Should you hold out for higher rent?
Over time investors should be seeking to increase the rent on their investment properties, if only to keep pace with inflation. But is it worth cashing extra rent if your property is going to remain vacant in the interim?
Let's say your investment property is currently rented for $400 a week. You decide to increase the rent to $420. The tenants advise they can not afford the increase and decide to move out. You now have a vacant property. Assuming you were paying your agent 9% this would mean forgoing $364 in income.
Let's say it takes 3 weeks to find a tenant willing to pay $420. This means you are now $1,092 down in income. Based your increased rent guess how long will it take to catch this loss up? 60 weeks.
This doesn't include advertising costs or any re-letting fees. And what if you didn't get your increase and eventually had to reduce the asking rent.
The rent your property can achieve is all to do with demand and supply. If there are plenty of properties for rent then the renter has more choice and there will be less upward pressure on rent. The main reasons properties remain untenanted is because landlords are asking too much. Most renters go to the internet to find property. If your property is priced above similar properties then it will be overlooked. So before you decide to increase rent make yourself aware of what the market is currently asking. You can do this by talking to your agent and also searching the internet.
And also be cautious of agents who over-promise on what you can achieve. If they are claiming you can get 5% or more above what the market is currently paying, particularly if there is ample stock available then you should skeptical. If they genuinely believe what they say get them to give a written guarantee that they will pay you the increased rent regardless of whether the property is tenanted or not.
Contact us to discuss how using the right investment strategies can improve cashflow and reduce personal debt.