When a lease renewal approaches, it is tempting to look purely at peak market indicators to see if your property can achieve a higher rent. However, securing a higher weekly rent on the open market may not always result in more profit in your bank account at the end of the financial year when considering all factors. When a reliable tenant moves out, a costly chain reaction begins: final inspection fees, marketing expenses, letting fees, and the unavoidable vacancy gap where no rent is collected.
A Real-Life Example
Let’s look at the actual numbers for a property currently renting at $800 per week. The market range for similar properties is between $800-$850 per week.
Scenario A: Renewal of Lease with a Moderate Increase ($810/wk)
Renewal Offer: You reward your reliable tenant with a modest $10 increase.
Your Net Return: $41,770 for the year (after deducting a 1.1% renewal fee).
The Benefit: Zero vacancy days, zero moving hassle, and continuous cash flow.
Scenario B: Chasing the Market Peak ($850/wk)
The Action: Your tenant vacates, and you list the property on the open market for $850.
Your Net Return: $41,359 for the year (after advertising, final inspection, letting fees, and just 1 week of vacancy). Keep in mind, if this vacant period was to extend to 2 or 3 weeks, this net return would be much lower.
The Reality: You finish $411 worse off. There is also a risk that the new tenant may not be as good as the last.
Balancing Market Potential with Investment Risk
To make re-letting on the open market more profitable than a simple renewal, the rent increase must be large enough to overcome the upfront turnover costs within the first 12 months. Aiming for the absolute highest end of the market can also backfire if local demand cannot support it; an overpriced listing risks an extended vacancy that completely wipes out your potential gains and forces you to settle for less ideal applicants. The key is to review the Comparative Analysis Analysis (CMA) provided by the Property Manager in order to understand the market range for the property, the rental demand at the time, as well as considering the long-term value of existing tenancy.
Balancing real-world market data against the stability of a great, long-term tenant is often the safest way to maximize your annual returns. If you want to run the exact numbers on your property’s next renewal cycle, reach out to our property management team today!
