Landlords must face some facts
Until recently, I wrote an occasional column called Permanent Parameters for Accomnews.
Suffice it to say that there were only a very limited number of things I could say, or reveal, about permanent management rights without repeating myself ad infinitum! Permanent management rights has proved to be one of the safest business investments you can possibly make! Permanent management rights are a darling of the banks, even throughout the global financial crisis! Permanent management rights allow a very satisfactory lifestyle for people who are smart enough to borrow prudently and then introduce “systems” into the running of that business!
So I said, “enough already”! How much more can I say about permanent management rights that might be helpful to readers of this journal?
The esteemed editor of Accomnews has now given me permission to range somewhat wider than my previous brief! This is not to downplay the importance of my many friends in the permanent management rights industry as I, too, have owned such complexes and, as we all know, it can be a tough “gig”.
So, in this first edition of The Butler Report, I was going to address some broader issues that might concern us all! But then, in the last week I have been approached by so many managers of permanent complexes worried about a level of vacancies that they have never experienced before that I feel obligated to address the issue! So much for my Pulitzer Prize nomination for creative writing!
First of all, we (and our landlords) must face some facts!
For the last 10-12 years, permanent rental complexes in South East Queensland have enjoyed an occupancy rate the envy of every capital city in the country. From 2003 until about four to six months ago (with only a few rare exceptions), we had tenants lining up at our gates begging for a roof over their heads. Our landlords have come to believe that 100 per cent occupancy is normal. It is not!
The Real Estate Institute of Queensland seems to regard 3 per cent vacancy rate as a “balanced market”. But the REIQ, when it surveys its property manager members is including all manner of sub-standard houses as well as quality apartments and townhouses in its figures. I can remember back in the mid-2000s the REIQ was reporting a vacancy rate in Brisbane of 3 per cent but I knew for a fact that there was not a unit or townhouse in a managed complex to be had for love or money!
I am more likely to put credence in other sources. In mid-August, my friend Michael Matusik (who is probably the most respected property analyst in the state, if not the country) published some figures from SQM Research that highlight the problem some permanent complexes face – particularly in areas close to the Brisbane CBD. In postcodes numbered from 4000 to 4169, which includes such suburbs as Brisbane CBD, Spring Hill, New Farm, Teneriffe, Bowen Hills, Newstead, Auchenflower, Toowong, South Brisbane, West End, East Brisbane and Kangaroo Point, the number of vacant dwellings available for rent had jumped from 510 two years ago to 1560! These figures were current as at June 2014. They will not have improved in the interim.
When we consider Matusik’s and SQM’s analyses of percentage vacancy rates this is how it stacks up: for the same suburbs we listed above, the average vacancy factor two years ago was 1.9 per cent. In June 1014, this was 4.1 per cent! It will not have improved in the interim!
So what, as an affected manager, do you do about it?
For over 12 years in this wonderful management rights industry, I have rabbited on about the total importance of communication when it comes to your relationships with your landlords. It has never been more important than now. It is no good “soft soaping” your landlords with pious platitudes! The facts are the facts. The rental market is tougher than it has been for 12 years and such facts cannot be swept under the carpet without it eventually hurting you and your professionalism as a manager.
You have to talk to your landlords and tell the truth. You have to consider how you are marketing your landlords’ rentals. If you have access to the major web portals (www.realestate.com.au; www.domain.com.au; and www.reiq.com), are you putting truly professional looking photos online or are you taking some grainy shots in the dark with your smartphone and hoping for the best?
We live in an age of professional presentation. If you are looking for a product or a service on the web, but the photos are rubbish, do you not just click onwards to find something more appealing? Your potential tenants are no different!
For the last few years, I have been taking professional real estate photos for many of my on-site managers. Last week, one of those managers said to me, “I want to be able to do this for myself! What do I need?” I put together a list of what a professional on-site manager needs to be a great real estate photographer and my friend has just gone out and bought my recommended kit.
Every on-site manager needs a good camera, a wide angle lens, and a decent flashgun. In the permanent letting world, photos should be taken at Entry Condition Report stage, at Exit Condition Report stage, and quarterly inspection stage. If you are not doing this, you need to change your ways. Don’t forget that if you are not claiming the cost of good camera gear on your tax, you should be talking to your accountant!
There is no quick fix for the current dearth of tenants! Be honest with your landlords about the situation. In your newsletters and conversations, quote the vacancy figures I have mentioned in this article so they understand that the problem is industry wide, and does not just exist in your complex. Share your vacancies with the on-site managers of other complexes in your area so that all of you are aware of who has something available. Cross pollination between complexes is one of the strengths of our industry.
If all else fails, keep all fingers and toes firmly crossed!
