“Dave, your tenant has given notice to move out. And, it looks like the market has come down. I recommend we advertise the house for $480.” My agent relayed the less than exciting news.
Not exciting for several reasons. First, the tenant is moving out. Anytime a tenant moves out, I run the risk of going some period of time with no rent. Next, the market has come down. The current rent was $510 per week. Now, I’m looking at a decrease; $30 less per week. So, it’s a loss on two counts.
But, that’s the life of a property investor. Some ups, some downs. You’ve got to roll with it. The ups are easy. But, the downs don’t have be stressful; that’s why I have buffers in place …
The first buffer here is the purchase price. We bought the house back in the 2002. The Darwin market was in the doldrums. We picked up the house for $215,000. Looking back at it now, this seems like a fantastic price. But, at the time it was about market value. Maybe we got it for a little bit less; not much.
For the whole story, read my article, “Rosey in Rosebery.”
So, with a purchase price around $200k, I figure any rent above $400 a week is just fine. These numbers make sense from an investment vantage point.
The numbers wouldn’t make sense if we bought the property in the current market. I’d probably have to pay close to $500k to buy the house now. Current rent wouldn’t work; too cash flow negative.
Next buffer is a good property management team. I have confidence they’ll have the place rented shortly to a good, qualified, paying tenant. I don’t live in Darwin. Haven’t been up there for a while. No plans to go up there in the near future (Although, I always enjoy going to Darwin. I like the town very much!). So, it’s critical to have a trusted management team to make sure the place is happily rented; sooner rather than later.
I appreciate my property manager calling me and advising a new – although lower – market rent. I would rather have the place rented for $480 (or close to that number) per week, than have it sit un-rented at $500 a week!
I’ve had situations in the past where my property manager was not “on the ball” and I had to make a change. Not pleasant. I don’t enjoy changing property managers but it’s also part of the deal; you’ve got to take the fun parts along with the not-so-fun parts. And, the not-so-fun parts usually have to be addressed immediately. I’ve found waiting doesn’t work. Waiting for things to get better doesn’t work. You just have to deal with it squarely, fairly and quickly.
To read about one of these “not-so-fun” property management situations, check out Time to Change Property Managers?
What does this dip in rent mean to me? Have I lost confidence in the Darwin property market?
Not at all.
I believe the property market is strong and will continue to get stronger. There’s just too much work up there; too much happening; too good a lifestyle; too many opportunities for the city to do anything but go forward economically.
But, that’s just my opinion.
Do you have any insights into the Darwin property market? Do you have any feel for why the rental market appears to be softening? If so, let me know and we can let others in on “What’s happening?” with the Darwin rental market.