Think long-term when renting out

Most investors agree that successful ownership of residential rental property is all about maximising long-term net income.

“Novice investors and property managers often simplify what is a complex interplay of forces and focus on the amount of rent being achieved right now,” Bellarine Property managing director Christian Bartley said.

“Because tenant harmony is a crucial part of the income equation, most experts agree that setting rent at 95 per cent of market value usually achieves a higher income long term than holding out for 100 percent or more.

“Tenants paying top dollar are more likely to be finicky about the standard of the property, and make more demands for repairs and improvements.

“Furthermore, they tend to start looking around to see what else is available for the money and move on if they find better value.”

He said that the more often a property was vacant, especially if the advertised rent was high, the more chance there was of vacancy and loss of income.

“Even a few weeks vacancy per year can significantly reduce the investor’s return, thereby requiring an even higher rent to make up for it and setting a negative pattern in motion.”

According to Mr Bartley, a related factor often poorly handled by novice investors was the market rent review.

“Property investment managers carry out market rent reviews on a regular basis and the rents are raised according to supply and demand. Novice investors often think the best approach to raising the rent is to make frequent small increases, but these are seen by tenants as penny pinching and lead to disharmony, increased demands for repairs and higher vacancy over the long term.

“Experts say that in most cases, rent increases should occur when market indicators show that a 5 per cent increase is warranted.”

Mr Bartley said experienced property managers reported that the most stable income and long-term optimum return is gained by investors who followed the advice of the experts they have selected to manage their investments.

For more information, phone Christian Bartley on 0410 695 325, email [email protected] or head to bellarineproperty.com.au.