Be a wise investor

Do you ever hear of Investors so hung up on achieving a higher interest rate for their money on a bank deposit that they would accept 4% payable only on week days (260 per year) rather than 3.5% payable 7 days a week (365 days a year). That would be silly wouldn't it? The return on $200,000 would look like this: $4,936 against $6,923. It's a no brainer isn't it?

Why then do some Investors with a $200,000 investment property choose to have it sit empty while trying to achieve a rent above the current market? I have witnessed landlords accept 7 weeks vacancy while trying to achieve a rent above market rates. Let us say that your investment property has a current market value of $200,000 and fair market rent is $200 per week. Are you better off seeking $190p/w; $200p/w or $210p/w?

In analysis your return might look like this.:

$200 pw X 50 weeks = $10,000 PA.

$190 pw X 52 weeks = $9,880 PA.

$210 pw X 35 weeks = $7,350 PA.

It is easy to make the mistake of asking more than current market rates, especially if your property manager doesn’t follow the market.

Market fluctuations are something that Monopoly didn't teach us. The rents remained the same for decades and were independent of the number of players (demand).

I accept that picking the correct asking price can be confusing, because there are many factors at play. For example, did you know that in our market place you may well achieve an extra $10pw ($520pa) if your property is being let in late January/early February. How does this happen? Supply and demand. That's right, it is that simple. Demand created by work transfers, by owners moving back into their properties, by those leaving education and moving into employment etc. This all contributes to demand being highest at this time of the year.

I have often heard landlords say, "But I've always achieved $210pw”. But consider these factors - What month was it available? Have you kept up with maintenance and improvements? What is the unemployment rate now compared to then? Are there more properties available in the rental pool right now?

So how do you get it right? Listen to your Property Manager. After all they are active in the market every day. They get to measure the market across hundreds of properties and they know what sits vacant and what gets snapped up.

Also factor in that the tenants with the very best references get to take their pick of properties. The tenants with poor references have to take what's left. That is often the properties that are over priced. This can lead to a property not being loved as much by tenants; more frequent letting fees; rental arrears; and a whole host of issues. As landlords we all want nice tenants who love their home and want to make it theirs for a very long time.

Of course it's not always the landlords fault. It is a known fact in the industry that some landlords will be swayed to select a Property Manager that promises to achieve the highest weekly rent. In the industry this is known as "the biggest liar gets the job". It is also a known fact that very few of us recognise a lie when it's what we want to hear. How do you protect yourself from that? Get it in writing that if the property is still not let after being available for three weeks at the AGENTS QUOTED RENT that the agent will pay the rent. At Peter Lees Real Estate we offer that guarantee.

Property investment is still a great way to achieve financial security. There are however right ways and wrong ways to go about it. If you would like to discuss your personal journey with a fellow investor feel free to contact me at plees@peterlees.com.au.

As I write this, I note with pride that out of the 630 properties that we manage on behalf of our landlords only 6 are empty. Right through Christmas/New Year period my amazing team have been working so hard on behalf of our owners to help maximize returns.

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