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The secret to keeping Sydney rental properties profitable.

Wednesday, July 25, 2012

As any residential property manager will tell you, it can be tempting to increase the value of Sydney rental property, especially when keeping up with trends that tell you that prices are increasing. Overpricing Sydney rental property is nothing new. A residential property manager may choose to overprice the rent thinking that if they wait it out just a bit longer the right tenant will come along and with them a bigger payout.

Often to the detriment to the residential property manager, what is often overlooked is the fact that overpricing of rental properties, Sydney especially, may be costing you more. 

Tenants are more aware of price points for Sydney rental properties.

Part of this has to do with the current state of real estate in Sydney. Prices are higher than ever and so tenants are more clued in as to what they’re spending their money on and whether it is worth the investment they are about to make. In other words, they won’t pay expensive rent if the rental property isn’t worth it.

The larger segment of this has to do with the change in power the internet has given to the tenant over rental price control. Online property websites are efficient tools for making overpricing of rental properties in Sydney more transparent.  At a click of a button, prospective tenants can find 10 or more properties available for rent in specified areas that fall within a certain price bracket. In this way they can quickly scan through the list that pops up and determine for themselves whether the rental properties in Sydney are overpriced. This first-look comparison can mean the difference between finding a tenant or falling off the enquiry searches.

Consider the effect this can have on all incoming rent in future.

The 95% after 5 days rule which stipulates that after 5 days of rental property vacancy the residential property manager should decrease the rent by 95% is a prime example of this.

It is universally agreed in property manager circles that; going on little rent is better than going on no rent at all. If you have a vacant property and this property stays vacant for a number of weeks what you have is a substantial loss in potential rental income that could have been gained over the weeks that you did not collect rent as a residential property manager. Having a 5% loss for a few weeks is better than having a 100% loss of income from rental properties in Sydney.

Think about the extension of this vacancy to 5 weeks out of the whole year. If the residential property manager is overpricing the rental property at $450 per week when it’s really worth $400 per week, and, the property stays vacant for the full period, the property owner faces a loss of $2000 over that period as opposed to the $50 per week that could have been gained. Think about it, it would take another 40 week to recoup that loss with the extra $50.

Is that meagre add-on to the value of the rental property really worth a 10% loss of annual rental income?

The aim for any property manager is for the property to be rented as soon as possible at a good price or to get it back on the market after vacancy. After all, in most cases, market value of property can be re-established after six months or so.