The Perth rental market has been flooded with prospective tenants looking for quality properties for quite some time now, which as an existing or pending property investor, puts you in a great position to focus on the quality and return of your property, rather than competing in an oversupplied market.
While the rental market outlook for Perth is uncertain amid the COVID-19 pandemic, rental properties are always going to be in demand and as a property investor, we know that we’re in a strong position in Perth to get a quality long-term tenant to help us ride into our next growth cycle.
Whether you own an investment property (or multiple) or you’re thinking about acquiring a property in 2020 and you’re wondering if it’s the right time to buy, we’ve outlined the key fundamentals that will help you future-proof your rental property so that you can hold it long-term, even during a challenging economic cycle.
Getting The Right Tenants
Attracting the right tenant is a combination of the right product in the right location to ensure you have a high demand from tenants that will pay premium, regardless of the economic conditions. For example, rental properties that are close to amenity, employment, schools and entertainment will always demand a strong group of prospective tenants, as they’re driven by the lifestyle in that location. This strategy will ensure your tenants aren’t so transient which will help you avoid unwanted vacancy periods and enhance a long-term financial strategy.
Not only is your tenant demographic driven by the location, it’s also impacted by the type of property investment you own and who it caters for. For example, if your rental property is near a prestigious school, your tenant pool is likely going to consist of families looking to make a long-term decision to settle in the area, so it pays to consider if your property features cater to this demographic (number of bedrooms, backyard for the children, separate living areas). If, however your property is situated within the inner-city ring, you’ll find that this tenant pool consists of corporate couples, professional singles or even FIFO workers looking for a lock and leave option. In this instance, a common investment strategy would be apartments and units – another great strategy would be to furnish the apartment to demand a premium rent and depreciation benefit.
Focusing On Longer Term Lease Periods
As an investor, if cash flow is important to you, securing a long-term tenant is a much better strategy than focusing on higher yields, particularly if this means having a vacant property while you hold out for a higher paying tenant. Economic downturns can often create financial uncertainty if a household experiences a drop in income from job losses, which in turn creates a risk for you having to cover hefty vacancy costs.
We’ve seen many property investors that would prefer to wait for that extra $30 per week and losing out on weeks of vacancy, putting a strain on their cash-flow position. From a cash flow point of view, focusing on getting your property rented for more weeks of the year vs trying to increase your rental yield could potentially result in the following:
$350 x 50 weeks = $17,500
$380 x 46 weeks = $17,480
As you can see, by chasing a higher rent and having to wait longer to secure that price, in many cases you’re in no better position than if you were to lower your rent. In fact the additional costs of having a vacant property often doesn’t justify the additional weekly rent you were able to achieve.
The primary focus here is making sure you’re always getting the right rent for your property, based on the position of the market.
In addition, you may want to structure your leases to a longer period to ensure your tenants are committed for longer, while demonstrating that you are focused on long-term tenants, which will help to attract the quality that you’re looking for.
Leveraging Cash Flow Positive Properties
To help minimise any shortfall during economic challenges, a common strategy is to ensure your property is cash flow positive or neutral. If you’re looking to acquire a new investment property in the current Perth market, there are lots of great deals that can be snapped up below market value in high yielding areas. What’s more, with all the government incentives helping to support the new home building industry, lots of builders and developers are offering great incentives that can be utilised for investment property purchasing. This trend is also creating more demand for the property market as sales stock is also getting soaked up rapidly here in Perth, which is a key ingredient for supply and demand and an opportune time for savvy investors.
If you’re an existing property investment owner looking to leverage more cash flow from your property, introducing cost-effective but high value renovations or furnishings could help you demand a higher return from your property. For example, if you own an inner-city apartment, a furnished property could help you create more of a premium demand from the corporate demographic while also giving you great tax depreciation benefits to improve your cash flow position.
A Well-Managed Property
Quality property managers play a vital role in helping you maintain your property to the highest standards, while ensuring your property is generating a maximised return, in any market condition.
Managing a property effectively requires a lot of time heavy tasks such as inspections, screening processes, keeping up with market demands that will impact your rental return, tenancy laws, insurances and communicating with your tenants…just to name a few!
Now more than ever, it is essential that you maintain your investment property to ensure you attract/retain quality tenants and subsequent returns. Essentially the lifeblood of your investment strategy. While property managers are an extra cost, this cost is completely deductible and they help to alleviate the biggest cost of all, your time! Alleviating your time involvement and the emotional stress is one of the best ways to ensure you make a return over the long-term, simply because your experience is made easier and you’re more likely to hold on to your property over time.
An experienced property manager can help you navigate the property market to maximise your results and minimise your risk, while also handling all the time heavy tasks proactively, so that you don’t have to.
Minimise Your Risk With A Buffer
Lastly, market fluctuations will always expose you to some risk, especially during times of uncertainty that could not have been predicted, such as the COVID-19 pandemic. When global events such as this create mass uncertainty throughout the market, it is so important that you have a buffer to help you weather any unpredictable storms and any pressure it may create on you to hold your rental properties. Setting up a buffer that you can access easily such as an offset account, will give you more flexibility to cover any unforeseen costs if required.
For most people an economic downturn is a difficult time, however as highlighted above, with the right strategy and preparation, you can do exceptionally well as a property investor during a down market. What’s more, the great thing with property is that people will always need a roof over their head, so there will always be a continuous demand for owning or renting a property. So, while other investments may see a lot of fluctuation during an economic downturn, owning a rental property, when set up strategically can be risk minimised to help you generate a steady income and positioned to do extremely well when the market recovers.
One of the key factors to determine how well your investment property performs, is your choice of property manager. You should be confident that your property manager has a proactive plan to help you maximise your investment at this time, while putting you in the best position to capitalise on a potential upswing as we start to ease out of the COVID-19 pandemic.
With tax time just around the corner, if you’re looking for an experienced property manager or perhaps considering changing property managers to help you assess your property and maximise your rental returns, contact us today for a no obligation chat with one of our experienced property managers.
Plus, for a limited-time only, if you’re looking to switch to Benchmark Specialist Property Managers, we’ll offer you an exclusive 2 months free property management to try our exceptional services – you’ll also get to experience the Benchmark difference with a no lock-in contract – ever! Contact us today to find out how you can switch to Benchmark today.