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Eight tips on managing the pain of a rent reduction

Tuesday, 1st Jul 2014

doing sums

The Perth rental market isn’t particularly strong at the moment and, for landlords whose property has recently become vacant, securing a tenant may involve accepting a rent reduction.

This may seem like a backward step, particularly if you have experienced rents moving in only one direction. But don’t despair. Here are eight tips to help manage the situation.

  1. Remember to consider the drop in context of all the gains you’ve had in recent years.
  1. Focus on the bigger picture. Is the drop going to make much difference over the long term? Rental income is certainly an important part of property investment but the ultimate prize is capital growth.
  1. Vacancies can be expensive. You are generally better off reducing the rent to attract a tenant quickly rather than holding out for more money. Consider how a $10 per week drop compares to an extra few weeks of vacancy.
  1. When a property is first listed on an online real estate portal, it tends to go out as an email alert to a database of potential tenants. You don’t want to miss this initial burst of activity by pricing your property too high.
  1. When setting a new price for your rental property, consider the price brackets that potential tenants will search within. Your property manager should be able to help with this.
  1. You don’t want to play ‘catch the market’. If you price your property too high at the beginning of a campaign and the market drops, you’ll need to make a disproportionally large drop to catch the market.
  1. The rental market can be quite seasonal, with some seasons better than others, so try to time your leases accordingly, which may allow you to later increase the rent.
  1. If you’ve followed the real estate market over many years you’ll know that a turnaround is always around the corner. All you have to do is be patient.