42 - Tenant Churn

suitcaseThe property management firm (Century 21) managing our Brisbane property contacted us recently seeking our instructions regarding the renewal of the current 6-month lease, which runs out in the next few months.

It was noted the current rent is at the high end for the area, with a nearby estate also coming online—increasing rental supply. The agent reminded me the last (and first inspection since this lease began) was acceptable, and mentioned monies owed by the tenant are generally within tolerances.

The agent additionally mentioned a contractor reported two dogs at the property, one being a small puppy. Although I’d not formally rejected the tenant’s pet request, I hadn’t approved it either.

Despite being annoyed about the dogs—mainly the dishonesty of the matter, I proposed another six month lease at the same rate and approved the pet request as there seemed to be no option not to. I asked that our dissatisfaction about the dogs be conveyed to the tenants and requested the tenant raise any other issues now so they might be cleared up. It’s frustrating when the adults you lease a property to behave like three year-olds but if they’re paying the rent, that’s a good thing.

After all of that, the property manager came back with a response from the tenant and they won’t be renewing the lease. We haven’t been given a reason why but the agent was going to enquire.

Open Corp have noted a preference to lease to families due to the stability they offer as tenants (kids in school, general stability, other life pressures which preclude moving house, etc) but we approved the original trio of adult tenants as they had no kids, no pets, and were the first and only application we received. We also pretty much had to approve the application to secure the Open Corp 12-month rental guarantee at the original rent we desired.

Having the lease turn over means the property will need to be advertised and we’ll need to pay a new letting fee to the property manager. Of course there may also be a vacancy period. I’ve budgeted for both the costs of an annual letting fee and four week vacancy period. Although very much not preferable, I’m confident we have an adequate financial buffer to cover any gaps. Nonetheless, I also include long-term vacancy as a risk on my property investment risk register.

Admittedly, from the point we transitioned this property from acquisition and commissioning to tenancy, my expectations around the time a tenant will remain in place were likely too high. My only frame of reference for this was as tenants ourselves: we spent four years in the Adelaide house and a couple of years in a Perth rental. I hoped to get two years out of the original Brisbane lease but will adjust downwards future expectations on the back of this experience. Although I dislike the idea of churning tenants and the wear and tear a house takes in the process, as long as we have tenants in place to contribute rent towards the holding costs, I suppose I can’t care too much… everything else can be repaired! I’d be curious to know the average tenancy duration across different types of rentals in different areas…

It’s easy to trick yourself into believing being a landlord should be a set and forget exercise once the initial setup is complete. The books, magazines, and online resources (such as this blog) tend to focus on matters such as types of investment, types of property, location principles, ownership structures, financing, tax structures, and so on; the day-to-day landlording is typically glossed over by promoting the use of a property manager or improving the property to “manufacture wealth.”

The last twelve months have offered me an enormous experience as a newly-minted landlord but this role still feels very foreign to us and the mandatory, ad hoc decision making requirement when you least have the headspace to spare can honestly be a hassle. I’ll endeavour to write more about this aspect in future posts.

The property will be advertised about six weeks out from the end of the lease; it will be interesting to gauge the market and find out who we get next as tenants. I’ve intentionally remained very anonymous with these tenants but am rethinking our approach the next time around to experiment with a more personal approach (while keeping the PM in their role).

I suppose a disclaimer is also worth posting: I'm just a guy, I'm not an accountant, lawyer, solicitor, tax agent, mortgage broker, banker, financial adviser, insurance agent, land developer, builder, government agent, or anything else so I disclaim your application of anything I write here is to be applied at your own risk. What I write may be incorrect and you are best to seek your own professional advice (tax, legal, financial, and otherwise) before entering into contracts or spending your money. Your situation is unique to you and what I write here reflects my experience only. This content is not professional advice and is not tailored to your situation. I’m not selling anything and I do not receive any form of commission or incentive payments for any companies or individuals I endorse. I'm learning too and expect to make many, many mistakes along the way.

Enjoy,

Michael

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