Inconvenient truths in the current residential tenancy market.
by Richard Thurtle
No one likes to hear bad news, but when it's helping you avoid something far worse, it's a whole lot more palatable.
A couple of weeks back I heard a story of some tenants who had vacated their properties. They'd reached the end of their current lease, but the owner expected they'd renew their lease as they had many times before. They didn't. Instead, they moved a couple of streets away to a slightly different style of home for $100/week less than they'd been paying.
While there may have been no way the owner would have agreed to a rent reduction of that size, I reckon it's safe enough to say that a pre-emptive communication before the end of the lease with a reduction of less than half that amount may have stopped the search for alternate digs altogether.
To twist an old saying: the absence (of a rent reduction) can make the fond heart wander. In this environment, it certainly can.
The market has changed. It just got a whole lot tighter if you're an investor and spacious if you're a tenant.
For tenants, there's suddenly a range of options and potential savings on the table that weren't there a year back.
The problem is: if you've either missed the shift in the market or are belligerently trying to ignore or deny that it's changed at all, sooner or later you're going to get stung. Or, following a period of vacancy, be forced to do the very thing that would have given you a continuity of tenancy if you'd been proactive just months earlier.
Add to this the reality of added fiscal tightening and discipline for many household budgets and you realise that the current tenancy market presents a scenario that tenants haven't had for a little while now: opportunity.
Without a financial incentive to stay, many tenants will leave. Why wouldn't they, they're trying to make (or save) money as well and there is plenty of greener grass available.
The inconvenient truth for the investor, in case you've missed it already, is that now is a time to hold on to your tenants. And this will likely require you to proactively initiate a rent reduction.
Rental prices are a reflection of the marketplace. Just like selling prices reflect the market, so do rental prices. If the rental market drops, you shouldn't expect that you'll be able to sail on at the same weekly rental with no change.
While it's the chief of the inconvenient truths, it's not alone.
If you thought you could get away with a poorly maintained or poorly presented investment property, those times are gone for the moment as well. While it's a bad idea even in a heated market, people simply aren't that desperate right now. They'll overlook your property for another that's being properly maintained and presented.
A token property management service? That won't do either. There are too many good options available to settle for the ordinary or sub-par.
In short, all the things that make sense in any market make even more sense for an investor in a softer market. The things that you might temporarily get away with in a heated market will sting you quickly in the softer market.
Underpinning all this is the relationship you have with your property manager, their understanding of the tenancy market and, chiefly, they're strength in proactively communicating with owners and tenants.
Communication is always king in a property management relationship, but when it comes to a market such as this, it ramps up even more.
Your property manager should be on the front foot right now: initiating conversations with tenants as they approach the end of their current leases and resigning them at an agreed rent reduction. This simply reflects the current market and retains the tenant rather them forcing them to enjoy the current market conditions in a property that isn't yours.
If this isn't happening with your investment properties right now, it might be time to find yourself a proactive property manager who places a strong value on communication.
We believe there's one way to manage. That way doesn't change dramatically across market conditions, but a softer market certainly throws a spotlight on the inconvenient truths of each market.
I trust you can both handle the truth and are working with property managers that are on the front foot for you. If you're not, here we are!