How complacency could cost you $20,000 in profits
A huge number of investors don't increase their rent because they want to hold onto their tenants - but many don't realise just how much this inaction could be costing them.
Blogger: Helen Collier-Kogtevs, Real Wealth Australia
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I often meet property investors who self-manage their own investment properties. There’s nothing wrong with this at face value – although in my view, good property managers are worth their weight in gold, but that’s another story!
However, it is amazing to me that I meet so many investors who literally give their money away, by not increasing the rent on their properties on a regular basis.
These same people often struggle from week to week to sustain their (often negatively geared) investment property, yet they give their money away to their tenants by providing them with under-priced accommodation.
Investors will tell me, “They’re good tenants and I didn’t put the rent up, because I don’t want to lose them.”
But they’re not just under-pricing the rent for a few months, or a year – I’m talking about years and years going by, with the property rental price staying exactly the same.
Unfortunately for the landlord, property costs such as council and water rates, insurance and mortgage interest continue to rise. This means that by keeping a lid on rents, the investor is taking the financial hit every year, which just doesn’t make good business sense.
I once met a South Australian property investor who rented his unit for $160 per week and his tenant had paid that rate for not one year, or two years, or even three years – but for four consecutive years, without any rental increases.
His argument for giving the tenant a low rent was that she was a single parent who took good care the property. My response was, property investing is a business and you need to treat it as such.
At the time, the market value of rent in the area for his property was $280 per week, a difference of $120 per week. Over 12 months, it was a loss of $6,240 per year. But a loss of $120 per week spread over the previous four years meant he had missed out on a whopping $24,960 in income… simply because his tenant was nice. What could you do with an extra $25,000?!
Until next time, happy investing.
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