7 essential property investor strategies to stay profitable when rents fall

Proactive landlords will remainsuccessful in tough times

For the first time in around eight years, rents have fallen across the UK for two months running, and three months in London. For the savvy property investor, this does not have to be the end of the world or their passive profits. If you know the right strategies to employ, you should retain your best tenants. You may even be able to increase rents when all around you are lowering them.

In this article, you’ll learn the strategies used by professional investors in London and UK property for those rare occasions when rents fall.

Where are rental prices falling fastest?

Data from HomeLet published on 5th July 2017 showed that rental prices in London have now fallen for three months in a row, and are down by 2.6% compared to June 2016. Property investors are reluctant to increase rents in the current uncertain economic climate. Even in areas where rental demand is high (that’s most of the UK), many are concerned about affordability for tenants.

Across the UK, and including London, rental prices are down by 0.3%. The average rent is now £908 per month. However, there are some sizeable regional variations:

Region Rent in June 2017 Rent in May 2017 Rent in June 2016 Annual Change
North East £525 £522 £541 -3.1%
Greater London £1,524 £1,502 £1,564 -2.6%
Yorkshire & Humberside £615 £614 £621 -0.9%
South East £1,015 £998 £1,017 -0.2%
West Midlands £662 £658 £661 -0.2%
North West £608 £605 £592 +2.0%
East Midlands £614 £614 £597 +2.8%
UK incl. Greater London £908 £901 £910 -0.3%
UK excl. Greater London £757 £753 £753 0.5%

 

To keep your best tenants, instead of waiting for them to notice falling rental prices and leaving you in the lurch at the end of their tenancy, here are seven strategies to employ proactively. You’ll maximise your rental income profit, and your tenant will love you for being a great landlord!

1.      Be proactive and cut rents

“But cutting rents reduces my income and profits!” I hear you cry.

Remember, property investment is a long game. A little short-term pain can produce a sizeable long-term gain. Explain to your tenants that you see rents are falling and you don’t want them to be disadvantaged. You are reducing rents to give them a little more money in their pocket during this tough time.

Tell them that you’ll review the rent next at your normal review date and that the rent may then rise again. In the meantime, they’ve got a few extra quid in their pocket. You’ll be surprised how much tenant love – and loyalty – this could buy.

2.      Offer an impromptu maintenance check

Tell your investment property manager to arrange a free maintenance check, and make sure that all the small jobs are sorted. Let the tenant know that you are doing this to ensure their home is safe and well maintained. Their security and comfort are your top priority.

Not only will you catch all those small maintenance issues before they become expensive repairs, but you’ll prove that you are a caring landlord. Tenants are more likely to pay a higher rent to property investors who care about them and their property.

3.      Review your mortgage arrangements

The largest cost paid by most property investors is their monthly buy-to-let mortgage payments, so it makes sense to review your mortgage regularly and make certain that you have the most competitive rate. A 0.5% reduction in mortgage rate will save you more than £40 per month in mortgage interest payments.

If you can negotiate a mortgage rate decrease, and combine with strategy 1 above, you could increase your rental income profit as well as tenant loyalty.

4.      Give the tenant an incentive to stay

There are all types of incentives that a landlord can give a tenant, especially if you are charging high-end rent. These include:

  • When rents are falling, you might offer a discount for a few months. £50 per month for six months will cost £300. How much will a one-month void period cost, should the tenant decide to move elsewhere?
  • You could offer upgrades to encourage the tenant to renew. If the washing machine or oven is near the end of its life, consider switching for new as an incentive for the tenant to extend their lease period.
  • You could offer new tenants the first month’s rent free. Instead of costing you a month’s rent though, you increase the rent for the remaining 11 months by 1/11th. It gives the tenant the impression of getting something for nothing. You benefit from the same rent over the year, even though you received nothing in month one.
  • You may offer the tenant cash back to renew their tenancy. It’s amazing what difference a £100 cash back incentive can make in rental negotiations.

5.      Pay attention to your tenants

Treat your tenants like the human beings they are, and pay attention to them. Send birthday cards and Christmas cards, and present them with a bottle of bubbly on tenancy anniversaries. A little love goes a long way!

6.      Review rent early

It is another strategy that plays on tenant psychology. Start the rental review process early, and include your tenants. Don’t simply send a letter saying that you are going to raise rents in line with the clause set out in the rental agreement. If rents are falling, you could buy loyalty by raising rents by a smaller-than-expected amount and promising not to raise them at the next review period.

The tenant will be surprised first by the smaller-than-expected increase, and second by the promise of no further increase next year. They’ll be able to budget better. They don’t have the hassle of looking elsewhere and then moving from a home they love. And they stay with a landlord who respects them.

7.      Get it rented

Finally, if you are in a void period, don’t hold out for a higher rent. Drop the price, and insist that your letting agent or investment property manager calls prospective tenants (including previous viewers) to let them know you have dropped your rental demands. It’s better and more profitable for your property to be rented quickly than remain empty.

In conclusion

Over the longer term, rental prices will rise. But there will be times when they fall temporarily. These are the periods to show extra love to your tenants and your investment property. You should benefit from greater tenant loyalty and lower long-term maintenance bills. You should have shorter and less damaging void periods. All of this adds up to achieving your ultimate financial goals – more income, higher capital gains, and the lifestyle your hard work deserves.

To discuss how rental prices are moving, and the best strategies to retain the best tenants and maximise property investment profits, contact one of the Gladfish team today on +44 207 923 6100.

Live with passion,

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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