Sunday, October 2, 2016

Off-peak letting vs in-peak letting.

I'm a big fan of fixed term tenancies, as long as they end at the right time of year.  If they don't, landlords are doomed to suffer financially.


Firstly, it takes longer to rent a property when fewer people are looking, and Wellington certainly has a season of many people looking vs not many people looking the rest of the year.

Secondly, in off-peak, the proportion of high-risk tenants to low-risk tenants is higher.  So, while 8 out of 10 may be excellent in peak season, in off-peak season that may be only 2 out of 10 people.  You have a choice of taking a high-risk tenant knowing you'll be paying for it with rent arrears and damages, or wait for the great tenant when they finally come along, resulting in longer vacancies.

Thirdly, landlords know it can be hard to attract tenants in the off-season, so lower their rents.  This means you could get less money for your property than it would be worth in peak season, when the laws of supply and demand mean higher rents are easier to get.

We know someone with a property that has fixed term tenancies to peak season, but their tenants for the last few years have broken the lease late in the year, in off peak, meaning the usual process of advertising the property is disrupted.

Outgoing tenants usually accept the landlord going 'oh, you are leaving?  I'll put the rent up for the next person then', unless that tenant is responsible for finding the new tenant as they are breaking their fixed term.  In this circumstance, they see it as a hindrance for replacing themselves, and argue against it.  Ordinarily this may be no big deal, but bear in mind it must be 6 months after the tenancy begins before a landlord can increase the rent again, so this slows down the usual pattern of increase.  You may have been just about to do a rent review in the current tenancy when they leave, and instead of realizing its planned review, see it as a barrier to replacing themselves.  You need to decide if it is worth the hassle of arguing the point, or just take the hit.  Many just take the hit and keep rent the same.

If this happen for several years in a row it compounds the effect.  Take two properties next door to each other.  One has the leases end at peak season, and has long term tenants who have regular rent increases.  The other keeps ending at the wrong time of year, and has all the above inhibiting factors on the rent discussed above.  Which property performs better financially?  The one with regular increases of course.  It may be $50 per week or more better than its neighbour after a few years of market forces and stroppy outgoing tenants effecting the rent.

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