Cash flow is an integral part of many investors’ strategies – so why was Jonathan Preston so willing to leave his latest purchase empty when there were tenants happy to move in?
“After putting in over 50 offers in the space of 60 weeks in the Ipswich region last year, I ended up paying $253,000 for a three-bedroom, free-standing house with a decent landscaped garden that was built in the 1990s.
The rental appraisal on the property was $310 a week – but finding a tenant proved more difficult than I had anticipated.
The demand I found in Ipswich wasn’t quite as high as what I’ve experienced in Sydney. Everything I’d bought in Sydney in the past had been either south-west or western Sydney, and because I’ve generally looked at lower value properties I’ve had quite attractive rental rates relative to what’s available. So I’ve generally been able to get tenants in pretty quickly.
But when I first took possession of the Ipswich property I didn’t get many bites on the rental for the first couple of weeks. In hindsight, I think that’s largely to be expected – it’s a very different market than Sydney, and I think my expectations were unrealistic.
But I also had myself to blame. The first couple of people who applied weren’t really to my liking. It sounds a little callous, but I’m pretty picky with tenants, and for good reason.
I’ve had trouble with tenants in properties before. I’ve previously had an expensive run-in with squatters at my four-bedroom home in Tregear.
After a couple of months of moving in, they became unresponsive. The agent would continually try to reach them, to no avail, and eventually the agent took it to the tribunal. After the tenants failed to appear at the tribunal and were two months in arrears, the sheriff was preparing to evict them. A few days before the eviction was due to take place, they did a runner.
The property was strewn with rubbish, which I had to pay to clean up, and the door locks needed to be changed. I had decided to cancel my landlord’s insurance prior to all this occurring (a decision I have now reversed) and so claiming any of the arrears back was out of the question.
For a young investor, having your property trashed like that is a pretty devastating experience. So when it came to the Ipswich property the choice between panicking about the slow market and picking the first tenant available, or sacrificing a couple of week’s rent in order to find someone I can trust, was a simple one.
One of the things that I’ve learnt since buying the first couple of properties is that it’s worth making that sacrifice and getting someone decent in there, someone who is likely to stay for a long time. When you have people leaving every six to nine months it’s not the best in terms of costs. You have to pay the agent again to advertise and get someone in, and often there are associated costs with moving new tenants in – you need to tidy every little issue up again whereas when you have people in there you just deal with maintenance over time as it comes. When you need to re-advertise it you need to have everything spick and span again.
I prefer to take tenants who I believe will actually stay for a long time and treat the property as it deserves to be treated.
In the end, I took a slightly lower amount and opted to go with a mum and her son as tenants - which I think is probably quite a stable dynamic. I also felt more comfortable having a motherly figure in there in terms of having somebody to look after the house. They’ve been great since they’ve been there.
The weeks of vacancy with no rent? I think they’ll be worth it in the end.”