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What is the value of great tenants?

By Shannon Callanan

Its often overlooked just how important it is to have great tenants. Not only does it promote goodwill within the community – there’s nothing worse than putting people into your home who upset the neighbours – but there’s a huge financial upside too.

Here are 3 reasons to look after top tenants and reward them:

Great tenants = on time rent payments which means that you mortgage can be paid on time. They therefore reduce the costs associated with late payment fees and default rates usually set at higher interest rates than your current.
For example, lets say at the rate of $250 per late payment fee, if your tenants are in arrears even twice during a 12 month period, that’s a cost saving of $500. Over 10 years, that equates to $5000. If they pay their rent well in advance, they could potentially even reduce interest on your property.

They look after the property. – On average, the cost of maintenance is about 0.25% of the value of the property per annum so, for example, on a $400,000 value property, the cost is between $1,000 – $2,000 per year. Tenants who are careless with your property can double that cost quite quickly. Over 10 years, the extra cost to you can be as much as $10,000 – $20,000.

Long term tenants also reduce your cost over the time of your investment property. Most agencies charge a reletting fee every time you have a changeover of tenants. This is usually 1 – 2 weeks rent + GST. A tenant who renews saves you, over a 10 year period, between $4,400 and $6,000 based on a weekly rent of $400 and a changeover each year. Not to mention the saved money in vacancy periods which if calculated on approximately 7 days per tenancy change, there’s another $4,000.

Over the course of 10 years, the difference can really add up and in the above scenario, it’s the difference of $35,000 or just under 10% of the value of your investment.

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