When Daniel Prowse received a call from his property manager to explain that his tenants were planning to vacate early, he wasn’t fazed. Little did he realise he would be without a rental income for months.
“When my property manager rang me to explain that the tenants in my investment property in Orelia, Western Australia had decided to vacate the property I wasn’t too worried. I was under the impression that they were only a couple of months into a 12-month lease and that they would be liable for any costs associated with sourcing a new tenant. It’s only when I mentioned this to the real estate agent on the phone that I learnt the truth.
The tenants had never signed a lease.
After a lot of back and forth and negotiation over email during the sign-up stage, the last email I had received from the agent indicated that the tenant was willing to sign the lease documents and everything would be taken care of.
I didn’t bother to check up on whether this had actually occurred, instead trusting that my property manager would take appropriate care of things. The rental market was strong at that point and we’d secured a good price. I was happy to sit back and watch the income roll in.
We’d purchased the property toward the end of 2013 for $327,000 and we are still hoping to gain long-term capital gains on it. The idea being that as Perth expands, people will adjust to commuting further to work. Given the low purchase price and the strong rental market, we were also expecting a decent yield on the property.
Unfortunately, the tenants chose to vacate just prior to Christmas. January and February were particularly quiet months for tenant activity and a flood of new stock entered the market at that time.
After seven weeks of searching for new occupants, via a new property manager, a new tenant signed up at $370 a week.
The loss of rental income caused by the incompetence of the original property management company was compounded by a dramatic downturn in the market. The original lease had been at $420 a week.
I’m not averse to lowering rental prices to meet market demand, but the fact that I was forced into doing this by the actions of the very people I had trusted with my investment left a bitter taste in my mouth. Fortunately, my portfolio was structured in a way that the loss of income in Orelia was able to be offset by other investments, and the situation did allow me to source a new property manager who I trust and now keep in regular contact with.
It also reinforced the importance of diversity in property portfolios. If I had six or seven investments in the City of Kwinana, the area in which Orelia falls, I would have eventually suffered immeasurably from the downturn in rental returns. Because I have investments all over Australia, including in South Australia, Queensland and New South Wales, I was able to weather the storm and treat the tenant debacle as a learning experience.”