How long is it worth chasing an extra £50pcm for your rental property? That depends on the rent you’re asking for, but the answer is almost always never at the expense of a vacancy period.
Nothing costs landlords more than void periods. Below are a couple of examples.
Landlord 1 wants £1000 pcm. They get that, but the property is vacant for eight weeks whilst finding the right tenant.
Landlord 2 takes £950 pcm immediately.
Over 12 months, landlord 1 achieves ten months of rent = £10k, whereas landlord 2 takes in £11,400.
If the property were vacant for just one month of the year, landlord two is still winning with £11k v £11,400. There’s not a lot in it, but landlord 1 had the certainty of a tenant in place earlier. Also, the slightly lower rent will encourage the tenants to stay longer. There’s also no guarantee that landlord one won’t take £950 eventually.
Let’s say that landlord 1, over five years, has five changes of tenants, whereas landlord 2 has just two, and the difference starts growing.
For this example, landlord 1 has 1.5 months of vacancy per tenancy chasing the £1000 pcm. Over five years, that is 7.5 months of vacancy over the five years. But they get £50 extra monthly when a tenant is in situ.
So landlord 1 will bring in 10.5 x £1000 per year x 5 = £52,500.
Landlord 2, never chases higher rent. They focus on a lack of void periods.
They have one month of void period per tenancy, losing two months of rent over the five years.
Landlord 2 will get £950 per month for £55,100. £2600 over five years.
That’s an extra £43.33 per month. Landlord 2 makes an additional 4.7% of revenue from the investment. You’d take that in the bank right now.
I’ve left both properties at a steady rent, but in reality, both would increase over time, but likely at the same rate.
I have seen landlords chasing above-market rent for months. Take a three-month rental at £2600 pcm, but the landlord is trying to achieve £2800. With three months of vacancy, you’re losing £7800 in rent chasing an extra £2400. It’s not a great gamble.
The clever play is to take the £2600 and put an increase after 12 months if you like the tenants. You’re back in the same position but with a lot more money in your pocket.
If you have any questions, please do ask.
Simon
MD.
