Naturally every landlord looks forward to a rent increase, but should you ever agree to a rent reduction? We take a look at when you should consider decreasing the rent on your investment property.
When it comes to investment properties, there’s a lot of talk of increasing the rent in competitive markets, but should you ever agree to a rent reduction? We take a look at some of the reasons why you might consider decreasing the rent on your investment property.
Should You Ever Decrease The Rent On An Investment Property?
For some landlords, accepting less money for their investment seems counter-intuitive to its role as an income-producing asset. But while you need to carefully think through any ramifications to changes in rent, there are a few times when a reduction will leave you in a better financial position in the long run.
So should you consider a lower rent? If it means you’re undercutting your property’s value or putting yourself in a financial bind, the answer is probably no. However, if it makes sense in the market and keeps tenants in your property, it’s absolutely worthwhile thinking about. We’ve outlined some of the reasons you might consider a decrease below.
Note that reducing rent doesn’t have to mean $50 per week – even $10 could make a big difference to tenants without affecting your cash flow too much.
Reducing Rent To Remain Competitive In The Market
If a dip in the property market leads to reduced rents in your area, you might find that your tenants request a lower rate in line with the rest of the market. This might be because a comparable property down the road is advertised for much less, or it could be that properties nearby have features that yours doesn’t.
For example, you might be charging $650 per week for a two-bedroom with no outdoor space, but tenants might look around the area and see that they could pay the same amount for a property with a balcony, or pay $620 for a similar property without.
In this case, the added benefit of the balcony or the appeal of lower rent would justify the hassle of moving for many tenants. This could also apply to in-demand features like a car space, air-conditioning or a concierge. If you choose not to reduce your rent in line with the market rate, you could find yourself needing to find a new tenant and potentially losing money during a longer vacancy period.
If You Haven’t Been Able To Find A Tenant For A While
We don’t see this very often in the in-demand Eastern Suburbs, but it is a possibility when vacancy rates start to rise. If you haven’t had much interest in your property from potential tenants, or it’s been difficult to find a quality tenant, accepting a lower rent might be the best way out of the extended vacancy. Long periods of vacancy can be much worse financially than a slight reduction of rent, especially if the property has been sitting empty for longer than you’d like.
It all depends on expected vacancy times in your area and when it’s worth considering a decrease to find a tenant.
You Want To Hold Onto An Excellent Tenant
Good tenants aren’t easy to come by, so it can be worth decreasing the rent if it means keeping them in the property for longer. A bad tenant can have long-term effects on the value of your investment property, so a $10 or $15 per week reduction is often worth it for a trusted tenant who will continue to take good care of the property and help maintain its value.
If you agree to a reduced rate to reward a good tenant, you don’t have to keep that rate forever. NSW tenancy laws allow for one rent increase every 12 months for fixed-term leases, so you’ll have more opportunities to consider bringing the rent in line with the latest market rate.
Not Sure If You Should Agree To A Rent Decrease?
Contact our team of specialists today.