Should a landlord risk a void period by holding out for a higher rent?
In a competitive rental market, leaving yourself open to a void period is a risky strategy. So if a landlord receives a lower offer than anticipated, either from their current tenant or a potential new tenant, what should they do?
There are several considerations. First, calculate the potential losses caused by a void. As well as loss of rent there are also ‘soft’ costs such as utility bills, particularly fuel bills which can mount up, especially in winter.
How long might the void be? Seasonal fluctuations and political events affect market conditions and how long it will take a property to let. There is often a slowdown in the lead up to a General Election, for example, while a property that is untenanted just before Christmas is likely to remain so until the New Year when the market picks up.
With these uncertainties, we usually advise landlords to encourage an existing tenant to renew so there will be no void between tenancies, while administration costs, such as drawing up inventories and agents’ fees will also be reduced.
Often, tenants prefer to stay in a property too, rather than go through the hassle of moving (some of our branches are seeing renewal rates of 80% to 90%). But in a competitive market they expect to negotiate, maybe renewing at the same or a slightly lower rent. This is still a good option. Usually we find that by renewing a tenancy and eliminating voids landlords can achieve a higher income than by holding out for an increased rent from a new tenant, as the resulting void quickly eats into any additional income. Experienced landlords usually understand there is more to achieving a good rental yield than just holding out for the highest rent.
A local letting agent can help landlords weigh up the pros and cons and advise on current market conditions in their area.
Marc von Grundherr
Benham and Reeves Residential Lettings