When should a landlord hold out for a premium rent?
Landlords will generally accept the advice of their property manager or agent in assessing and setting the rent likely to be achieved for their rental property.
However, some landlords may wish to try and achieve a premium rent for their property above what their agent recommends, particularly if:
1. the property is unique and has features meaning that it may potentially achieve a premium;
2. the local rental market has recently had a significant increase in demand or lack of good rental properties;
3. they are about to sell their property and wish to interest the investor market by securing a premium rent; or
4. they think their investment property is under-achieving compared to their original plans for the property.
Often landlords are so eager to get a premium rent that they forget to weigh their eagerness against the increased risk of a vacancy period and how an extended vacancy may erode their annual rent return.
For example, a landlord who held out for a premium rent of $525 per week, 5% over the market rental of $500, and then suffered a 4 week vacancy period would collect a gross annual rent return of $25,200.
However, if the landlord were willing to accept the agent’s recommendation to rent or extend the existing lease on the property at the appraised market rental of $500 and was thus able to secure a tenancy without any vacancy period then the landlord would collect a gross annual rent return of $26,000. That’s $800 more!
In reality a good real estate agent will take on board a landlord’s wish to attempt to achieve a premium rent and, whilst warning the landlord of the risk of a vacancy period reducing returns, will attempt to list or extend or renew a lease over the property initially at the premium rent the landlord wishes to achieve. If the premium rent is not able to be achieved without the risk of an extended vacancy then instructions can then be obtained to reduce the rent to the advised market rental.
At then end of the day, it is important to remember that a bird in the hand is worth two in the bush. Never underestimate the value of extending or securing a lease with a good tenant paying a modest rent compared to holding out for premium rent.
At then end of the day, it is important to remember that a bird in the hand is worth two in the bush. Never underestimate the value of extending or securing a lease with a good tenant paying a modest rent compared to holding out for premium rent.