Landlord – Making Money Vs Greed

Landlording making moneyMaking money from being a landlord is all about earning income constantly while minimising your expenses.

Let us talk about earning income first.

A property vacant for more than 2% per annum (approximately one week) could be because your asking rent prices the property out of the market. Say your asking weekly rent is $500 – $50 more than what the previous tenant was paying and let us say the market for your type of property is a weekly rent of $480. By marketing it at this aggressive level, you could suffer a vacancy period of 16 weeks ($480/($480-$450)) until you finally rent it out. The lost income can never be recuperated. It is not a smart move if you ask me.

You should listen to your property manager, after all they are “in” the market every day of the week. A professional manager would not exaggerate the potential rental income for the sake of pleasing you. They miss out on income for every week of vacancy. Therefore, it is in their interest as much as yours to rent the property out as quickly as possible. If still in doubt, spend couple of hours one week and inspect comparable rental properties within 500 meter or so radius from your property. In other words, do your own research. By the way, do not rely on the internet ads for your research. You need to compare apples to apples and this can only be achieved through physical inspections of comparable properties.

The secondary reason for longer vacancy period is the presentation of the property, in other words poor condition. Ask yourself this question: Would I want to live in this property at the asking rent? The property will appeal to prospective tenants commensurate with its condition. It is as simple as that. So regular low key maintenance should not be considered an expense to avoid (though it is a tax deductible expense) but rather an investment that will enhance your returns.

Minimising your operating expenses should be based on the maintenance not having to be expensive as opposed to being regular. It is no different from servicing your motor vehicle at specified mileage intervals to avoid breaking down during an important trip. In the case of your property, use the one week vacancy between tenancies to steam clean the carpet, steam brush the tiles, clean the walls with water or other designated material though it is recommended to consider re-painting the walls every 4-5 years, depending on the environment in the property. Revitalising the kitchen and bathroom every 10 years or so is something else you should consider to make your property keep up with the market.

Basic stuff really.

This of course is in addition to “required” maintenance. For example, ignoring one screw in the door hinge coming loose could cause the hinge to break off the door frame damaging the door, the frame and possibly the wall and all of a sudden you are up for some expensive repair work. Not to mention your liability to your tenant if the door fell on them causing injury. Ouch! That will hurt the tenant and your pocket!

Here are some pointers that contribute to your making money constantly:

  • Asking for exaggerated rent rather than a quality tenant.
  • A quality tenant contributes immensely to minimising your expenses.
  • A market related asking rent widens the net of quality tenants.
  • A quality long term tenant is better than a high paying tenant every 6 months (vacancy, advertising and leasing expense, make-good repairs cost).

Fred Haggar is founder of Property Search 4U, a Sydney based real estate buyers agency that has been recognised with the Australian Achiever Award – real estate category for the last 6 years. It is an active member of the Real Estate Buyers Agents Association of Australia, Real Estate Institute of NSW, The International Real Estate Federation and Business Enterprise Centre.
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