How to keep good tenants

A prospective tenant of a Melbourne house recently offered management agent Melanie Dennis $50 a week more than the $400/week rent being asked at the property to try to secure the tenancy.

Dennis, the managing director of real-estate agency Domain Property Advocates, says offers of this kind are not unusual in the cutthroat under-$600/week rental market. With vacancy rates hovering around 1% across Australia and rents expected to rise by about 7% this year in capital cities, some renters are desperate to get a toehold in.

But despite a market that favours landlords, Dennis says she does not recommend a property owner necessarily accept the highest rental bidder. She says she always checks references carefully to ensure quality tenants. Additionally, bidding above the advertised rent levels could be illegal in some states.

Property Observer offers eight strategies to make the most of increasing rents – without losing highly prized, reliable tenants.

1. Give tenants notice of rent increases far in advance

Landlords in Victoria and NSW are required by law to give tenants 60 days’ notice before a rent increase. Landlords are also not allowed to increase rents during a lease.

Gary Triganza, senior property manager for inner-city Sydney agency Kelly & Sons, says it could be beneficial to a landlord to give 60 days’ notice of a rent hike well before a lease expires.

Dennis suggests that landlords begin to think about increasing the rent three months before the lease expires in order to give them time to check market rents and get advice from agents on current market values. This all takes time.

“You will want any rent increase to lock in from the first day that the lease expires,” Dennis says.

2. Sometimes keeping good tenants is more important than getting the highest possible rent

Triganza says landlords should think about keeping rent slightly below market rate in order to keep a really good tenant. “Landlords can then go to the full market rent with the next tenant,” he says.

This strategy could actually save landlords money in the long term. “If a tenant looks after a property, it might need painting, say, every nine or 10 years instead of every, say, five years,” Triganza says.

Dennis says charging a tenant, say, $10 a week less than the market rate amounts to a valuable saving of $520 for the tenant, which might keep him or her in your property for longer. This in turn saves the landlord money, as rental income is not lost while searching for another tenant and the property is not being damaged with furniture being moved in and out.

3. Don’t charge rents above what the market will allow

Rents that are too high will scare off prospective tenants, leaving the landlord with no source of income, Triganza warns.

Dennis adds: “Every week that a property with a market rent of $350 a week, for example, sits vacant, the landlord is losing $350 a week.”

She also warns that tenants who are willing to pay above-market rates may be offering more because they have a poor tenancy history.

4. Make sure the agent checks all references

“Don’t take it for granted that your agent has checked the references of people who want to rent your property,” warns Dennis.

“I check a minimum of five references for each property. I won’t put a bad tenant into a property; I have to manage it.”

5. Insist on a rent-rise clause in leases longer than a year

Dennis says rent-rise clauses are especially crucial in markets when rents are increasing rapidly.

Triganza says in such tight rental markets landlords should consider offering six-month leases. Shorter leases enable landlords to raise rents more quickly. However, he says some landlords prefer the security of a long-term lease to the potential extra income from being able to raise rents frequently.

6. Let go of bad tenants

Due to the shortage of rental units and competitive rental market, Dennis says you do not have to put up with a tenant who is late paying rent, fails to keep the property clean or causes damage.

She suggests landlords tell tenants about any problems with their conduct, and if necessary, give them notice to vacate, even if the lease is not yet up.

However, she recommends that landlords try to maintain good relations with tenants by ensuring properties are in good condition. Tenants are more likely to look after properties that are well-maintained.

A well-maintained property is also more lucrative than a neglected one, as it can bring in hither rent. “Keep the property up to scratch, but I am not suggesting major renovations such as extensions,” Dennis says.

7. Review rents regularly

Fitzpatricks Real Estate property manager Lynette Kimball, who works in the regional NSW city of Wagga Wagga, suggests landlords review rent levels ever six months and try to keep rents at market rates.

8. Be aware of the effect of below-market rent on capital values

Kimball, who is chairwoman of the property management chapter of the Real Estate Institute of NSW, says keeping rents significantly below market rates for four or five years can backfire, because although it may ensure good tenants stay in the property, it can damage the resale value.

Kimball says she has seen instances when properties did not sell for expected prices because landlords were not able to show a history of satisfactory rents. “Consider not just today but the capital growth in the future,” she advises.