As counterintuitive as it sounds, decreasing rent could turn out to be a beneficial move for rental property investors. Find out how this strategy would work best in the property market.
While rent appraisal is part of the normal cycle of rental property, in special circumstances, decreasing rent prices is often a strategy used by landlords to avoid prolonged vacancy and retain their tenants, according to Managed’s Thom Richards and Nick Bouris.
“A rental decrease of $10 a week or something like that can save you three or four weeks of lost rent. You’d be crazy not to take the reduced amount of rent,” Mr Bouris said.
For instance, when a sudden influx of investors causes demand for rental properties to dwindle, bringing the price down to retain a tenant could be the smarter choice for the long-term growth of the property investment.
While the decrease may initially feel like a negative impact on the portfolio, getting and retaining a trustworthy tenant by means of decreasing rent prices is far better than losing money due to vacancy, even if only for a short period of time.
Still, Mr Bouris advised investors to be careful when implementing this strategy.
“Never do it until you test the market first,” the property professional highlighted.
Even if market cycles could force investors to adjust the prices of their rents, Mr Richards reminded them that maintaining a good relationship with tenants can ultimately help soften the blow of unpredictable changes.
Landlords are advised to discuss their plans with their tenants, and similarly, tenants must be willing to be honest and open about their intentions.
“If you know you’re three months out of the end of the term and they’re not happy… and they know that there are better options out there for them, a better deal, then you won’t be able to keep them,” Mr Richards said.
After all, retaining tenancy is not only about the price and the condition of the property. Just as important is the level of trust and loyalty established between the landlord and the tenant.
Through a good landlord-tenant relationship, the tenant’s happiness is ensured and the investment’s upward performance is secured.
According to Mr Richards: “If you’re proactive, you’re getting the best possible deductions, you’re getting the best possible rental return for the property, provided you do it an intelligent way and don’t overcapitalise.”
“If you’re on top of your property management, you’re always going to ensure that the property is performing at its peak in terms of your yields.”