Top tenants better than higher rents: How rent crisis could backfire for landlords

Landlords are commanding incredible rents and are in a strong position during the current supply crisis, but experts warn the situation could come back to bite some investors.

Securing a rental is not easy for tenants in the current climate.

Across the country right now there is no shortage of tenants. While it’s true landlords are in the driver’s seat, this won’t always be the case for the life of an investment property as the pandemic proved in recent years.

Renters can be transient. There will be downtimes when your investment isn’t earning an income and getting it tenanted again will incur marketing and additional property management fees. Such holding costs are not ideal as rising interest rates are making mortgages more expensive to service. Then there is the possibility a renter won’t always treat your property with respect. So, when it comes to finding a tenant, it makes great financial sense to aim for quality over quantity.

GREAT TENANTS PAY OFF

Census 2021 data revealed around 31 per cent of the population rents and as immigration returns after borders closures, that percentage is expected to increase.

The proportion of families renting is set to increase.

As a landlord, the numbers might be in your favour but attracting great tenants – and treating them as such – is a savvy investment said Emily Sim, Ray White Group’s CEO of property management.

“You’ll want to know they can afford their rent and look after the home. We don’t want a landlord to be paying for repairs caused by reckless damage or simply because the home hasn’t been maintained,” she said.

Ms Sim added landlords could test a tenant’s ability to comfortably pay by determining the asking rent as a percentage of earnings, much like mortgage stress is calculated. Roy Morgan defines mortgage stress as spending more than 25 per cent to 45 per cent of household income on housing.

Demand for rentals is greater than supply. Picture: Adrian William

“A previous rental reference is vital, but it’s not necessarily about whether the tenant has had their bond refunded, because they might not have vacated the property yet. It’s more about how the property was presented at routine inspections, and whether it’s been looked after. “There are clean properties, and then there are properties where tenants put in that extra effort. There’s a big difference between that and them simply paying for an end of lease clean-up,” Ms Sim explained.

MEETING IN THE MIDDLE

Flexibility can help encourage tenants to stay for the long-term. “Properties are usually advertised for a certain amount of rent with an availability date and usually a lease term; typically six to 12 months. Right now it might be appealing for a tenant to stay in a property for two years, for example. For the landlord it means tenants moving less often, instead of potentially every 12 months, which would limit the amount of wear and tear and future vacancies,” Ms Sim said.

Landlords who pushed rents too high may struggle to attract long-term tenants.

And building a reputation as and understanding landlord with a quality property will create great karma, said tenant’s advocate Marcelle Wever, director of Sydney Rental Search.

“It’s true that all rentals are in hot demand at the moment. Perhaps a lot of tenants will take what they can get, even if it’s not in great condition, but they won’t necessarily stay. When their lease is up they’ll leave. You’ve got to respect your tenants,” she said.

ALLOWING PETS

“Definitely it’s worth allowing pets in your property if possible. The laws are changing in many locations to say landlords will have to agree to it anyway. You might as well market the home that way,” Ms Sim said.

Allowing pets is a good long-term investment for landlords, rental experts said.

According to the RSPCA, 61 per cent of households have a pet and Ms Wever said half her clients were seeking a welcoming place for their animals. “Real estate agents often don’t check with landlords about pets before marketing a property. I’ve been doing this for 17 years and it’s so frustrating to find out at the last minute a property isn’t pet friendly ... It’s a waste of time for everyone if the tenant’s application is rejected,” she said.

“Landlords should say they want it to be known they’re open to having a small dog or cat. Tenants will be so thankful and probably won’t move out because they know what a nightmare it is to get a pet approved.”

HOW TO BUY WELL

Buying a property with strong rental return and long term price growth is often top priority for investors. However, looking for low vacancy should also be front of mind, which means listening to what tenants really want.

“Consider the infrastructure of the area you’re investing; what amenities are nearby? If you buy around hospitals and universities then you’ve usually got double the amount of people looking,” Ms Sim said.

For investors on a limited budget, Ms Wever agreed with the popular investor rule.

“If you have a one-bedroom or a studio budget, then stick to hospitals and universities because there are always students and nurses, as well as other staff, wanting accommodation nearby … these properties are always in high demand.”

The hottest rental properties right now, said Ms Wever, are quality family-friendly homes. “It’s the three-bedroom properties that tend to have longer term tenants especially around popular school catchments.”

Originally published as Top tenants better than higher rents: How rent crisis could backfire for landlords