Once you’ve successfully purchased an investment property, one of the most important factors is securing tenants at the projected rental figures you’ve used to crunch the numbers. Often this is an afterthought for investors, with so much focus being spent on securing a good price.
The importance of rent levels is critical to ensuring you have a solid long-term financial plan for your property portfolio. What if you’d planned to positively gear your property only to find out it will rent for $50 to $100 less per week?
So, how it easy is it to find out a true rental market value? Check out any inner-city suburb throughout Australia and you’ll be guaranteed there’s a list of real estate agents who’d love to manage your property. All of these property managers should be experts on the market in that particular area. But most importantly, if they’re not the agent selling you the property, they won’t have a vested interest in over-estimating rents. This exercise will not only give you an idea of rent levels but also which agencies are switched on and know the market. Realistically the agency that doesn’t return your call for two or three days as a prospective client should quickly move to the bottom of your list of prospective property managers. How long will it take them to respond to a prospective tenant?
Start by contacting two or three active property management agencies in the area. Tell them exactly what your plan is and supply them with a copy of the floor plan or a link to the online ad. Don’t tell them what the sales agent has projected, as you don’t want their appraisal influenced. Try to do this with agents from that suburb or reputable property management companies who service that area regularly. Checking who has the most listings for your suburb on the web portals can be a good starting point.
Properties that already have a tenant in place may seem like a safe bet, but there are questions you need to ask. How long is it since the tenancy commenced? If tenants have been in a property for three years with annual rent increases, you may get a distorted view of rent levels once they’ve vacated – it’s quite common that their rent will have “overshot” the market. Also, the original rent achieved may have been in a buoyant rental market or it might have taken the agents six weeks of open inspections before they found a tenant willing to pay over-market rent. This, coupled with regular increases, could result in a nasty shock to an investor’s wallet. Even if there are tenants in place there’s no harm in still getting a property manager’s opinion.
Once you have two to three rental appraisals within a close range of each other you’ll get a clear picture of where the market really is. Ordinarily agencies give a range of $20 to $30 (or approximately five per cent) on the weekly rental value. Take the lower figures from each agency and then start crunching the numbers. Agencies whose figures are much higher than the others could be telling you what you want to hear to win the business. These guys should also move to the bottom of your preferred property manager list.
There are plenty of advantages to this process and getting a realistic rental appraisal is the most important. You can work out yields, finance options and whether the property will be negatively or positively geared. Speaking with local agents should also give you a better sense of the suburb, which agent you want to manage the property and rental projections over the next six to 12 months. Best of all, it will only cost you the price of a phone call and your time, which is a miniscule investment considering most landlords plan to hold a property for at least five years.
Note: Bees Nees’ New Business Manager Conor Blake wrote this article for the August Newsletter of Australian Property Investor Magazine.
We’d love to hear your thoughts in the comments below. Bees Nees City Realty is an inner-Brisbane specialist agency and we’d love to work for you on the management of your investment property. Please call us on 07 3214 6888 or email email@example.com