Ten percent at day ten rule
30 November 2015
Many novice investors think that they would like to hold out for the highest rent possible before letting the property – even if it means losing several weeks rent. Is this the best way to maximise return?
Experienced property investors report that vacancy is likely to cost more than lowering the rent to meet the market. When they actually do the sums, the best return comes from minimising vacancy.
Holding out for a high rent – say $600 is illogical if the property is only worth $550 and will never attract a good tenant at that price. Two weeks vacancy at $550 is $1100, and spread over 52 weeks is twice the value of the higher rent – if it did in fact eventuate! Furthermore, unrealistic rents are more likely to be paid by more desperate tenants – those who are poorly referenced and have been unsuccessful in previous tenancy applications.
But it is not always easy to decide to lower the rent. Most investors need a strategy to help them avoid the temptation to hold out for the higher rent for “just another week” with the common result that - before they know it - another and another one goes by.
Experienced property investors work by the rule that (provided the property is clean and presents well and is well-maintained) if a tenant is not secured by day ten of the leasing campaign, the asking rent should be reduced by ten percent. This takes the agony out of the decision, enabling the property owner to distance themselves from the process by working to a tried and tested system.