How to Improve Rentability During a Downturn

“Vacancy” doesn’t just apply to an untenanted house – it’s also the state of your wallet, your soul, and your financial future when it happens. You’ll want to fill the void as quick as possible, so here are some ways to do it:

Tenant behaviour changes during a downturn

Tenants tighten their belts, you’ve already guessed that; but there are a few behavioural tendencies you should consider as well. These are factors that affect where and how they choose to rent. Here’s what we’ve seen:

• Single, mobile tenants prefer shorter leases; they’ll try to negotiate for cheaper rates if the downturns worsens. Also, they expect rental rates to fall, and they want to be able to move to the next cheapest unit quickly when they find it
• Another reason tenants to seek shorter leases is worry over their employer. Those coming to Singapore to work for an SME or run a start-up, for example, are more concerned over their employer’s long term sustainability in a downturn
• Tenants will surrender space and luxury to get lower rental rates, but they almost never compromise on location (e.g. they still want to be within 15 minutes of the office, or in a particular neighbourhood)
• Conversely, some tenants who are less mobile (e.g. family groups) often push for longer leases – they want to lock in a rate they consider affordable in the face of uncertainty; they don’t want to risk being forced to move due to higher rent later

Bearing these tendencies in mind, here’s how to improve rentability during a downturn:

1. Give more attention to tenant retention

With tenants on shorter leases, now is the time to focus on retention. Remember, a vacancy always costs more than the incentives you give a tenant. This doesn’t have to be something expensive, like a permanent reduction in rental income. Instead, consider the following:

• Ask your tenant for any kind of furniture they may need, like a new desk or PC gaming chair, and treat them to it. These bonuses can be enticing to future tenants as well.
• Consider making some concessions, such as letting the tenants use an extra storeroom, or opening up a spare bedroom to them until an occupant comes along.
• Offer to cover one manageable cost, such as the wi-fi, water bill, or something that is usually up to them to pay

You have the advantage of inertia on your side (most people don’t like to change an established pattern; that’s why they don’t change banks the second the interest rates change, for example). All you need is a small amount of persuasive power to help that inertia. There have been cases where giving the tenant a free Xbox is all it takes; that may set you back a few hundred dollars, but save you thousands from a vacancy.

2. Compromise on your restrictions

Perhaps you usually ban tenants with dogs, tenants who smoke, refuse to take tenants below a certain income level, etc. Well now’s the time to look over your list, and decide on some possible compromises.

For example, could you agree to let in a smoking tenant if they open the window and turn the fan on when they do it? Or how about allow a dog, provided they make sure it’s neutered and allow periodic checks for cleanliness?

An economic downturn puts tenants in the driver’s seat; and the more you acknowledge that, the less you’ll lose to vacancies. Refusing to compromise isn’t always the brightest idea in these times. Just ask the UK.

3. Consider renting out separate rooms, instead of the whole unit

It might be quicker to fill up your unit by renting out separate rooms, to different tenants (the limit on unrelated tenants is six).

Even if you can’t fill every room, some rental income is better than no rental income. And if you get really lucky, you may even be able to generate higher rental income, compared to renting the whole unit to a single tenant. The drawback to this is that you might have to deal with multiple short leases, so it can help to get a property agent to deal with it.

4. Highlight location, rather than facilities, when marketing the unit

As mentioned above, tenants are more willing to compromise on certain amenities – such as facilities – but seldom on location. So when marketing your unit, focus on the latter.

Don’t just explain how quickly they can get to the CBD, or how accessible it is by major highways or train. You should also make a quick study of nearby workplaces, such as the closest industrial park or office buildings. Highlight these details in your marketing (e.g. Just three minutes from XYZ Retail Building”).

Be sure to highlight unique or exclusive traits based on location, such as “Only block located right next to XYZ Textile Centre.”

You want to get the attention of people who work in these specific areas; they’re the tenants most likely to still take your unit at regular rates, downturn or not.

5. Reward tenant referrals

Many tenants have friends or colleagues who, like them, are foreigners needing accommodation. Students, for example, often refer their rental unit to their juniors; people who work nearby may recommend your unit to colleagues who work in the same building. Capitalise on this trend by rewarding referrals.

For example, you can offer a small discount off the first month’s rent for someone they refer (it doesn’t have to be a direct price discount, you can also offer to absorb, say, the utilities bill for the first month). You can also point out the benefits of such a referral – if their friend is the one moving in, for example, they can take their time moving their items back (we assume their friend is a bit more tolerant of having their stuff lying around).

Don’t be too quick to drop the rental rate

Try all of the above before you resort to dropping the rental rate. Rentability can be improved without resorting to price – if people only cared about cost, economy rice stalls would have stopped serving fish years ago. Lowering the rental rate may become a necessity; but don’t be too quick to do it.

Want to rent out your unit in a downturn? Voice your thoughts in our comments section or on our Facebook community page.

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