I always knew this day would come but I hoped it wouldn’t. Recently one of the major employers in the town made a bunch of people redundant and there’s talk of the further cuts. Luckily we didn’t spend a whole heap on this property but we still have to pay around $1,000 a month in mortgage payments, insurance and property taxes whilst it’s vacant.
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Our property manager has advised us that the only people renting properties in the area are existing residents looking to save money. That makes sense as people have lost their jobs and might be surviving on social assistance and need to make savings wherever possible. Rather than wait and see what happens we’re being proactive about sourcing new tenants and stopping the cash bleed.
How to Attract New Tenants in a Down Market:
Reduce your asking rent
Originally the property was renting for $230 per week. Due to the state of the market we’ve had to reduce our asking price. We’ve tested the market at $195, $175 and now we’ll move down to $155. As you can see that is a huge reduction. And it might not be enough. In a down market every single vacant property is your competition – so we need to stay on top of the game and keep watching the market. At the moment $155 is slightly below market value of similar properties which is a good position to be in.
I’ve always believed it’s better to have a tenant in a property paying less than initially desired, than be vacant and asking a higher rent. Of course, we’ll still be running credit and background checks on prospective tenants but we’re hopeful reducing the rent until we meet the market will stand us in good stead.
Offer free rent for a period
One of the tactics we’ve employed to attract new tenants to offer 2 weeks free rent with a 12 month tenancy. This worked when another rental property we own became vacant some time ago. New renters are attracted to the offer as it helps reduce the costs needed to get into the property which in New Zealand can include up to four weeks rent as bond, plus a letting fee of one week’s rent. Then there’s rent in advance. As we target lower cost homes and therefore people on lower incomes we avoid property managers that charge a letting fee as part of our business strategy.
Enhance your property
This is a tough call. But if you are hopeful that your real estate market will bounce back, making an investment into the appearance or function of your property could be a smart move. Tradespeople are usually quiet during a down market and almost always grateful for the work. In our case we’d just painted the exterior when the previous tenant gave notice. Although it feels like we just flushed $7,000 down the toilet the curb appeal is hugely improved. That said, we are not throwing good money after bad. We have zero intention of further spending on this property, if we can’t rent it in the next few months we’ll investigate selling.
In our case the property is located a 4 hour drive from our house so we employ professional property managers. They charge a percentage of the rent which we have always considered to be a worthwhile cost of doing business. Our property manager keeps us informed of movement in rental rates and organises tradespeople to make necessary improvements and repairs. Without our property manager being an out-of-town landlord would be near-impossible.
Explore all marketing channels
We have a ‘for rent’ sign in front of the property. The property appears in the front window of the agency, in the local newspaper and I plan to pay extra for an online listing. Although my property manager informs me that only out-of-towners use the internet when searching for property I want all bases covered. Local buy and sell groups on Facebook are a good way of advertising for potential tenants, as are free listing sites like Gumtree and Craigslist.
What if it doesn’t rent?
We have to face the very real possibility that we might not find new tenants for our property. In that case, we’ll likely list the property for sale in the Spring. We think the current value is around $150k, but property values are dropping so that will change.
A down market affects everyone – including property managers, tradespeople, retail businesses. As property management agencies lose tenants their income drops. This is something to keep in mind when you are communicating with your property manager as they may be fearful for the future of their job.
Finding new tenants in a down market is really tough. Your have to present your property as well as you possibly can and even then nothing is guaranteed.
Have you been a landlord in a tough market? Any advice or tips you’d like to share?