How to Determine Your Rental Asking Price for Leasing Success …

 It is no secret that there have been some sizable shifts within the Perth Rental Market over the last few years, with rents falling across all segments of the metro area. In fact, after reviewing median rental history statistics from REIWA for the Perth region, covering the period of 2001 to 2016, we’ve literally seen median rents step back in time to levels last recorded in 2009/10. This represents a downward adjustment of as much as 15% to 20% in some areas.

Interestingly, with this distinct change in the market, we have also witnessed an increasing number of Landlords experiencing difficulty when determining property rental prices, under current leasing conditions. Because of this we have seen some landlords opting to use their local council’s Gross Rental Value (GRV) to calculate their rents, with little success.

This was the case recently when an unsuspecting owner decided to base his current rental asking price upon his property’s GRV as listed on his rates notice. In this instance, Mr Bellman (not his real name) noted that the GRV listed on his annual rates notice was set at $17,160 for his investment property. Using this as a guide, ($17,160 ÷ 52 = $330) he therefore assumed that he could logically set his rent at $330 per week.

However, market evidence on comparative rental levels in the area and feedback from prospective tenants suggested that the rent should have been positioned at approx. $300 per week. Subsequently, against his property manager’s advice, the property was marketed at $330 per week. Unfortunately, for Mr Bellman, however, the property remained vacant for over 2 months as tenants were unwilling to pay the above market rent on the property.

Ultimately, he lost out on over 9 weeks of all-important regular rental income. Why?

• Because the rent level based on the GRV of the property did not accurately reflect current market rents for similar rentals in his area for a number of reasons:The GRV a council sets is an estimate on how much an owner could be likely to receive as rent on their property. Rates are then calculated by multiplying a property’s GRV by the rate in the dollar set by the City or Shire Council, giving them a rateable amount per property.
• However, GRV levels are based upon rental data from the Valuer General’s Office collected from the preceding 2 years, and this can include data based upon rents in the 1 year prior to this period. Therefore the GRV can be calculated upon data which is from 2 to 3 years old, and is no longer applicable to the current market.
• With the downward adjustment in rents over the last 2 to 3 years, in particular, this is very true for properties within the Perth Metro area.

Therefore, as Mr Bellman, discovered, it is unwise for landlords to base rental calculations on the GRV alone. Instead we recommend a number of proven strategies for adjusting rents to ensure leasing success under current market circumstances.

• Rental levels should be based upon comparative prices on properties being let in the current market, not solely on past levels or on the rents of properties still untenanted and up for lease.
• To determine rents, landlords should seek out current market evidence, consult their agent and be prepared to adjust expectations to meet the market.
• Landlords need to bear in mind that tenants now have a greater choice with high levels of properties available and therefore be realistic in order to be competitive.
• Ultimately, it’s important to weigh up the real cost of not leasing a property quickly to avoid the risk of having a property stand vacant for extended periods, returning zero rent.

 

As a Licenced Property Valuer, I am always happy to discuss your property goals with you to determine the most suitable rental levels to ensure leasing success. Please feel free to contact me on my mobile 0403 588 880.

Regards,

Dean Nicolo

Principal