An article by Karen Herbert

Need to propose a rent reduction to a reluctant Landlord?

Karen Herbert provides Property Managers with some insightful guidance.

Consider this question: what’s the most expensive cost borne by a Landlord?

Most Property Managers will suggest it’s the management fee, or wear and tear on the property. But the most expensive cost is the monthly mortgage repayments. If you’ve ever had to pay a mortgage, then you’ll understand how stressful this commitment can be, especially if your cash flow is limited.

While the mortgage may be the only amount that must be paid on a regular basis, there are other bills to consider: the quarterly rates, body corporate if applicable, and insurances just to mention a few.  Furthermore, things can become financially tight for investors very quickly. Often when investors purchase an investment property, they can borrow up to 100% of the loan, leaving them in a position where they usually need to 'top up' the mortgage repayments and put money aside for the above expenses – not to mention any other incidentals, like rent reductions, arrears or vacancies.

It's no wonder a Landlord might resist suggestions to reduce their rent.  Of course, they’ll be a particularly unhappy Landlord if their property becomes vacant. Indeed, it’s your job as a Property Manager to avoid this scenario whenever possible.

Another major role of a Property Manager is to maximise returns for the Landlord.  There are numerous ways this can be achieved. However, you often walk a fine line when attempting to rent a property and having it sit vacant. This is where strong management and communication skills come into play – and it usually starts at the beginning, with correctly appraising the properties rental capacity given the current market.  A Comparative Market Analysis is mandatory in helping the Landlord understand where their investment sits in the current market compared with similar properties. This analysis can be achieved through websites such as RP Data, Price Finder, Realestate.com.au and Domain.com.au. In addition, reports can be easily prepared in a professional presentation and emailed to a Landlord prior to agreeing to a rental amount for their property.   Applications such as Inspectrealestate.com.au also provide opportunities for tenants and Leasing consultants to give feedback about the property to the Landlord/Property Manager, enabling any necessary price adjustments to be considered. 

Constant communication is the key in any leasing situation. For a new property being leased, my rule of thumb is that a daily phone call and follow-up email should made until the property is rented.  For a re-let, I recommend providing feedback and suggestions with a phone call after every inspection and, as always, following up with an email.

If the property is not renting for its current price and needs a price reduction, even after you have successfully provided a CMA, then this proposed adjustment will need justification.

Aside from providing feedback, what other factors could you use to obtain the Landlords agreement to a rent reduction?

Some of the reasons causing the property not to rent could include:

• Current economic climate
• Newer property available in close proximity
• A high rise being built next door, etc

So when you have to ask the Landlord to consider a rent reduction, you better have some justification as to why.

In order to convince your client to drop their rent, you’ll also need to ‘show them the numbers’.   Quite often, as little as two weeks vacancy could amount to over $20 less rent per week in a 12 month lease.  With a few quick calculations drawn up on a table, you can indicate to the Landlord the advantage in reducing the rent in order to get a return coming in, while suggesting a possible rent rise on the next lease renewal.

In any event, we must remember that a Landlord’s first concern usually revolves around generating enough income to pay the mortgage.  It’s your job to understand this motivation and provide solutions as quickly and effectively as possible.

Don't forget, the Agency doesn’t get paid when a property is vacant, so it’s in everyone's interest to minimise vacancies wherever possible, while continuing to bring valued rental returns for the Landlord.

Happy Leasing!

Karen Herbert

Director, Property Management Rescue (a BWT Associate)

karen@pmrescue.com.au