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Investment property borrowers and their mortgage brokers are facing a number of significant challenges. Place this alongside the bigger picture of rising property prices and falling rental yields, and a level of uncertainty prevails. What conversation can brokers have with their investor clients during this time?
Having recently collated the results from a nationwide survey of 3,383 renting individuals, our broker channel, PL Broker, has identified some key findings from the tenant’s perspective. By utilising these survey findings, brokers can provide some valuable insights and evoke open conversation to enlighten investors regarding protecting their rental yield returns. The well-known basics of minimising vacancy periods and regular rental reviews are considered from the investor’s perspective. Understanding what factors are behind these from a tenant’s perspective can hopefully assist with tenant retention strategies.
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Here are our findings:
• 44 per cent required assistance to pay their bond, on average equating to one week’s wage.
• 43 per cent was the maximum portion of weekly income spent on rent, with an overall average of 26 per cent.
• 25 per cent moved on average every two years.
• 54 per cent indicated their average rental term was one year.
• 18 per cent indicated a term of six months.
Why such short terms?
• 29 per cent responded with seeking a nicer/newer residence being the reason for moving so regularly.
• 28 per cent of responses included job transfers, relationship reasons and schools/better locations as the key reasons.
• 9 per cent cited issues with their landlord.
What conversations can be had?
• Reassuring the tenant that their living conditions are a priority by way of an efficient agent is paramount. Good tenants want good properties. Issues resolved quickly will translate to prompt rent payment and lease renewals.
• Be realistic about the extent to which a good tenant can afford an increase in rent – eight per cent of survey respondents moved property due to rent increases. The agent should know the income level of the tenant and hence their capacity to afford a rent rise each year. Knowledge is power.
• If managing privately, knowing the tenants and treating them fairly creates a better relationship and a longer-term tenant. Having a bond is an essential buffer. The survey revealed one in eight renters lose their bond at the end of their lease. Of the respondents, 29 per cent cited rent arrears as the reason, reaffirming the bond’s importance.
• Owners should realise that tenants would prefer not to move due to the associated high moving costs and stress involved. On average, Aussies are forking out $3,402 to move – over half the average monthly wage.
The success of property investment is underpinned by achieving consistent income to support it. Despite tenants moving frequently, they do so somewhat reluctantly because of the high moving costs and loss of bond money. These insights could prove to be effective negotiating tools when dealing with an undecided tenant and something worth relaying to investment borrowers.
