5 tips to manage a rent reduction

Wednesday, 6th Jul 2016

Ebbs and flows are a natural part of any property market, but how do you manage a rent reduction when forced to find a new tenant in a downturn?

When the market cools and you need to find a new tenant, more often than not the only way to lease your investment property will be to reduce the rent.

While no investor wants to lower their rent, it’s best to be realistic otherwise you may face much larger consequences.

Here are 5 tips to help manage a rent reduction.

  1. Take a long-term view. While rental income is needed to service your debts, the main goal of property investment, for most, is capital gains. Typically, a drop in rent won’t make a big difference to your wealth goals over the long term.
  2. Don’t chase the market down. If you price your property too high at the start, the market may drop further and then you’ll need to lower your price even more. It’s best to be realistic up front when you are leasing.
  3. Think about the bigger picture. If you refuse to adjust your rent to the market conditions, you’re more likely to lose more money through a longer vacancy period. By adjusting your rent appropriately, you should lease the property much faster.
  4. Put a rent reduction into context. If interest rates have dropped in line with property market conditions, you’re likely to be paying less on your loan, so a lower rent may not hurt your hip pocket as much as it may seem.
  5. Utilise your cash buffers. Investors should have adequate cash buffers that they can access to service their loans when their properties are vacant. Ideally, investors should have enough funds to service their debts for at least 2 months.

If you’re a relatively new property investor and only ever seen your rents rise, then accepting a rent cut can be a bitter pill to swallow.

However, seasoned investors will know that ebbs and flows are a normal part of property and it’s best to adjust rental prices accordingly and wait for the next upswing in the market.