When you buy an investment property, you will be faced with one of two possibilities. The property is vacant or an established tenant is already paying the rent. If it’s vacant, you will obviously need to source a suitable tenant as quickly as possible to cover the property’s expenses, and consider if having the property professionally managed by an experience property manager is of importance.
If the property is already leased, it will be important to ensure the tenant is paying a reasonable market rent, and if the current property manager is able to provide a level of service which aligns to your requirements.
1. Pricing Myths
There are some time-honoured, unwritten rules amongst hard-nosed real estate investors that say you should be able to achieve around $100 per week for every $100,000 you have invested in purchasing a property. So, if you’ve just invested $450,000 in a two-bedroom apartment, they suggest you’d be expecting $450 dollars a week in rent. Unfortunately, this is a myth. The market has its own set of rules and they don’t always align with investors’ expectations, therefore, it’s critical that you do your own research on what’s available on the market and consider getting a professional opinion.
2. Comparing Apples with Apples
Start by doing an online search of vacant rental properties in the same suburb as your investment property. If it’s a house, only compare with other houses. The same goes for units. Put in the number of bedrooms, bathrooms and parking spaces that your property offers and you’ll immediately have a list of comparable properties that are currently vacant. Pick out the ones that seem most similar to yours and then set aside time to attend their open inspections. You’ll get two things out of this. Firstly, you’ll gain a genuine appreciation of how competitive your property will be against those properties and whether it is worth less or more. Secondly, you’ll meet property managers when they don’t realise they’re being interviewed so you’ll get a real-world appreciation of their quality of service and market knowledge. Ask them what else they have in the same price range and see what they say.
3. Ask for a rental property appraisal
By now you will have a pretty good understanding of what seems like a realistic rental price, and a list of property managers and estate agencies who appealed to you due to their professional conduct, marketing approach, or comprehensive knowledge and advice.
When asking for a rental appraisal, a good way to assess a property manager’s responsiveness is to contact them by email or complete your rental appraisal request online. This will highlight how quickly they are likely to respond to tenant enquiries and even your own, if you’re going to sign a management agreement with them.
4. Make the call
Once you’ve received several appraisals from your shortlist of real estate property managers, go back to each of them and ask what rental property appraisal methods they used, what evidence they have of the number of prospective tenants currently on their database looking for a property like yours, and their marketing strategy. If you’ve not decided whether you will manage your property yourself or give that job to a professional property manager, these answers may sway your decision. Once you’ve been through this process, you’ll be well informed and ready to make the call on what price to ask and which direction to take.
5. Start your marketing campaign and listen
There’s really only one way left to find out whether you have put a fair price on your property - ask the market. It will tell you very quickly. If you’ve decided to appoint a property manager, discuss a pricing strategy and get your marketing campaign underway as quickly as possible. Listen to the feedback from tenants at inspections and adjust accordingly if necessary. If you’ve chosen not to use a professional, you’ll need to be a prepared for some brutally direct feedback if you’ve got your pricing point wrong, and, you’ll need to be able to respond to any tenancy legislative questions which may be asked by prospective tenants. If your property is overpriced, be sure to adjust accordingly until you find the right tenant for your investment property.