All posts by Elishah Lusi

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What happens when the leasing market cools?

By | Leasing | No Comments

We often hear lots of talk around the housing marketing relating to sales, clearance rates and sold prices but very rarely do they talk about the rental market. It’s interesting because the two are related and when we see a slower sales market we often see the roll-on affect in the rental market.

The start of 2018 went off with a bang and properties were being snapped up for lease in record time, with properties not lasting more than 7 days and generally being leased after one inspection.

In many cases tenants were offering higher than asking rentals and longer lease terms so that could secure their dream home. Typically at this time of year however, things start to slow down, less people at open for inspections and properties taking slightly longer to lease.

So just how do Landlords prepare for a shift in the demand? As with all things preparing for the worst and having financial savings to assist if a property becomes vacant is one way to do it, however we want to look at a more proactive approach and one that keeps those funds in your pocket.

Let’s go back to the start, when we secure a lease we always try and time the lease end date for ‘peak season’ that is typically from October – March. If a tenant is offering a six-month lease in June, then this might be a time that we would consider a shorter lease so that if it does become vacant it does so at a good time of year.

Consider securing a longer lease if possible, so similarly to the above example if a tenant is after a 12 month lease we can try and negotiate an 18 month lease which will bring the end date closer to the ‘peak’ leasing season. This also reduces the risk of the property becoming vacant sooner if you only secured a 12 month lease which would incur you more costs.

Owners should also promote the property to those in the building and close by via a brochure, the reason this is an effective strategy is that often we see current occupants in the building having a friend or family member that would like to lease in the building, but they may not necessarily be looking online all the time.

We also recommend Landlord’s use the quieter time in the market to do renovations or repairs to their property in preparation for securing a higher rental in the warmer months.

It is not just about ‘reducing the rent’ which some agents use as the only tactic to lease a property in a cooler market, it’s about planning ahead and looking at all options, not just the easy ones.

If you would like to speak to us about our proactive approach and how we focus on minimising vacancy, then feel free to contact us.

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Breaking a lease agreement, what happens next?

By | Leasing | No Comments

A few tenants have asked us lately what happens if they need to break their lease agreement. For various reasons someone might need to do this, reasons can include relationship break up’s, job changes resulting in moving overseas or interstate, financial reasons, new relationships and the list goes on.

Whatever the case may be it is important to know where you stand as a Tenant and Owner.

Tenants –
Are liable to pay rent until a new tenant moves in (up to when the Lease ends)
Are required to pay any advertising costs to find a new tenant (in accordance with the Landlords agreed fees with the agent)
Are required to pay a pro rata leasing fee (in accordance with the Landlords agreed fees with the agent)
Are required to leave the property in the same condition as when they moved in

Landlords –
Are required to pay the balance of the pro rata advertising and leasing fee (in accordance with the Landlords agreed fees with the agent)
Need to approve the new applicant before the new lease can be signed, once the new lease is signed the tenant transfer can take place.

Please note the following link to Consumer Affairs Victoria detailing the full obligations of the parties.

https://www.consumer.vic.gov.au/housing/renting/ending-a-lease-or-residency/if-the-tenant-wants-to-leave/tenant-giving-notice-of-intention-to-vacate/if-you-do-not-give-notice-if-you-break-the-lease

If you are thinking of breaking your lease have a chat with your property manager and make sure you are clear on all the costs involved. For an owner if this happens to you make sure your agent is doing thorough checks and is taking care of your interests whilst managing the process. Contact us today for a confidential discussion.

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Three things to avoid when you have an investment property

By | Uncategorised | No Comments

We often hear about all the things to do when we have an investment property, but what are some of the things we shouldn’t do?

Not doing regular rent reviews

Some people think that if the tenants pay rent of time and look after the property they shouldn’t need to get a rent increase, investors get comfortable and say things like ‘oh they are lovely tenants and have been there for so long, I can’t increase it now’. It all starts after one or two years of not increasing the rent, the longer you leave it the worse it is. We recently came across an owner who has had the same tenants for almost eight years, not once was the rent increased. Now the property is going through a period where maintenance items are coming up and its costing the owner. The property is at least $80.00 per week under market, which makes bringing it back into line with comparable properties very difficult.

Solution? Conduct regular rent reviews and small consistent increases, this will keep the rental return in line with outgoings and the tenant will not be hit with a large increase when they are least expecting it.

Not keeping up with repairs and maintenance

Owners who only do the bare minimum when it comes to maintenance often think they are saving money, that the investment shouldn’t cost much and tenants can ‘make do’. It is the tenants home. The better the environment that we provide, the more the tenants will appreciate it and do the right thing by you as the owner. The less the owner repairs and maintains the property, the more frustrated and disappointed the tenants become. Keeping the tenants happy is one thing, but more importantly it’s just like a car, constant servicing will keep the car running better for longer. If we don’t do the small repairs they eventually become big repairs and in some cases, require a property renovation as the property becomes un-rentable in its current condition which can end up costing more in the long run.

Solution? Conduct regular inspections and take the time to undertake regular maintenance, the property will thank you for it.

Not be thinking how can the property be improved

Have you recently undertaken a review of your property and considered how you can improve it? Not just on a superficial level with repairs and maintenance but an assessment if each area of the house is working for you as an asset? For example, we advised a client who had a beautiful large spa bath that took up whole room to remove it and make it a 4th bedroom. At first, they were hesitant as they used it regularly, and be regularly they narrowed it down to approximately 12 times a year. We transformed it into a 4th bedroom and increased the rent by $80 per week, easily accounting for the capital investment within two years, not to mention increasing the resale value. Maybe it’s a pool that let’s face it, in Melbourne may get a run for two months out of the year, it may be worthwhile removing it and extending the property, or turning it into an outdoor deck that would increase short and long-term value.

Solution? Take time to review your property and its layout and do a cost benefit analysis to see if removing an underused feature of your property and replacing it with something of more use is worthwhile.

It’s also worth noting that repairs and maintenance and certain capital improvements can be tax deductible, speak with your accountant to find out more.

If you want to get the best out of your property, give us a call to find out how we can help.

 

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Why Cheap Agents Can End Up Costing You More

By | Agent selection | No Comments

We have all had an experience (or several) where we have realised that cheap goods or service cost you more in the long, and sometimes very short, run. Be it a cheap t.v. or whitegoods that fail just after warranty expires; or maybe it was that accountant that gave you a $99 tax return that saved you $50 to $100 in initial fees but you in actual fact have missed a lower tax bill by $500 to $1,000; or maybe it was that real estate agent that promised to sell your house for a lower fee, but then another property in your street gets sold a month or two later by a different agent, and it wasn’t as nice and big as your one but they got $20,000+ more.

And the reason why this happens in real estate lies in the motivation of the agent; do they just want your business and money or do they genuinely want the best result for you. Anyone who provides the same service to two clients yet gets paid less for one will logically provide a lower quality service and therefore result to the one paying less and they won’t be willing to go the extra mile to get you the best price possible. They will be looking at you like a number, another one in and out of the system as soon as the agent gets the price that will get them their commission, not what is the best price that I can get for the client.

You may have already experienced this if you have sold before, or if you have an investment that is managed by the cheapest agent you would have likely found that rent reviews were not regularly conducted, or that the repair to leaking roof cost a few hundred dollars more than what it should. According to the REIV, the current (June Quarter 2017) Melbourne median house price is $822,000 and the median rental is $420 per week. A real estate agent that would sell your house for half a percent more would equate to $4,110 in higher fees, one $10,000 bid at auction would cover this and then some; or a property manager that is a percent more in management fee would equate to $219 in higher fees, miss one $10 per week rent increase and it would cover the agents higher fee for two years approx.! And when you factor in potential tax benefits, the reasons for using the better agent are even greater.

But be weary of some premium agents too, sometimes they may just be “mutton dressed as lamb”.  So next time you look at an agent solely based on fee, think about how much they might be costing you in the long run. Avoid the temptation of the “quick fix” of getting the cheapest fee, focus on using an agent that has passion, wants the best result for you, is or has created a brand and legacy, has history of great results and not just a great number of sales.

If you need any advice regarding the sale or management of your asset please do not hesitate to contact us.

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Why advertise when you can sell off-market?

By | Selling | No Comments

There are many ways to sell a property and one of the methods is to sell “off-market”.

Selling off-market is when an owner decides to sell their property and appoints an agent to do so without the use of traditional advertising.

So what are the benefits of selling off-market?

The benefits of selling-off market including not needing to outlay any monies to advertise, no sticky-beak neighbours popping in and having only genuine buyers inspect the property. Where time is of the essence, say in the case of financial distress, an owner may want a quick result and not be willing to wait for photos and advertising/marketing material to be prepared. In the case of high end property, there are only a limited number of buyers that can afford to purchase such properties and they are usually known within the network of the estate agent, therefore in some circumstances there is little need to advertise.

What are the negatives of selling off-market?

Whilst you may have an idea of who your typical purchaser will be, you never know who will actually end up buying it. By not advertising to the open market, you restrict the number of potential purchasers and this can limit the end sale result. There is also limited urgency on behalf of the buyer as there is less competition therefore not giving the buyer incentive to put forward their best offer.

If a property is ready for sale, good agents will already have a list of buyers looking to purchase and will show these buyers through before advertising. This is not a true off-market opportunity but rather a pre-market opportunity where if you pay the owners price they will sell. Some owners apply the tactic of “if I get my price, I sell”, these properties usually don’t sell and end up being “conditioning properties” used to show buyers “expensive” properties in the area, agents will then offer these buyers other properties which are “better value” driving up the price of the property that the agent thinks they can sell.

Some agents don’t have the ability to manage an off-market sale without compromising the sale price and as a buyer these are the agents you want to follow, as a seller follow the agent that has the skill to navigate the challenges that an off-market sale can bring and who can get you a great result.

If you are thinking about selling please give us a call to discuss the best selling method for you.

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What is the point of a lease renewal?

By | Lease Renewal | No Comments

It may seem obvious to some, but for many Landlords and Tenants they can’t seem to understand the reasoning behind a lease renewal.

It’s not just a quick process that property managers do, it’s a calculated, thought out task that can benefit both the Landlord and Tenant.

Let’s look at the Landlord’s side of things first, from a Landlords point of view you would want a good tenant to stay long term and not move out after a year or so.

This is where discussing the lease renewal with the existing tenants is so important, if we can secure another year or more and possibly increase the rent* this is a great result for the Landlord. *Depending on market conditions, more on rent increases can be found on our previous blog http://www.directpropertygroup.net.au/rent-increases-and-getting-them-right/ Read More

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Make money from renovating your investment in three years

By | Maintenance, Renovations, Tax deductions | No Comments

For this month’s blog we take a look at renovating your residential rental investment and what value and financial benefit that can bring you as an owner. Each example includes the cost of our project management fee as we managed each of the renovations of these assets.

We take three different properties in three different suburbs and understand: –

– what their previous rental amount was;

– what value was added and the cost of the renovation (including our project management fee);

– what the current rental rates are and;

– what the payback period is for investing in the renovation*.

Example 1 – Three bedroom home in the Altona area

Property was being leased at $1,434 before Tenants vacated and a renovation was completed. We managed the renovation that included installing a second hand near new kitchen, painting, lighting upgrade and tiling. Total investment towards repairs was $14,210 and the property was leased after one open at $1,695 per month. Annual rental improvement is $3,132 combined with $972 in tax savings in year one brings the total annual benefit to $4,104, the payback for this renovation is approximately 3.36 years*.

Example 2 – Two bedroom apartment in the South Yarra area

Property was originally vacant however a similar two bedroom apartment in the building was leased at $1,217 and was in better condition. We managed the renovation process which included new kitchen, painting and various other repairs. Total investment towards repairs was $11,405 and the property was then leased after one open at $1,477 per month. Annual rental improvement is $3,120 combined with $780 in tax savings in year one brings the total annual benefit to $3,900, making the payback period approximately 2.84 years*.

Example 3 – Three bedroom home in the Brunswick area

Property was being leased at $1,950 before Tenant vacated and we undertook a substantial renovation. We managed the renovation that included installing a new kitchen, painting, landscaping and new guttering. Total investment towards repairs was $19,800 and the property was leased after two opens at $2,390 per month. Annual rental improvement is $5,280 combined with $1,354 in tax savings in year one brings the total annual benefit to $7,931, making the payback period just under 3 years*.

*The payback period factors a modest $5 per week rent increase each year and the tax saving is calculated on you having one rental investment and being in the 38% tax bracket with an 18% reduction in tax savings each year, these figures are estimated and your individual tax situation may be different so please seek professional financial advice specific to you.

Our calculations do not factor the time saved in securing a new Tenant as new properties generally take a shorter time to lease, we have done this to roughly offset the time taken to renovate the property.

As you can see from the examples, it’s clear that by undertaking a renovation you will in a short time frame have your initial investment paid back whilst reaping the rewards of a significantly higher rental for the future. Not only do you get the higher rental to begin with, you typically gain a better quality Tenant and a lower amount of repairs being needed during the year.

Contact us should you be considering the need to renovate your investment and would like a chat on how we can help you make managing your investment much easier.

 

 

 

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How to select the best property manager for your investment

By | Agent selection | No Comments

Some property investors do not realise the value of a good property manager until an incident or series of incidents occur that cost the owner time and money. To avoid the pitfalls of selecting the wrong property manager for your investment, we list the key areas that you should consider before selecting someone to take care of your valuable asset:-

Experience

What experience does the property manager have? Have they managed an investment similar to yours, how long have they been in the industry and what value do they bring to you and your asset? Property managers with varied experience across multiple forms of assets will usually have the right set of skills to provide you with a unique and holistic approach to dealing with whatever issue comes up with your property efficiently and effectively.

Who is looking after your asset?

Often the owner of the business, department head or worse yet the business development manager will initially meet with you offering all the bells and whistles of how great they are and will be, but who will be managing the property? Is it someone who is inexperienced or someone who is managing 125 – 200 other properties which does not allow them enough time to properly service you and your property? It is usually these time poor property managers that are under so much pressure that they take short cuts and eventually, issues creep up and cost you in the long run.

Value

Check with other agents and see how much their fees are and if they are competitive, however with all things in life be careful not to look at the cheapest possible offer as there is usually a very good reason as to why they are! Do they get multiple quotes for repairs, do they have trusted contractors, how often do they inspect the property and do they check after a repair has taken place? Does the agent have an online portal where can check on their last inspection, if rent is paid and if the property is in a great state of repair?

Reference

Ask the agent for a few references from local, interstate and international investors. It’s important to see how your property would be treated if your circumstances change and you need to travel. Often if an agent treats their interstate or international investors well and they are happy, local owners will be treated just as well but be careful as an agent will usually provide a contact who they know will give a great reference. Better yet ask your trusted friends and family if they know of a proven property manager that they could recommend.

What’s important to you

There are other important areas to consider such as what will happen in the event of an urgent repair, if a Tenant does not pay on time or how does the agent ensure that we are getting the best Tenant and rental possible. Is the agent honest, do they have integrity and are they across all legislation relevant to your asset etc. Whatever is most important to you, ensure that you communicate it to the agent to see how they deal with that situation or what evidence they can provide.

Direct Property Group will work with you on your priorities to give you the best service possible, for great value and most importantly you deal with the owners of the business direct, so you are ensured to get a level of treatment that very few agents can provide. We provide services across residential, commercial and industrial property.

Please contact us today if we can help you in getting the best out of your property investment.