Rental Market Update

It is common that investors want to increase rents if their tenant has been in the property for 1-3 years. We understand that costs have increased and CPI has been rising.

However you need to ask yourself, what’s more important having an extra $10-$15 per week and a 50% chance the tenant will move out or having regular income coming in at the same rent and a significantly lower chance of the tenant moving?

At the moment our office is experiencing more than 50% of tenants that are given rent increases are moving out. You might ask why would a tenant move for an increase of  $10 per week. What happens is the tenant starts to consider their options and will look online and notices a huge selection of rental properties. When they last looked for a rental property there was a significantly lower number of available properties, so they decide to inspect some properties that are at the same price or at a lower price than they are currently paying. After inspecting they decide that there is a lot of other properties that are better value than they are currently paying, so they move. The main factor is that there is a large supply of properties available for lease, especially apartments.

Say for example your tenant is paying $650pw.

Example 1: No increase and the tenant stays for 12 months, so you will receive $33,800 in rent, which is $650pw.

Example 2: You increase the rent by $15pw and the tenant decides to move out. In this instance we will have to find a tenant, say for example you find a tenant at $665pw, then deducting costs of advertising, loss of rent, leasing fees etc, you end up receiving $31,800 in rent, over a 12 month period that is $612pw. If you had to lease the property at $650pw then that is $31,000 in rent, over a 12 month period that is $596pw.

(These costs don’t include if you have a mortgage and you have to pay the shortfall for that month).

You might get annoyed at us when we tell you that rents haven’t increased and advise you not to increase the rent. Please understand we are acting in your best interests and we are advising you on what is happening in the rental market. It’s your decision to increase the rent or not increase the rent, we are  giving you the facts on the current position.

Most agents would agree or advise you to increase the rent because they know that tenants could move out and they will earn fee’s through leasing the property.

Last month we reported that the rental market is challenging, especially for leasing apartments, our view still remains the same and will likely remain like this for the next 3 months, as we approach a seasonal period where less tenants move.

We are working hard to lease properties that are currently vacant and our team is constantly training, improving and making changes to our approach. Ultimately we are dealing with an oversupply of units in Sydney and with a smaller tenant pool.

The good news is that we are currently leasing well priced apartments in about 2-3 weeks and again well priced terraces/houses are been leased within 1-2 weeks.

Hot Tip: It’s a great idea to set aside at least one month’s rental income or at least one months mortgage in a separate account to help in periods of vacancy periods,  unexpected costs or a change in your financial circumstances. You just need to set a plan and set aside a small amount of money every week, fortnight or month until you build up that account. Experts says to have 2-3 months income or mortgage set aside in the instance that your financial position changes.