Setting the right amount of rent in a renters’ market

In some parts of Australia it is becoming, or has already become, a renters’ market.

In a renter’s market, the number of rental vacancies starts to heavily outnumber the amount of people looking for somewhere to rent and naturally it puts downward pressure on rental costs.

Investors can often find it tough to drop their rent accordingly when their property becomes vacant again and they need to find a new tenant.

But could dropping the rent while there’s a renters’ market actually earn property investors more in the long run than holding out and waiting for a tenant that will pay the premium rent? 

In Western Australia for example, there’s a strong renters’ market developing after the mining boom slowdown, and RE/MAX WA managing director Geoff Baldwin told Smart Property Investment that when investors’ property becomes vacant they often avoid adjusting the rent. 

“It is very common for owners of rental properties to insist on their property manager finding new tenants who will pay the same or even higher rent than the vacating tenant. However, this can often be a false economy,” he said. 

Mr Baldwin said investors with unrealistic expectations will end up costing themselves money in both the short and long term. 

“Often owners will hold out vacant for weeks attempting to attract a tenant to pay a higher rent, only to eventually be forced to meet the market anyway,” he said. 

“But in the process they have not only had to reduce by $20 or $30 a week, they have lost thousands through their property being vacant for a long period of time.” 

According to Mr Baldwin property investors need to be always evaluating the rent they are charging their tenants. They need to be aware and understand the market and the driving forces of how many people are looking for rental property, the number of properties available, the time of year and the rents being achieved in similar properties in the same area. 

“When notice is given that a tenant is vacating it is important that a frank and open conversation occurs between the owner and their property manager, whereby an achievable rental amount is set that will ensure vacancy periods are avoided,” he said. 

“Of course it may be the case that a property can maintain or even increase its rental income capacity, but it is much more sensible to be tenanted than it is to be waiting vacant for a premium rent,” he said. 

Mr Baldwin made the very good point that in setting a rent that is attractive to prospective renters instead of overpricing the property, a property owner is likely to receive multiple applications, giving them more opportunities and options in choosing a great tenant.