Leasing | Property Management | Consultancy
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admin@commercialpropertycentre.com.au
RLA 240663
From time to time I have been approached by unsatisfied investors, perplexed about their below average investment property performance. Sometimes poor performance is caused by unassuming issues, generally created by a lack of understanding and by not paying the attention to certain details.
Here are some of the issues that could cause trouble:
Poorly negotiated leasing agreements – occasionally landlords enter into an agreement without being fully aware of certain financial consequences created by particular agreed terms and conditions. Most common examples include: when the agreement is made for short multiple periods (i.e. 5 terms of one year each), the implementation of no (or very minimal) rent increases, or extraordinarily high incentives given to the tenant (considering the duration of the term).
Management agreement is not in line with leasing agreement(s) – this is not so rare an occurrence as one would think. Although in many instances the tenant is responsible for the cost of the ongoing management of the property, there are some fees charged by the agency that are not a part of the tenant’s financial responsibilities. Fees such as the lease renewal fee and rent review fee are among these. In simple terms, if the lease is one of those 5x1 year leases, every year a lease renewal fee and all associated legal costs will be chargeable, and that alone could be enough to deteriorate a landlord’s bottom line. There is a similar situation with rent reviews in that the negotiated rent increase could be the same amount or less than the charges applied. Most often this is the case with relatively small leases.
Wrongful tenant selection
Reactive Maintenance style – if the landlord treats the property with disrespect and does not have a plan for regular (either seasonal or periodical) maintenance, he/she might find themselves caught out financing a major refurbishment or essential equipment replacement when they are the least prepared for it. The costs associated with this style of maintenance can be significant.
Landlord and property manager are not switched on
These are most obvious, practical reasons for the poor performance of investment properties. If you have any question or would like further clarification please do not hesitate to contact Commercial Property Centre.