Is it too good to be True? High Rental Quotes

Investors buying the property market need to protect themselves against overzealous rental quotes. Often the agent spruiking the proposed rental return is a sales agent not the property manager.

To protect yourself against an unwanted and unexpected shortfall in the income on your new investment, disregard a selling agent’s rental assessment. That’s not to say that every agent will inflate the rental estimate to make a sale. The reality is that there is an incentive to do so though.

 To get a true read on the market, have an experienced local property manager assess the property’s respective rental value, before you buy it. Preferably, the property manager would not be from the same firm that is selling the subject property.

Property investors often make purchasing decisions and value assessments on the return a property produces

This is particularly relevant in the commercial property market and a common theme in the residential market. Any time a real estate agent can inflate the good news in order to make a sale, there is a risk for the consumer on the receiving end of that promise.

It is common for properties to lease for $40 to $60 per week less than what the sales agent told the buyer. The loss goes beyond the weekly shortfall though. If you buy a property believing that it will lease for $500 p/w and its true value, unbeknown to you is $450 p/w, it takes time for you to discover the disconnect. The property will undoubtedly sit vacant for whatever period you leave it priced at $500 p/w. This vacancy period can quickly run into thousands of dollars in lost rent if you wait a month or two looking for that $500 p/w tenant.

By Peter O’Malley

Author of “Inside Real Estate”

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