted by very different market forces.
Sorry Corey, Do you have a graph on the Sydney market to show this isnt the case? yes you can get variances (eg first home buyers grant) but when interest rates go down sale prices go up and rents must follow.
Yes in the USA/Regional Australia things can be economy driven eg for the oil/mining booms etc, but tracking sale prices is going to be the closet reflection of rental prices.
If you’ve got evidence this isnt the case I’d love to see it.
Rents must follow? They aren’t pegged together mate.
D.T. | DT Property Management
http://www.dtproperty.com.au
Email Me | Phone MeAdelaide Property Management - whole Adelaide metro
Why do rents need to follow at all?
Gross rental amounts are completely divorced from asset prices – generally they will track 2-4% increases, where capital prices can go anywhere.
Example: Sydney has had a 5 YOY growth avg of 3.1%. In the same period Sydney has experienced over 30% capital growth.
Yields vs capital prices graph for the last twenty years: http://blog.corelogic.com.au/2013/06/the-destruction-and-gradual-reconstruction-of-rental-yields-in-australia/
There’s a very clear downtrend and clearly no pattern between capital growth and rental prices.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Uhm that’s exactly what I meant, there is a reduction in gross yields but that’s a compression caused by SLOSH its the same in every investment at the moment (which is why leveraged properties are as good as they are at 80%).
The fact that your gross yield percentages are coming down/compressing doesn’t mean that they arent following the capital growth increases it just means the percentage yield is coming down.
Except if you look at the data provided, capital growth year on year is tracking above year on year rental growth.
Every market provides examples – Sydney has skyrocketed, but increased rental supply has tempered prices, Perth has hit the top of a boom which pushed a rapid expansion in rental supply, so rents have caved in whilst prices increase.
The rental market pressures are very much separate to capital growth.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Uhm that’s exactly what I meant, there is a reduction in gross yields but that’s a compression caused by SLOSH its the same in every investment at the moment (which is why leveraged properties are as good as they are at 80%).
The fact that your gross yield percentages are coming down/compressing doesn’t mean that they arent following the capital growth increases it just means the percentage yield is coming down.
Didn’t you just contradict yourself?
D.T. | DT Property Management
http://www.dtproperty.com.au
Email Me | Phone MeAdelaide Property Management - whole Adelaide metro
No because “Yield” should always be value at “current valuation” not what you paid for the property when you purchased it.
If you are measuring yields based on the purchase price eg….. 10 years ago…..then of course you are looking like a genius :)
No because “Yield” should always be value at “current valuation” not what you paid for the property when you purchased it.
If you are measuring yields based on the purchase price eg….. 10 years ago…..then of course you are looking like a genius :)
Yes, except if rents increased at the same rates as capital growth as you suggest, gross rental yields would be static. This clearly isn’t and hasn’t happened ever.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Rents must follow? They aren’t pegged together mate.
Very correct. Rents in general terms average CPI + 2%. This can be seen when looking at the poor yields of the blue chip areas.
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