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Tenant Selection & Management

​Investment volatility is not often something mentioned about direct property due to the supposedly linear movements of property. However, there is a major factor regularly overlooked relevant to direct property; tenant stability. Too often we see landlords pushing the envelope on rents by increasing rents by $10-$15 per week without tenant consultation or consideration of the potential loss of a quality tenant.

Rarely do investors appropriately compare the quick benefit of a short term rental increase against the potential deficit resulting from the loss of a tenant, particularly a good tenant. Sometimes this 'bull headed' mentality is derived from the guise of "maximising return on investment". However, for tenants, it's easier to get up from an uncomfortable seat than a comfortable one.

At JLL we encourage our clients to select property which will attract the right tenant. Amongst other things, the following forms part of a good tenant profile:

  • Strong demographic families (vested interest in maintaining their tenancy and less likely to move around);
  • Professional couples (often grounded by their career and select tenancies based on proximity from employment and desired lifestyle);
  • Empty Nesters (unlikely to move around, stable income, basic lifestyles).


These types of tenants will often prefer longer leases and require minimum maintenance along with taking good care of your investment and their "home".

Scenario: A landlord suggests increasing the rent (on average this increase may be $10 per week on say a $500 per week lease) due to the belief that they need to catch up to the average asking rent in the area. By doing so, here are some of the possible outcomes:

  • The tenant accepts increase and the landlord increases their gross income by $520 per year;
  • This causes the tenants to "shop around" because they also deserve better, increasing risk to the landlord;
  • Lose the tenant who feels that they added a lot of value to the property being good tenants, resulting in a likely 4-week vacancy producing a deficit of $2000 + costs.


The landlord may be better off maintaining their rental agreement, or even consider a reduction in rent in exchange for a longer lease term. In doing so, the landlord is reinforcing a mutually beneficial relationship between them and their tenant; securing their investment and minimizing vacancy risk.

This does not mean that we are suggesting increasing the rent is always unwise. It is simply important that the landlord understands their strategy to ensure the best overall result is achieved, aside from the potential short term cash injection. Rent reviews are undoubtedly important for a Landlord and should be undertaken regularly to ensure that the asking rent is in line with what's on offer in the market at the time. However, "pushing the envelope" and "setting new benchmarks" is potentially a dangerous game for any Landlord that's keen on investment stability.

 

JLL's Buyers Advocacy Division

1300 795 960  

buyersadvocacy@ap.jll.com 

jll.com.au/buyersadvocacy 

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