16 January 2013

Property Managers Distorting True Market Rent

| 2AK
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As a property investor for more than 20 years, I have a few rentals in Canberra. I want to highlight a practice that is rampant here in Canberra by Real estate agent/property managers whereby the true value of market rent is always undervalued by $30 to $40 per week on a typical 2 to 3 bedroom rental property.

This is to ensure that they get a cast of thousands at the door at inspection time. Then they go through the applications with a fine tooth comb looking for executives or professional with high income.

This is because these types of tenants usually require less management, fewer hassles and more time for them to take on additional properties to manage to earn more money for minimum work.

In the meantime 90% – 95% of the people who attended the inspection will have wasted their time unknowingly because their application will inevitably be rejected.

I am annoyed that the interest of the property owners are not represented because they are losing significant money each week in addition to the 7% to 10% (of weekly rental income) for management fees owners are required to pay each week.

This is why all my properties are managed by myself and all of my rentals are $30 more than Real Estate managed properties. As an example, I have a 2 br property in Lyneham (60 Wattle St Lyneham) with weekly rental of $360 for the last two years and currently a Real Estate agent is listing pretty much the same property for $330 per week. I feel sorry for the owners.

Advice, if you have the time rent your property your self privately or asks your property manager why is rental price less than privately listed rental?

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i’m in a crappy position at the moment in that I need a short term rental….
but problem is short term to most realtors is 6mths+ and not the 2.5-3 mths I need for my new place to be built..

Also, i’ve never rented. period.So can’t wait for the applications I hand in, funny thing is i’m on $100k + but know that i will still find it hard to rent a place.

I feel for the people who can’t rent as low income / single income etc, but to the OP – mate, I hope I never ever have to rent from you.. you sound like a dream lessor…. yeah a nightmare.

Property Manager said :

My my my, what a storm in a teacup.

2AK is such a penny pincher that they’re proud of saving 8% in agent fees, AND charging tenants $30pw over market rent. Hallelujah though, 2AK will accept any tenant – particularly those struggling to rent in a competitive market. In fact, 2AK prefers them… probably because when they have no other options they’re willing to pay the premium price being asked for that shitbox unit in Cotter Court.

That’s the kind of landlord I would want to rent from!!!

Champion, all you’ve proven is that, while property managers are imperfect, there are many of us who are stuck representing greedy schmucks who have all the compassion and humanity of an electric eel. As agents we represent a range of personalities that reflects the different people within our society in general. As with any group representative of the population, there are some genuinely wonderful people we represent; but there’s also people like 2AK.

The market has ‘softened’ considerably over the last two years, and an oversupply of apartment stock has seen prices come back from the lofty highs owners enjoyed in 2010. As pointed out by some of the smarter contributors here, if an owner sets the price low to attract the greatest possible market interest in their property, they will have the best chance of securing the best possible tenant, at the best possible price. That ain’t rocket science.

For those struggling to secure a rental property, I genuinely feel for you. It is a horrid position to be put it – you have no history, so no one is willing to take a chance on you, so you can’t get a history – rinse and repeat.

I offered some general tips for securing a rental some time ago at http://the-riotact.com/tips-for-getting-into-a-rental-property-in-canberra/37570

Beyond that, the advice to have a parent or someone co-apply with you is a great idea*. It provides the property owner with greater security, while allowing you to build your own rental history. Just don’t screw it up or you’ll have a negative rental history and will quickly run out of people willing to co-apply with you.

Hopefully the slowing of the rental market, particularly in the apartment/unit sector will see previously greedy lessors left with no option but to take a punt on respectable, mature and friendly people without a rental history.

*I know its not fair that you should have to co-apply with a parent. It’s not fair that the owner can’t just take you at your word and disregard the applications from tenants with good rental histories just to give you a go. It’s also not fair that you can’t see a doctor without a 4 hour wait and an eventual misdiagnosis. It’s not fair that many mothers have to spend more on daycare than they can make at work. It’s not fair that One Direction is… alive 😉 Unfortunately though we can’t control the things that we might think are unfair, all we can control is ourselves within the circumstances inflicted upon us.

Property Manager12:08 pm 26 Feb 13

My my my, what a storm in a teacup.

2AK is such a penny pincher that they’re proud of saving 8% in agent fees, AND charging tenants $30pw over market rent. Hallelujah though, 2AK will accept any tenant – particularly those struggling to rent in a competitive market. In fact, 2AK prefers them… probably because when they have no other options they’re willing to pay the premium price being asked for that shitbox unit in Cotter Court.

That’s the kind of landlord I would want to rent from!!!

Champion, all you’ve proven is that, while property managers are imperfect, there are many of us who are stuck representing greedy schmucks who have all the compassion and humanity of an electric eel. As agents we represent a range of personalities that reflects the different people within our society in general. As with any group representative of the population, there are some genuinely wonderful people we represent; but there’s also people like 2AK.

The market has ‘softened’ considerably over the last two years, and an oversupply of apartment stock has seen prices come back from the lofty highs owners enjoyed in 2010. As pointed out by some of the smarter contributors here, if an owner sets the price low to attract the greatest possible market interest in their property, they will have the best chance of securing the best possible tenant, at the best possible price. That ain’t rocket science.

For those struggling to secure a rental property, I genuinely feel for you. It is a horrid position to be put it – you have no history, so no one is willing to take a chance on you, so you can’t get a history – rinse and repeat.

I offered some general tips for securing a rental some time ago at http://the-riotact.com/tips-for-getting-into-a-rental-property-in-canberra/37570

Beyond that, the advice to have a parent or someone co-apply with you is a great idea*. It provides the property owner with greater security, while allowing you to build your own rental history. Just don’t screw it up or you’ll have a negative rental history and will quickly run out of people willing to co-apply with you.

Hopefully the slowing of the rental market, particularly in the apartment/unit sector will see previously greedy lessors left with no option but to take a punt on respectable, mature and friendly people without a rental history.

*I know its not fair that you should have to co-apply with a parent. It’s not fair that the owner can’t just take you at your word and disregard the applications from tenants with good rental histories just to give you a go. It’s also not fair that you can’t see a doctor without a 4 hour wait and an eventual misdiagnosis. It’s not fair that many mothers have to spend more on daycare than they can make at work. It’s not fair that One Direction is… alive 😉 Unfortunately though we can’t control the things that we might think are unfair, all we can control is ourselves within the circumstances inflicted upon us.

Dork said :

I agree with selective choice in tenants. Me and my partner applied for over 30 rentals places a little over a year ago. We looked at over 40. Each application we were told that we were too young and had no referances. I think this is crap, how is a 19 year old that can’t live at home anymore supposed to get a rental? Also, it’s not like we were unemployed, I’m a public servant and my partner works for a private company. We eventually got one out of town and then a year later they put it up $20 a week even though the place was in worse condition (general wear of carpet etc) than when we got it. They just do whatever the hell they like. Rentals are crap.

Just get a well off relation or friend to make the application for the rental place then take the rental property sub-leased: no law stopping this! The owners hate this, though, as sometimes they get the worst kind of tenants who also know how to assert heir rights.

steveu said :

With all the multi-dwelling units that have gone up in the last 10 years its amazing that rents haven’t dropped since supply has gone up? I didn’t think that many extra jobs (creating demand on accommodation) had been created in canberra over that period. Apologies for my ignorance here. Just seems we have a heck of a lot more apartments here than we used to, majority of which I would think would be owned by investors.

One possibility is that a lot of new unit stock is vacant.

Just anecdotally, the unit next to mine has been vacant since it was built about 9 months ago. Places like it wouldn’t show up on rental vacancy statistics because they’ve never been advertised for rent.

I met the owner once, who said she hadn’t rented it because she was a first home buyer. I’ve no idea how you make the numbers work in your favour on that one, but it goes to show that people deliberately leave properties vacant nevertheless. I know of 2 other units in the complex that I’m pretty sure have been vacant since they were built, and I suspect there are others.

Felix the Cat9:41 am 17 Jan 13

Wouldn’t a RE agent be better off putting a high rental price on the property which would theoretically attract wealthier and better tenants and also cut down on the number of applicants so less work for RE agent to do (not that a lot of them seem to do much work anyway…)?

Maybe they put a low rent on it just to get a tenant quickly and like someone mentioned the extra $10-420 per week they might get is worth SFA to the RE agent.

With all the multi-dwelling units that have gone up in the last 10 years its amazing that rents haven’t dropped since supply has gone up? I didn’t think that many extra jobs (creating demand on accommodation) had been created in canberra over that period. Apologies for my ignorance here. Just seems we have a heck of a lot more apartments here than we used to, majority of which I would think would be owned by investors.

justsomeaussie11:19 pm 16 Jan 13

The book Freakonomics has a good write up with real world data on real estate agents. Simply a small increase in rent or sale price isn’t worth their time simply because they are only making a sub 8% return.

So for the owner getting an extra $10 per week in rent or 10k on a sale is great, for the agent it’s really pennies and not worth the extra time they have to devote to finding someone who’ll pay more.

If anyone doubts this the US data is there for anyone to go though. Not hard to do the figures for here.

2AK, you are tilting at windmills. You are doing a lot of supposing and presuming and assuming.

Your story is confusing, too. You rented your place two years ago, but then you mention five weeks, but the other place is still not rented … what is going on here?

Also, your statistics are meaningless: regardless of how many or few turn up to view a property, there can be only one tenant. It’s not a statistical measure, it is an absolute. To have 90% of applicants rejected means you had 10 applicants, and you accepted one.

As for people who are students, single, or otherwise don’t fit the DINKY mould, just make sure you get in early to be at the top of the list. The property manger isn’t looking for perfect tenants, they just want the first decent tenant they can get a signature from quickly.

But 2AK really needs to get that story straight before we can start handing out cookies for being canny enough to rip someone off to the tune of $20/week.

2AK said :

The reason I believe the property at Lyneham is still not rented is the agent is looking for 5 star model tenants and not your average Joe. In the mean while owners have lost $1650 in lost rent for the 5 weeks that’s vacant. They don’t care how long a property is vacant, it’s not their money all they care about is getting the best tenants this will lead to less work. My concern here is the absence of middle ground.

You may be right on that, although I wouldn’t have thought that’d be a particularly successful strategy. High income senior professionals probably aren’t looking to rent 50 year old un-renovated flats, and if it stays on the market for too long, surely the owner will ditch them for another agency.

I do agree that rental prices have soften, but in saying that I rented my Lyneham property
two years ago at $360 while other RE were advertising theirs for $330 while the rental market
was hot.
The reason I believe the property at Lyneham is still not rented is the agent is looking for 5 star model tenants and not your average Joe. In the mean while owners have lost $1650 in lost rent for the 5 weeks that’s vacant. They don’t care how long a property is vacant, it’s not their money all they care about is getting the best tenants this will lead to less work. My concern here is the absence of middle ground.

Grail said :

I really appreciate your concerns that property managers are working hard to keep rental properties affordable, while also selecting low maintenance tenants. I am angered that they are not pushing rental prices sky high and keeping up a steady flow of property damaging drugged up rock stars through my property.

Wait, what … ?

My thoughts exactly. Offering a good price in order to attract high quality tenants who will look after the property seems to me to be something like…ohhh…I dunno…common sense, or good business practice, or something like that.

And how exactly does one justify a price differential of nearly 10% over similar properties to prospective tenants? “You should pay me $360 instead of $330 for that identical place next door because ummm…because ummm…I want to make more money out of you!” I’m sure tenants would be flocking to sign up to that proposition.

I agree with selective choice in tenants. Me and my partner applied for over 30 rentals places a little over a year ago. We looked at over 40. Each application we were told that we were too young and had no referances. I think this is crap, how is a 19 year old that can’t live at home anymore supposed to get a rental? Also, it’s not like we were unemployed, I’m a public servant and my partner works for a private company. We eventually got one out of town and then a year later they put it up $20 a week even though the place was in worse condition (general wear of carpet etc) than when we got it. They just do whatever the hell they like. Rentals are crap.

justsomeaussie8:39 pm 16 Jan 13

As someone who attended those rentals where 40+ people would turn up, I wondered why I was never getting a look in even though I was a professional and even once offered $20 over the requested rent.

So I asked a Property Manager friend and she told me the inside story. When agents have a lot of people interested, they only read the first 10 applications and simply choose the first suitable person without bothering to check anymore.

Her simple tip was to be the first one in the door with a pre filled in application, be nice and friendly and tell the agent you are very interested.

Now I’m on the other side owning with a tenant, the advice from the same friend was since it was my first rental property use an agent for the first twelve months to get familiar with how it all works. If you get a good tenant eith minimal issues manage them yourself from then on.

I dont understand…are you giving yourself props for charging more than real estates?

I don’t understand how you came to this conclusion- I have three rental properties and they are aligned with private and property managed rents. True, it does save you a bit in fees if you do the management yourself, but I always do my homework when setting the rental price and it always is only about $5 different (at the max) from most other similar properties on Allhomes.

I think you need to take a closer look at the market there Daddy Monopoly Scrooge Warbucks.

You might find that RE agents tend to overstate the market rent much more often than they pitch it at the market – this has contributed to a sharp and sustained rise in the number of properties for rent in Canberra.

If you aren’t well off with a great job and at least 2 people applying – don’t bother with a real estate.
Being a single parent- one reasonable income plus centrelink payments , I’m sure the agents don’t even hand my application along.

I really appreciate your concerns that property managers are working hard to keep rental properties affordable, while also selecting low maintenance tenants. I am angered that they are not pushing rental prices sky high and keeping up a steady flow of property damaging drugged up rock stars through my property.

Wait, what … ?

Maybe that was the case, it certainly doesn’t seem to be now. I rented my current place through a RE agent, and they didn’t seem to have any issue with the fact that I was a student with no income or rental history.

Similarly, at many of the places I inspected, I was either the only one or one of only a few people who bothered to show up. There’s also plenty of rental stock languishing for months on the market, so I don’t think you can say that agents are listing prices too low.

Rents have fallen a lot in Canberra recently. The unit you mention in Lyneham at $330 a week has been advertised on allhomes for over 5 weeks, if it was under priced, it would have rented long ago. If your place is indeed very similar, I doubt you’d be getting $360 for it if you had to get new tenants.

I don’t agree that the rent prices in Canberra are understated.

Sounds like a 1st world problem to me.Are you sure your not just shirty because your being undercut.

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