ignorant investors or crap agents?

Over the last 18 months I've looked at LOADS of properties.

Out of all the properties (that had tenants) NONE were being rented at market rent. Now I know rents have gone crazy in the last 12 months but that is ridiculous.

It makes me wonder whether the vendor was selling because they were sick of the negative cashflow and thought they'd get out now that prices were up?

Example-
-2 bed Unit in Harris Park. Sold at auction for $230K Rent was $170p/w (long term tenant). The owner was there. I was nearly tempted to ask him.

One unit I looked at had a 2008 lease which had gone up $10 in 18 months. It was at least $50 a week under market.

3 bed villa- value $280K Rent is $230p/w. Not for sale- someone I met asked what the rent should be. They asked the agent what people were getting and they said $230-260p/w. I know someone who has one in the block renting for $340p/w. Same same.

A few agents asked me if I bought it would I leave the rent with them. I said no, of course not as you don't know the rental values. One said ""but you can put it at whatever rent you want". Yeah thanks. I want to be doing your job for you. No thanks.

Has anyone else found this?
 
Yields around harris park should be 6%+.

Sounds like lazy PMs to me. I also think many investors fear a vacancy period even though in the long term it may be in their best interest.
 
It happens all the time with long term tenants. Sometimes it's better to be a little under market with a good tenant. Re-letting costs money and has the inherent risk of a potentially bad tenant.
 
It happens all the time with long term tenants. Sometimes it's better to be a little under market with a good tenant. Re-letting costs money and has the inherent risk of a potentially bad tenant.

OK a little yes but I'm not talking a little.

I spoke to the couple with the 3 bed townhouse tonight. $100 under market. I asked them if they have done anything about the rent. She said "we put it up last October so we'll wait until October".:eek::eek: Hubby tried talking more but she was NOT interested. Oh well, their choice. Lucky it's their only one.
 
We looked at a unit on the weekend. Currently rented at $160, we have another unit nearby renting at $230. The vendor hasn't put the rent up because he is a good tenant.

What is a good tenant worth? $3,640 pa.

Based on the current return would you as an investor offer 70% of the current market value?

Conclusion: A good tenant costs an average landlord $$$ per annum, and reduces the CG when selling. Therefore the good the landlord losses twofold.

The new landlord buys at a reduced cost and demands vacant possession.

The good tenant only realises how good they have it when they are suddenly hit with the reality of finding another property to rent.

Both the good LL & the good tenant lose out.

On the plus side the good tenant would have a reasonable deposit to buy their own property if they have been putting the difference aside, but hey we all know this is unlikely.

Good LL's keep their properties well maintained, good tenants do the same and pay market rent on time. That is the basis of the relationship.

Regards

Andrew
 
Ignorant investors or crap Agents? A bit of both, I think.

I have looked at a few places lately. A couple of the Agents have told me the sob stories of their long term tenants and how good they are. One even told me that you don't want to increase the rent ($50pw under) because the tenant is so nice, and "it's all about capital growth, isn't it?"

Well, HELLO........I'm not a charity. If they want discount rent, they can go to Centrelink. This is my livelihood and I am not going to subsidise someone else's lifestyle. I've heard the lot. One has been living there for around 20yrs, another is deaf, another has some other problem. Most, from what I have seen could easily live in a one bedder instead of a two bedder, so I think it's time they did that.

The funny thing is, that in each case, the agent has begged me, not only to keep the tenant, but to use their services as PM. As if???? A good PM will recommend that the rent be kept at market levels, none of this charity stuff.

We have recently bought a unit. The old tenant was paying $180pw, they were removed and the new ones went in at market rates of $230pw. I have no doubt the vendor would have received a higher purchase price if it was tenanted at the correct rent although I doubt we would have purchased it at the market rate.
 
Skater

i could have written exactly what you wrote, bought a place 3.5 months ago, asked agent why they were selling, answer " Owner want to get out of property investing". Got the property at a dicounted price. Then the agency said they were also managing the rent. On the documents it showed the tenant had been in there for 7 years and rent had been put up $10 since late 2006 and they were a "great" tennant.

Agency said they were managing the rental aswell, I said I wanted it to immediatly go up $70, they came back that day and said they would probably only accept $10. i changed it to another agency and in end put it up $60 and it is with the same tenent.

My conclusion and I am not wanting to put dispersions on the industry but some PM's are lazy and very bad at negotiating, I accept it can be a tough industry with large turnover and they hire a lot of rookies. On the flipside to many investors go into it with emotion and not treating it like a business

Jezza
 
Skater

i could have written exactly what you wrote, bought a place 3.5 months ago, asked agent why they were selling, answer " Owner want to get out of property investing". Got the property at a dicounted price.

Well that's the thing. The investors with the rents so far behind market value tend to only have one IP. They often don't want to put the rent up because they have a good tenant, helped by a lazy PM who has no additional workload if the rent cruises along for years. They think having an IP is all about making the tenant comfortable and pandering to their every need. Then after they have had enough of the negative cashflow (it will always be negative if the rents don't go up) they decide to sell. Of course, they want a good price, because they bought expecting to get a nice slice of CG. They don't realise that not only have they been bleeding money for years on end that there is a good likelihood they will also get a less than stellar purchase price too, just because they want to be a bleeding heart and "do the right thing".
 
It comes down to risk aversion. They consider it better to lose a little money than to possibly lose a lot (fear of bad tenants). Better to rent under-market than to risk having it empty.

People who are highly risk averse shouldn't invest in property (or shares). They should put their money in term deposits.

You only get decent returns based on there being some risk (or hassle) to the investment.

There are also people who own property who are incredibly passive. Often inherited, so since it was free they don't feel the need to squeeze every last penny out of it.
 
Interesting discussion. In Canberra, we have an issue whereby we aren't supposed to increase the rent by a percentage of more than 1.1xCPI (I think it is).
 
We were the ignorant land lords assuming our property manager would tell us when to put rent up (on the unit we bought to live in before I started working for the church and now rent out). At least we were until very recently. When they never seemed to suggest a rent increase, we did a bit of looking around and discovered that we were at least $50 - $60pw under the market rate. We rang and asked if we should maybe put the rent up and they suggested "sure, what about $10 - 15pw". They had no idea.

We were interviewing for a new pm the next day. We found a guy we really liked who was able to show us what he was renting units in the same complex for (i.e. market rate!), talked about a strategy to get it up where it belongs and who, to top it off, is cheaper.

I think they call this 'a lesson learned'.
 
I was just speaking to one of my PM's and I mentioned that I had seen a lot of properties lately with very low rental yeilds. I know they are not slack, because mine are moving in line with the market, but she mentioned that they have a few properties that are owned by pensioners who don't want the rent put up because their pension would either reduce or cease if she did that, then she told me about one that they have on their books. Again, long term tenants.

She said that the tenant was paying at least $150pw below market rent. They have been trying to get the owner to agree to give them a raise, but the owner doesn't want to because they are "good tenants". They would want to be damn good tenants to be giving them a discount of $7500 per annum.:rolleyes:
 
"Market" rent can be as varied as property prices. It really comes down to what people are willing to pay.

I once rented a property in Melbourne for way over what the LL was expecting because I wanted to be close to a particular building on the same street and was willing to pay for that proximity. When I left and they tried to find another tenant at the same rate, it was vacant for 6 months. Panic stations as the rent went lower and lower in a desperate bid to get a tenant. They thought it was "market" rent I was paying but it wasn't - they just got lucky.

Near me is a block of units. There is one which has had a large For Lease sign out front since January. This is a popular part of town close to everything and units in this block get rented in a weekend. I think the only reason it's still vacant is because the entire interior is painted lollypop pink. But the deluded owner is grimly holding out for "market" rent, that is, what the other units are getting.
 
I agree that it can be hard to keep houses at "market" rent, especially as a self-manager. But I have found in the past that often we would ask (and receive) a higher rent that an agent has suggested anyway.

As soon as I know that a house will be empty, I start looking on re.com but, I find with older houses, that it is very difficult to work out just what houses would rent for. Some of the $350 per week houses look every bit as good as our $495 per week place, but the chap who rented it had been renting for mid $300 and said he had looked at lots of houses, and ours was the cleanest and the best. He grabbed it and was very happy.

We all know that photos of houses both selling and renting, can look so much better than the house "in the flesh". I think newer, modern houses probably are easier to judge, but we don't have any of them.

The other thing is that one of the places we are looking after is slightly under-rented and we are not wanting to jack it up in case he leaves. He has been there for twelve years, fantastic tenant, but the reason we have not increased it to market is that as soon as he leaves, we will have to put in a new kitchen and bathroom. Right now, this is not something we are wanting to tackle, so we plan on leaving him there slightly under market.

Sure...... he is happy to work with the kitchen and bathroom, but more particularly, he has friends all over the street and is very entrenched in the place. We have increased it over the years, but anybody taking on the kitchen and bathroom as they are now (pretty tired) would possibly not be the type who would care too much.

I reckon his attachment to his neighbours and friends would keep him, but we are not prepared to risk being forced to take on these jobs right now, nor being forced to accept a "less than ideal" tenant.

Sometimes it is like dancing on a tightrope :D
 
Have come across many reasons in my few yrs experience so far as to why an owner wants out.
They've gone onto new things, need cash or getting old and want to free themselves up - sick of the extras , they move whatever.
One duplex I checked out is way CP and has been for yrs yet it's regional so hard to sell , so owner is offering v/terms , with permanent tenants included.
His 2 states away now and just wants it gone.
Personally I've always thought a good tenant is worth more than a few bucks extra . Don't forget it'll probly be vacant while your looking for new ones, might go through 3 or 4 and one will probably trash the joint or take off owing 3 mths, b/4 another one stays long temr.
Are you really ahead after all that ? I like the idea of looking after a tenant if he does me instead of it being all about money .
Allot of people in my areas go for the bigger holiday bucks but even in that places are empty 10 mths a yr anyway so where are you. I'd go long termers.

Cheers .

Cheers
 
I like the idea of looking after a tenant if he does me instead of it being all about money ......

That sounds a bit dodgy, thanks for the laugh. :)

Back on topic, certainly location comes into it. If the property is in a high demand area or is of a type that is sought after for whatever reason then yuo can be more strict on keeping it at market rents. If it isn't in a high demand area or high demand type then you have to be more careful as you suggest.
 
Back on topic, certainly location comes into it. If the property is in a high demand area or is of a type that is sought after for whatever reason then yuo can be more strict on keeping it at market rents. If it isn't in a high demand area or high demand type then you have to be more careful as you suggest.

Yes, this is true. I am very insistant on my Sydney IP's being market rent, however I do have some regionals that are under a bit, and it is because there just isn't the same demand in these areas for the IPs, that I am more lenient.
 
Stinks of fear

I can smell the fear from here. It's palpable.


Fear of trashing. Fear of walking out. Fear of non-payment. Fear of late payment.


I've always thought a good tenant is worth more than a few bucks extra . Don't forget it'll probly be vacant while your looking for new ones, might go through 3 or 4 and one will probably trash the joint or take off owing 3 mths, b/4 another one stays long temr.
Are you really ahead after all that ?


Random - you sound like you are quaking in yer boots. Very easy to put the fear of God into a new Landlord, and I've heard ressy PM's say this exact line over and over through the years. Almost all Landlord's bar none buckle under this comment. OK then, hold off on any rent increase if they are alright.

Almost everyone seems to be tip-toeing around the Tenants. They can pick a sucker who will buckle under their demands, or perceived demands a mile off.


No-one has yet accurately defined what a "good Tenant" is. Although Bargain Hunter and skater seem to be on the right track. Any Tenant that pays significantly under the market rent is definitely not a good Tenant in my books.


I reckon the underlying reason behind all this, is that house and unit renters know that you guys have nothing on them.

No guarantees, either bank or personal.
Bugger all bond monies.
Bond monies difficult to get without their signature.
No forwarding address.
Tenant has no / bugger all assets.
Insurance co's resist paying out.
No long term commitment.
Paperwork overload to prove anything. Onus is upon the LL.
Impossible to be Johnny-on-the-spot and the "story" can be cooked before you find out.
No upfront commitment.
Threatening to with-hold rent if something not to their liking.
Cheap to up and go.


We walk this tightrope every day as well, and it is unpleasant....but at some stage you've got to let go of the fear and just charge them, and keep charging them, market rent IMO.


It's difficult for sure, especially if someone is prepared to up and leave if you place a piddly $ 5 or $ 10 per week increase on them.....but then I wonder, if one of my business associates is going to sacrifice the business deal over a $ 250 or $ 500 p.a. impost, then really, do I wish to be doing business with that person ?? But that then goes right the back to asset selection, and that's a whole different ball of wax.
 
Although Bargain Hunter and skater seem to be on the right track.

:eek: Was that a compliment? :cool:

I certainly do not fear my tenants walking. I have no problem whatsoever in upping the rent to the max I can get. I bought the damn properties to take care of me in my later years, and that is exactly what they will be doing.

The only ones I am a little more lenient with, as I said before, are the Regional stuff, and all bar one of them is earmarked to go. Bought in the early years, and while they perform OK, they are more of a nuisance than I am prepared to tolerate. When we retire Hubby from the workforce, they will get a spiffy reno and get flogged off.

I think I am getting more like you Dazz, but the the Resi version. Rents kept to the max, no over captilalization, no fancy appliances that need maintaining, just basic solid houses with a good yeild and a PM that keeps them all in line. Don't want to pay, off to the tribunal you go and they end up paying anyway. Sure I've had crap tenants, but overall I've had very little in the way of losses due to the fact that the PM(s) are doing their job.

BTW, Random, more than half of my tenants are long term, even though the rents are high. Vacancies are only ever short, and if there is ever a problem due to saturation, then it is easy to drop the rent for a short term. If a tenant does trash, then there is LL Insurance that covers this, and if they take off, then you still have the LL Insurance for this too. There really is no room for warm and fuzzy feelings to your tenants. It is Business, and should be treated in a Business like manner. LL's are not charities and if you start having charitable feelings towards your tenants and want to subsidise their lifestyle, then maybe being a LL is not for you.
 
I bought a town house in Aug 08 that was being rented out for $225 pw. The market rate at the time was about$265.

The PMs we appointed (who were also the selling agents for this property) told the tenants that their rent would be going up considerably and they were very indignant about it apparently and said they were going to move................until they started looking around and discovered that the PM was correct and they couldnt get a dog kennel for what they had been paying. The previous owner was an owner occupier who got married and moved into her new hubbies place and rented out her old PPOR. She was an accidental investor and I think didnt know squat about property investing and eventually just wanted out because interest rates had been going up (and no one was buying at that time). The rent is now $270 pw and I think is probably a little under as we have an identical unit in the same complex except it is in original c1978 condition getting $280 pw whereas the unit I am talking about is renovated.

We are going to change PMs very soon and I suspect the new ones will (I hope) will suggest a rent increase.
 
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