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Balancing act: how good tenants can keep costs down

Tuesday, 1st Jun 2021

Perth’s climbing rents have been a hot topic in recent months. Since the end of the emergency rental moratorium in late March, REIWA has reported that Perth’s median rental price has increased to $420 a month at the end of May.

As a landlord, adjusting your rents can be a balancing act between meeting market conditions and retaining good tenants who value and care for your property.

If you currently have a long-term tenant in your property, the benefits of keeping them can often outweigh any increased rental income that you may get from looking for a new tenant and raising the rent.

Here are three reasons why it can pay to keep good tenants.

  1. They want to stay and will care for your property

Good tenants can be hard to find and if you’ve managed to secure a happy tenant, it can pay to keep them in your property. Good tenants will care for your home as if it were their own, ensuring no damage is done and keeping the property neat and well maintained, which can help minimize the cost of any ongoing maintenance and repairs. If you have had the same tenant for an extended period, then it is likely that they will want to stay well into the future, and this can help minimize any vacancy periods moving forward.

  1. No vacancy periods

The current rental market in WA is incredibly tight and the vacancy rate has hovered below 1 per cent for a long time now. Because of this, you may think that getting a new tenant will happen overnight. However, this isn’t always the case, and often – even in such a tight rental market – there will be a period where no one is in your rental property and you will be losing money.

It is also important to consider what could happen down the track. While the rental market is tight now, it will likely correct itself in in the medium-term as more rental properties come on stream to help satisfy demand. If you’ve opted to re-lease the property at a higher price, this new tenant may choose to move on once their lease period is up. This could mean you will be facing a longer vacancy period in the not-too-distant future. It is important for landlords to consider both the immediate and also long-term impact that bringing in a new tenant may have.

  1. No costs associated with re-leasing

In addition to considering the potential for lost income while your property sits vacant, you also need to consider the costs associated with re-leasing your property.

If your property is managed by a professional property manager, you will need to consider their letting fees, which are often equivalent to one to three weeks of rent. You will also need to cover the marketing costs required to help promote your property (including photography and online advertising). All of these processes will cost you money directly from your pocket, and while you will be benefitting from a higher rental income, it is important to understand how much these initial costs can eat into your extra returns.

While rents are increasing, our property managers are also beginning to witness a rise in tenant expectations. Because prospective tenants are being asked to pay higher prices, they are beginning to expect properties with more features, as well as ones that have been better maintained. If you do decide to re-lease your property, then it is important to understand what tenants are demanding. If your property doesn’t include features like air-conditioning and a dishwasher, or if there are maintenance issues that may need addressing, then you may not achieve the rental price you are looking for, or you might need to dip into your own pocket to have these features added or fixed.

 

The best of both worlds – raising the rent and keeping the tenants?

As we’ve outlined above, sometimes it can make sense to keep the current tenants that you have, but that doesn’t mean that you need to miss out on increased rent altogether.

A good property manager will be able to work with your tenants and can come up with solutions that suit both parties, and one common practice is to incorporate rental increase clauses into lease agreements.

Instead of dramatically increasing the asking rental price upfront, rental increase clauses allow for rental increases after six months, something that can benefit both the landlord and the tenant while keeping your property in line with changing market conditions. Landlords will benefit from the increased rental returns that align with movements in the broader market, and tenants will be able to remain in a property that they are happy with while having time to prepare for the increase in rental payments.

 

Despite the misconception, many landlords value the tenants they have and are happy to make compromises to keep both parties happy and satisfied. If you’re questioning how to adjust your rental strategy for current market conditions, or you’d like to discuss recent trends in the rental market, contact us via this form and one of our property experts will be in touch.