Getting the right tenants and premium rents in a tenant’s market | Michael Matusik

Despite reported low vacancy rates, the rental market has softened in recent times.

For mine, there are a lot more rental properties vacant than actually reported – as just over half of homes (55%) rented out across Australia involve a real estate agency – but that is really a sidebar here.house_rent October

There is, however, a strong connection between the number of homes available for rent (regardless of how accurately measured) and weekly rents.

Falling vacancies typically mean the rents should rise and vice versa.

As our graphic below shows, whilst there are areas of action – some up & others down, as shown by the grey highlights – much of south-east Queensland’s rental landscape is lacklustre at best.

RENTAL DOLDRUMS

An apt description might be, “the rental doldrums”.

Missive - 25th Nov 2014 - graphic insert

A RENTER’S MARKET

In short, I think much of SEQ next year will remain largely a renter’s market, more so inner Brisbane ,where the vacancy rate is reading ‘oversupplied’ & yet the new apartment supply hasn’t even started coming out of the ground.

So, attracting the right tenant & keeping them should be the order of the day.Diversity Housing

But before we get into how to select the right tenant & what tenants say they will pay a premium for, I would like to cover an issue which does seem to get much Queensland airplay – the pending Residential Tenancies and Rooming Accommodation Amendment Bill 2014.

This bill is still caught up in State Parliament & is still being debated.

The essence of the bill – as I understand it – is to create a ‘minimum housing standard’ for rental properties.

This could have far reaching & very expensive implications for older residential investment properties across Queensland if the bill is passed.  Go here & here(for starters) for more information about this pending bill.

Many of Queensland’s older investment properties will need to be substantially renovated to comply with the proposed new legislation.

This will be costly & will also involve the bureaucracy & lots of red tape…likely, loads more.

Compliance might mean having to do without any rental income for months (maybe longer) as older rental properties are bought up to the new minimum standard.

What will this mean to rents?for_rent_1

How will this affect the vacancy rate?  I don’t know.

But it does strongly suggest that cheap old rentals are not going to remain such good investments – so much so that we sold (well, my wife really, as I own nothing) our Queensland cheapies this year.

For Queensland, at least, new or recently renovated rental properties look better passive investments to me.

Now, back to our main story.

Getting the right tenant

There are several things to consider here.

  • Tenant profile. Whilst it is very attractive to have several tenants sharing your property, the property itself may not suit this arrangement.
    Even if your income is less if, say, a couple rents out the property, it might cost you less in the long-run (when you factor in maintenance & potential tenant turnover) than, say, renting your investment out to three or four independent parties.
    And let me tell you from bitter experience, damaging parties they will have.
  • Keep your tenants longer.  Offer a lower rent & have them stay for years, not just six or twelve months.
    Regardless of the actual rent, the best performing investment property is one that is actually leased.  Go for 100% occupancy, not rolling tenants & vacancy periods.
  • Steady Eddy. Forget the flash & the promise of high rent for a slow or worse still, non-payer.  You don’t want to be sweating on rents from a tenant in arrears.  Bonds are really for when something goes wrong, not insurance against your tenant not paying the rent.
  • Pets increase your rent; widen your rental pool & keep tenants longer.
    Set out the details of pet occupancy in advance & treat the pet/s like a tenant.   Regardless of what assurances a tenant with pets may give you, an active border collie in a one bedroom apartment is most likely going to end in disaster.

So other than pets, what will a tenant pay a premium for?

Rental premiumsmeeting-the-parents

We regularly survey both the buying & rental markets.  One of our recent surveys of tenants residing across south-east Queensland found (in order of importance) that they would pay a premium for:

  • A dedicated study area – preferably in a separate room or alcove. They want high-speed internet access.  Free Wi-Fi (up to a monthly limit) is also very attractive.
  • Largely reduced or better still, no energy bills. Also, many apartment renters actually don’t use the facilities supplied.  They will even move to more expensive premises without such facilities if the design of the property itself helps them reduce their energy bills.  Those projects that “give back to the grid” are therefore increasingly attractive to tenants.
  • Most tenants want a well-positioned – facing north and/or with some view – well-equipped & functional kitchen space. They want more kitchen storage space.  In fact, the more storage available the better, regardless of where it is.
  • Proper ensuites – that is, a bathroom directly adjacent to the bedroom. More & better designed robe space will attract higher rent too.  A lot, too, will pay a premium for a separate WC or PWC.
  • A middle-distant view is also wanted, especially in a more urban setting.
  • Bedrooms large enough to comfortably fit a queen size bed, bedside table and if possible, a small desk.
  • Secure, off street Undercover space is much preferred.

Our rental survey work also shows that around 70% of renters intend to stay after their lease expires.

And based on the list above – including pets – five out of ten renters we recently surveyed say they would pay up to 10% more in rent to get these things; with another quarter (24%) saying they would pay 20% more.



Want more of this type of information?


Michael Matusik

About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


'Getting the right tenants and premium rents in a tenant’s market | Michael Matusik' have 2 comments

  1. November 26, 2014 @ 12:52 pm em

    Interesting article Michael, thanks.
    I believe Victoria has also considered minimum standards, and rejected the legislation. WA has legislated for minimum security standards which, although mildly troublesome for landlords, have been of great benefit to both property value and tenant peace of mind.
    Storage seems to be a necessity for the majority of tenants and I believe this requirements will increase. Recently installed a small metal shed for a tenant who works part-time from home and studies and he was so grateful he not only helped construct it but has agreed to an increase in rent with the new lease term. Apart from (some) first-time renters who use storage as a dumping area, it can be beneficial to leave a shelf unit in the storage area (if sturdy).
    Cheers,

    Reply


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