Are you running a rental property business or are you a hobby landlord? If renting your properties is more something to keep you occupied i.e. doing the maintenance but having enough income from renting to cover expenses whilst still owning the asset itself then charging top dollar is probably not a priority for you. However, if the renting of your assets is also a way to earn income over and above keeping the properties in the best condition then your mind set needs to be different.
Fair market rent
Even when a property manager deals with renting property they may still have the tenants’ interests more at heart than the landlord and charge less than they could get – as do some landlords themselves. Having market knowledge is a must and there is nothing wrong with charging top dollar if the property justifies it and having six monthly rent reviews is not a crime but a sensible business practice – it doesn’t mean the rent necessarily needs to be increased but it should be reviewed. House prices (and therefore rental charges) can change through a variety of circumstances and should be kept abreast of.
Having too large an area to cover can mean even a professional property manager may charge less than he/she could because of a lack of personal knowledge of a particular suburb and use a more blanket coverage value of properties in their area. Personal preferences can also colour a manager’s opinion of the value of a property. Another point which may affect the income return on a property is when the property manager charges a letting fee to the tenant which gives the agent extra income but is not so good for the landlord as these rentals tend to encourage shorter term tenants which is what the manager wants as the more tenants there are the more is earned from letting fees.
Although charging a lower rental than could be obtained may not sound like a big deal if even $20 a week more would be a reasonable rate that amount still equals $1040 a year. If you tend to refurbish your properties every five years this would give you another $5,200 over that time which would go a long way towards covering the cost of recarpeting or repainting. If you rent more than one unit imagine what a saving that would be and how much more the overall profit would be. $20 is really a minimum undercharge, imagine how much income you could be losing if this amount was doubled!
We do know of an instance where a property manager valued the rental worth of a property at around $70 below current market rents (the amount he quoted was even less than the property had been achieving two years earlier).
What is a rental property business?
As with any well run business you would expect each “department” to have their finger on the pulse of what is happening in their area and keep up with any developments. Whether it be the latest IT equipment or human resource rules and regulations a vibrant business needs to do the best they can with the funds available to them – as guided and advised by their Accountant. Sales and Marketing personnel should have incentives and targets to push their particular product which in turn will ensure the profitability of the whole company which is the bottom line for any business. You might be working alone but you still wear all these hats!
Rent reviews
Ensure that you know what the current market rental of the property is, including any trends in the area for a particular type of property – you never know, the property you own could now be at the top of the popularity poll when it wasn’t six month’s previously.
Property managers are there to get the best deal they can for the landlord so if the property can have a rent increase which can be justified then do it. By reviewing every six months the amount of an increase will probably only be a small amount but it adds up over a year whereas rent reviews every two or five years can seem an astronomical amount.
Barry Bridgman has been managing his own investment property portfolio for 25 years. During this time, there has never been any occurrence of rent defaults or property damage and Barry’s goal is to achieve the same for your property. Bridgman Property Management is based in Auckland Central, where Barry has lived for more than 18 years.
