The art of leasing a newly built apartment
At Certainty Property we are often approached by the owners of newly built apartments that have had their investment property sit vacant for months on end. The excitement of being the owner of a new investment property quickly turns to frustration as their property isn’t generating rent even though all the financial obligations of owning a property remain. Generally speaking, the larger the block of apartments (especially if they are settling at the same time), the longer it takes to find a tenant due to increased supply. Below are our tips to maximise your cashflows if you’ve just purchased a newly built apartment:
Forget about a developer’s rental opinion
One of the most common mistakes that people make is expecting to receive the amount of rent advised in a developer’s rental opinion when they bought the property. Almost all of these rental opinions are inflated, some of them to a farcical extent. They are inflated by the developer or their agent for the purposes of selling more property, and developer’s almost never stand behind them. Unfortunately many purchasers have ‘anchored’ themselves to this figure and find it very difficult to bring themselves to lower the asking rent to market. Unfortunately, the rental market doesn’t care that you thought you would get $1200 per week on an $800 per week apartment because that’s what a developer told you when you bought it!
Recognise your property isn’t special
Everyone thinks that their property has a special redeeming feature that means that prospective tenants will fall over themselves to pay top dollar for the privilege of living there. Whilst this is the case for some properties, it’s almost never the case for apartments. Modern apartments in a large block are remarkably similar, usually with the same fittings and only very slight variations in floor plans. Apartments on higher levels, with views or lots of natural sunlight will usually attract a small premium but that premium is often much less than people realise. Whilst it’s great that you love the property you bought, it’s important to recognise that prospective tenants don’t have that same emotional investment and likely have dozens of other near identical apartments in the same building to choose from. Although it sounds harsh, in a big block of apartments all the properties become commoditised.
Price your property appropriately
When all the properties are almost the same, the reality is that the apartments that are most aggressively priced will be the first to be tenanted. Ironically, in most cases the properties that are leased in the first week at a ‘low price’ will generate much more cashflow for their owners than those that are listed for a higher rent and sit vacant for weeks or months. This is known as the price and vacancy paradox, which basically says that it’s almost always better to receive 52 weeks of cashflow each year at a lower rent than 46 or 48 weeks at a higher rent. This is especially the case in the current rental market where it takes 37 days on average for a tenant to be found in Sydney. Take a look at what other properties in the same building are being listed for on the real estate advertising portals. If you’re significantly above that then ask your property manager why – and how long they expect your property to be vacant for.
It’s important to remember that when you have dozens of near identical properties all settling on the same day that you are not operating in a normal rental market. If you take a normal approach to leasing your property you will get burnt. Often the best course of action is to price your property aggressively so you quickly find a tenant but on a six month lease. Then in six months the excess supply has dissipated and a tenant is already established you can increase the rent or find a new, higher paying tenant.
At Certainty Property we do property management differently by eliminating the issue of vacancy altogether. When your property is vacant we pay the rent instead. We also pay the rent if your tenant is in arrears, and top up your rent should market rents fall. To find out more drop us a message via our online chat – we’d love to hear from you.