Below market rent value will attract the best tenants and longer tenancies – not true even though some owners and managers will try to convince you otherwise. In fact the best tenants will have a completely different set of priorities.
Why won’t low rent attract the best tenants?
Successful businesses do not charge less than they can for their services or products expecting loyalty and repeat business from their clients, they expect to be able to charge a market figure for providing value for money.
Property management is no different. If you are looking for the best possible tenants they are the sort of people who will appreciate the quality of your product and be quite willing to pay market rental for it. A good quality tenant will have been inspecting a variety of properties and will know what the market rental is for the type of property they are interested in. What they will look for is a well maintained clean and tidy property with a good location which is within the price bracket they can comfortably afford. An undervalued property may, in fact, put off such tenants as they may wonder why it is under market rental value.
Best tenants requirements
The home they rent will be where family and friends will visit them therefore they will want it to be a pleasant place. The more attractive the property the more at home they will be. When decorating the property use the best quality fixtures and fittings in keeping with the house. Make sure the gardens and house are well maintained and the best type of tenants will do their best to keep it that way as for them it will be their permanent residence for as long as they need it to be. Paying market rent for such a property would be considered a fair deal by them.
Length of tenancy
Going by our own records these types of tenants will be in for the long haul from two years up to and over five years. This will, of course, give you a solid income without the house being vacant (ergo no income) nor will you have the expense of advertising the property. As mentioned above this type of client is also much more likely to maintain the property in good condition.
In other words long term tenants paying full market rent is the ultimate in property management.
Lower market rental = The best tenants for a longer term
Definitely not. By asking for lower than market value rents you will be more likely to attract the sort of tenant who would not normally look at properties in that price range. Even though they may be able to meet the rental in their current circumstances it could be their maximum amount and not take into account any emergency expenses or change in circumstances. Then of course when the next rent review is due and they are faced with an increase it may be beyond their budget and both you and the tenant will have the inevitable consequences of reletting. Keeping the rental down to help the tenant is not a good solution.
Who sets market rental values
Actually it is more the tenants than landlords who set the standards – supply and demand sets the price.
The DBH (Department of Building and Housing) issue a monthly update which shows market rent statistics which covers the various segments of rental housing from basic to luxury for all locations in New Zealand. This information is based on the previous six months bonds received by DBH.
As detailed above the goals you wish to achieve with your property investment should have priority over your tenant’s lifestyle.
Your approach should be to charge a fair market rental for my asset to attract the best type of tenant and thus achieve my optimum long term return from my investment.
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.
