- 06 Oct 2024
- By API Magazine
With a growing tenant pool and limited supply, the challenge for investors has shifted from finding tenants, to selecting the best ones.
With vacancy rates at historic lows across Australia, the rental market has become fiercely competitive.
Prospective tenants are often seen lining up around residential blocks, eager to secure a place to live. This scarcity of available rentals has shifted the focus for property investors from merely finding tenants to attracting and retaining the best ones.
Amidst these challenges, recent developments in rental laws and ongoing economic pressures make it even more crucial for investors to select a reliable tenant who will ensure profitable rental yield and capital growth.
In New South Wales, Premier Chris Minns has announced plans to reform rental laws, including the introduction of legislation to end no-grounds evictions.
Set to take effect in 2025, these changes will require landlords to provide a “common sense and reasonable” justification for terminating a tenancy, supported by evidence for legal enforcement.
Additionally, the notice period for tenants on fixed-term agreements will increase from 30 to 60 days for leases shorter than six months, and from 60 to 90 days for longer agreements.
This move aligns with similar policies in other states like the ACT, South Australia, and Victoria, where landlords are prohibited from terminating periodic leases without valid reasons.
These reforms come at a time when the rental market is already under pressure with almost a third of Australians renting homes.
Factors like the ongoing interest rate hikes in 2022/2023 and no relief in sight in 2024, have further tightened the supply of rental units, deterring many Australians from purchasing homes and increasing the demand for rentals.
In Victoria, new land taxes and a raft of rental reforms have made the region, particularly Melbourne, less attractive for investors, exacerbating the shortage of available rental properties.
With a growing tenant pool and limited supply, the challenge for investors has shifted from finding tenants, to selecting the best ones to ensure a trouble-free rental experience for all parties involved.
Financial stability and employment status, with supporting documentation to verify the terms of income, should be a top priority, with tenants’ income ideally being at least 2.5 to 3 times the rent.
A good credit score, generally above 600, indicates responsible financial behaviour, while sufficient savings provide a cushion for unexpected expenses.
Additionally, a solid rental history, characterised by long-term stays and positive references from previous landlords, can be a strong indicator of a tenant reliability, stability, as well as behaviour during the application process that might offer valuable clues to potential landlords.
Beyond selecting the right tenant, retaining them is beneficial for ensuring long-term profitability. Being approachable and responsive to tenant inquiries and requests shows that a landlord values the tenant’s comfort and satisfaction. Respecting their privacy, by adhering to legal notice requirements before entering the property, also fosters trust.
Regular preventative maintenance, addressing repairs promptly and replacing outdated appliances can prevent minor issues from becoming major problems. Offering lease renewal incentives, such as small rent discounts, property upgrades, or flexible lease terms, can further encourage long-term tenancy.
Reasonable rent hikes essential
In Queensland this week the government and opposition each ruled out resorting to rent caps.
But keeping rental increases reasonable and in line with market trends is still key to preventing dissatisfaction. Communicating any increases clearly and well in advance, along with an explanation of the reasons, helps maintain transparency and fairness.
Creating a positive living environment can also improve tenant retention. Whether it’s fostering a community atmosphere in multi-unit complexes, ensuring safety and security, or maintaining a peaceful environment, these efforts contribute significantly to tenant satisfaction.
Showing appreciation and recognising long-term tenants with special benefits can also make a lasting impact.
Flexibility in accommodating reasonable requests, such as allowing minor customisations or offering payment arrangements during temporary financial setbacks, can increase the likelihood of a tenant staying. Regular interactions and check-ins by property managers, ensure the property is well-maintained.
In the same way tenants need strategies to navigate a tough rental market, so too do landlords in trying to make their investment a success.
As the Australian rental market continues to face unprecedented challenges, attracting and retaining high-quality tenants has become more critical than ever. By meticulously vetting potential tenants and creating a positive, responsive and flexible rental environment, investors can not only secure their rental income but also foster long-term, profitable relationships with their tenants.
Upgrades, renovations, and maintenance that enhance the tenant-landlord relationship can also offer potential tax benefits through property depreciation. For landlords, this not only boosts cash flow but also strengthens the positive relationship with their tenants.
