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Setting the right rent – how high-grade data networks assist landlords

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Landlords can easily make mistakes when setting rents for tenants, leading to costly errors.

Go to the rental market with an asking rent that’s above the going rate for comparable properties and you risk alienating prospective tenants. Or, worse, leaving your investment property vacant for a protracted length of time.

Then there’s the issue of managing rent increases. Get this wrong and your investment property could end up returning $100 less per week than a comparable property in the same area.

The role of the property manager has evolved dramatically over the past 10 years and letting professionals are increasingly being used by landlords. One of the key reasons is the expertise managers bring to setting rents and managing tenant expectations.

But some property managers deliver a lot more.

Nelson Alexander, which manages more than 14,000 rental properties, is able to harness its large network to identify new pockets of demand and rental pricing trends as they emerge in real time.

The head of Nelson Alexander’s inner-city property management division, Grant Gifford, says the company constantly monitors the full market for rentals and pricing trends.

“Because of the size of the Nelson Alexander organisation, it is actually our data – not just general data – which we provide to landlords to help them make on-trend and highly accurate decisions about setting rents,” he says

“If you set the rent too high, tenants will move and owners will be disadvantaged by the property becoming vacant. There will be extra costs with re-leasing a property, so landlords can end up being several thousand dollars out of pocket if they make errors.”

He says by using a property manager landlords keep their tenants at arm’s length and can more logically assess rents.

Rents in Victoria have been edging up since early last year, and many areas of Melbourne have seen a reduction in vacancy rates.

Mr Gifford says as a result tenants are staying put for longer.

The trend to longer term rentals means that landlords need to be more vigilant than ever in conducting regular rent reviews.

Nelson Alexander inspects tenanted properties under its management every six months, providing landlords with photographs and written documentation about the current condition of the property. The company will also make suggestions about potential improvements or maintenance matters that need to be addressed which could lead to an improved return.

Rent reviews canvass the issue of whether the landlord wants to offer a new lease and under what terms well before the current lease expires.

There is a lot of research involved in setting rents. You need to consider what features your property has in comparison to other properties and the rents that similar properties have leased for in the past seven to 60 days.

Other factors in the mix include the length of time your property has been vacant, and what vacancy rates other properties in the suburb and in surrounding suburbs are currently experiencing.

Mr Gifford says it is critical to look at both the comparable properties that have recently leased in the area and at what properties are currently on the market and up for lease.

“For example, if there are 20 two-bedroom terrace houses in Fitzroy available for rent then we have to be a little more realistic about the rent,” he says. “But if there were four or five of these houses available, a landlord could be more optimistic about the return.”

It’s crucial to factor in seasonality trends, too.

Winter is a quieter period for residential rentals. By contrast January, February and March is the peak season for new lettings. That’s because university students, families and young professionals all hunt for accommodation at this time.

This has clear implications for rental income. For example, if a Nelson Alexander property manager inspects and values a property in September knowing that it won’t be available until January or February, the manager will typically add a 3 to 5 per cent margin to the rent in order to match up with the higher consumer demand in summer.

And this works the other way, as well. A student property that becomes available in winter is likely to experience a reduced level of demand. It may not achieve the same rent compared to the situation were it to become vacant in January or February.

Tailoring your rental property to what renters want will attract quality tenants and minimise rental vacancy rates.

As a full service real estate agency, Nelson Alexander also assists property investors in choosing and purchasing rental properties.

For a great number of investors, achieving the best long term rental returns and capital gains from a property means buying blue chip, median-priced properties in inner urban locations.

It’s a successful strategy based on demographic data which shows that the majority of working professionals want to live in inner suburbs that are close to work. They’re also looking for lifestyle facilities and blue chip suburbs tend to offer a good balance of shops, cafes, restaurants and parks.

Nelson Alexander managers conduct regular open for inspections of properties coming onto the market. In addition, they operate extensive databases on prospective tenants who are looking for a home or to relocate to a different area.

All of which makes staying ahead of the game a little easier for landlords.

For further information about any issue concerning property management or real estate sales, please contact your nearest Nelson Alexander office.

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