Property: Taking the long view with lettings
PUBLISHED: 15:26 28 July 2014 | UPDATED: 15:26 28 July 2014
Bernadette Oliver, head of Savills Harpenden lettings, says landlords who try to maximise their rental income could be damaging their long-term returns
When managing a residential rental investment, whether a large portfolio or a single ex-family home, it is vital to understand the relationship between void periods and the overall annual return. Very little proves to be more threatening to the overall net yield than the prospect of a large period when a property is unoccupied. To put this into context, every month a lettings property sits empty, a landlord could drop his or her asking price by eight per cent and be no worse off.
While the economic outlook is far rosier than in recent history, the lettings market place is still incredibly price- sensitive, with the number of increasingly discerning tenants growing steadily. As a result, properties that are over-priced or not presented in the best possible light, are likely to remain unlet – sometimes for a prolonged period of time.
There is always the temptation to try the market out to secure the highest possible price, but the most savvy of landlords take into account the full picture – incorporating how much it costs for a property to remain empty. This includes the monthly amount of rent sacrificed for void periods, the monthly cost of council tax (which is now in most cases payable irrespective of whether a property remains empty); and the additional costs of heating, security, maintenance and so on. For the majority, it is often more beneficial to take a lower monthly rent once the cost of accumulative outgoings has been calculated, assuming of course that such lower rent enables quicker occupancy.
A good example would be the success story of a detached family home offered in excellent condition on Tuffnells Way, Harpenden, which let on the first viewing, at full asking price, with no void. Having considered the market very carefully, the landlord was wise to price the house at the right level as opposed to being tempted to push the price beyond its true value. Had he done so, such a route may ultimately have meant the property sitting empty, costing a damaging eight per cent of the annual return for every month of void.
Be realistic about market value – annually, unlet periods can be more costly than dropping the asking price and securing a quicker letting.
Factor in all the annual costs of the property, including contingency for unlet periods (when council tax is still payable), maintenance and security.
Present the home in excellent condition to gain a positive reaction and increased uptake from tenants.