Give your property a promotion

5th September 2006

The type of investment property you have has a lot to do with the type of tenant you'll attract.

Eynas Brodie of Australian Property Investor magazine finds out how owners of quality properties can get into the lucrative executive rental market.

Steve Jones (not his real name) is a corporate professional from the UK. Last year, he was sent to Sydney to set up the Australian arm of his IT company. He needed to find a suitable property that he could live in and work from - and quickly.

Steve hired a property finder and paid her a week's rent after she located a two-bedroom apartment in the inner-eastern suburb of Darlinghurst. "It's modern, furnished, central and basically had everything I needed and was available at the right time," says Steve, who expects to be in Australia for another three to four months.

"It's a functional place; easy to keep clean. One of the main (attractions) was that it was furnished and there's not a hell of a lot of furnished places in Sydney, so I could more or less move straight in and it didn't interrupt my work schedule too much."

Steve believes the unit would be worth between $750,000 and $1 million. It commands a weekly rent of $1000, which Steve's employer pays. Steve's happy, his company is happy, and the landlord who owns the apartment is extremely happy. So how might property investors sitting on a quality house or apartment go about finding another Steve? We asked Monique Wakelin of Wakelin Property Advisory. "You would go through the relocation companies," she suggests. "There are organisations that specialise in relocating senior executives worldwide and they are often a very good port of call."

To locate these, you can start by letting your fingers do the walking and look up "Relocation Consultants &/or Services" in the Yellow Pages. Alternatively, you can search the internet."You would also look to see large and prestigious real estate agencies in the capital cities," Wakelin says. "Those would be the two major ways of doing it." Tim Lawless, national research director at PRDnationwide Research, offers similar advice.

"To secure an executive rental, it's best to approach major national or international companies directly, as most will have a person or division responsible for housing workers," he says. But there's more to it than that. Executive tenants have expectations that a property must meet to rate consideration."They want basically to live in a property that would be similar to that which they would be used to, almost as though they were owning it," Wakelin advises.

"So they want a high-calibre property that's finished and presented to a standard that's much more applicable in fact to an owner-occupier, rather than a traditional tenant."

What makes an executive rental?
"In most people's mind, an executive rental is a flash inner-city unit with premium fixtures and fittings," says Lawless. And in reality that's often the case, however Lawless says there are other types of properties which make the grade. "There are no hard and fast rules that make a housing option more attractive as an executive rental, purely because there are such a range of companies that require this type of accommodation," he explains.

"The accommodation ranges from serviced apartments located in the inner suburbs to prestige units located in trendy inner areas or within the CBD. "Inner city apartments are the key markets for executive rentals. These apartments are typically rented on one-year to three-year leases by national or international companies that have staff visiting from interstate or overseas for extended periods.

"Most are located either within the CBD or close to the CBD of the major cities, as the tenants primarily commute into the CBD." Executive rentals are also in demand in pockets of non-metropolitan areas."Regional areas such as the mining towns of North Queensland, the Northern Territory and Western Australia have a constant need for executive rental accommodation for travelling engineers and other executives," says Lawless. "Executive rentals can also be found within close proximity to any major industrial node. For example, many of the workers visiting the industrial areas along the mouth of the Brisbane River find accommodation within serviced apartments closer to the area they're working in, such as on the bay at Wynnum.

"The common denominator is a location that has a number of national or international companies positioned in the area." Wakelin says there are a number of executive rental hotspots in Victoria. "In Melbourne, they're usually properties in Brighton, Toorak, South Yarra, sometimes South Melbourne. There are probably some apartments along St Kilda Road because of the accessibility to the city. That would tend to be more for single people or couples. "Executive tenants with families tend to also want to be near schools. So, in Melbourne they would want to be in the Kew, Hawthorne, Camberwell neck of the woods because it does have the highest concentration of elite schools, I think even arguably in the southern hemisphere," she says. "There's nowhere else that has this level of concentration of elite schools, both private and government."

Nathan Cher is the chief executive officer of RUN Property which manages 23,000 properties in Sydney, Melbourne and Brisbane, many of which are in inner city suburbs. He has found that most executives want to live close to their work and have easy access to shops, restaurants, entertainment and schools. "They simply don't have the time or the inclination to spend hours travelling to and from work and home," he explains."Interstate and overseas tenants are usually very keen to be located near to popular landmarks or close to the beach - it's part of the fun of living away from home.

"After location, we find that security is a big issue. People living in apartment buildings like to have security card control to the front door of the building and a well-lit foyer as well as good locking systems on their individual apartment doors. They also appreciate a concierge service for additional security and privacy." There are also social and lifestyle considerations. "We find that corporate clients like to entertain a lot at home and so they usually look for a property with good indoor and outdoor entertaining areas - large terraces, decks or lawns are always popular," Cher says. "Cleanliness is important too, not just clean and fresh interiors, but also well maintained foyers and attractive landscaping of entrance ways or gardens. "Neutral colour schemes work best - cream or white is always popular because it looks good with most styles of furniture - and definitely no worn or dirty carpets, drapes or blinds.

"Fixtures and fittings in good working order are high on the list too. It's no good expecting a corporate renter to accept a dishwasher or oven that's past its prime - they want quality and they won't settle for less." Wakelin agrees, saying: "You'd be looking at a high level of appliances, a very high level of renovation, they're normally fairly capacious homes, so three bedrooms plus, and they tend to be located in areas that are acknowledged to be fairly prestigious." It's not all about the home though - landlords have a role to play too. "A regular maintenance program and prompt repairs are also high on the list," says Cher. "Busy executives just don't want to waste precious leisure time on the phone chasing down their property manager to fix something that's not working. "Most importantly, professional property management is paramount. Again, it comes down to time. Busy executives expect fast, professional and courteous service 24/7."

How well do executive rentals pay?
While the weekly rental figure received by most landlords is in the hundreds, owners of executive properties can often ask for four-digit returns."(The rent is) often upwards of $1000 a week," Wakelin confirms.

"Often they're paid for initially by the corporation that is relocating the executive… either from interstate or overseas but these people are often on very high salaries too.

"But before you start rubbing your hands with glee, Wakelin has a warning for investors.

"I would never ever counsel an investor to go and spend in excess of $1.5 million on a property that was specifically going to be an investment property."That is just much too much money to be investing in one property. It's completely the wrong thing to do. "That's for a number of reasons. First of all, these properties tend to react more immediately and substantially to changes in the business climate and economic cycle, and it's also at a rarefied area of the property market because very few people can afford to rent it or own it at any given time. So, if you're specifically buying property for investment purposes you need, by definition, to buy property that the vast majority of the population can afford to either own and/or rent the vast majority of time."

So who then stands to benefit from executive tenancies?"The people typically who want to rent out these high-calibre properties are owner-occupiers who may be moving on themselves to something that they're going to rent for a period of time and, rather than sell their family home, they just opt to rent it out for a period of time until their own situation clarifies," Wakelin answers.

"Tenanting a corporate home in that sort of rarefied area is more a case of circumstances, rather than strategy."The advantage to the owner is that they don't actually have to sell the asset and then lose their positioning in the property market whilst they are themselves in possibly a bit of a state of flux. It allows them to maintain a foothold in the marketplace and still help pay whatever debt they've got available and derive an income from the asset," she says. As with property prices, Cher says weekly rents for executive rentals can vary considerably between Sydney, Melbourne and Brisbane.

"In Sydney, executive apartments can range from anywhere between $500 for a one-bedroom apartment up to $2500 for a two to three-bedroom apartment with harbour views. Family homes can range from $900 to $5000, depending on size and location."

Pros and cons
There are plenty of advantages to having your property included in an executive rental pool, with the high rental return at the top of the list."You'll often get tenants who have been fairly rigorously screened," adds Wakelin. "These are senior executives and they're fairly well-to-do people, often with substantial means." In Lawless' opinion, "the real benefit in this arrangement is the security of a long term tenant, peace of mind the rent will be paid, and lower risk of damage to the dwelling".

Is there a down side?

"No tenant will ever look after a property the way you do as an owner, so that has to be factored in," replies Wakelin, "and one has to adjust one's expectations to some extent to how pristine the property might be at the end of the tenancy period."

Getting your foot in the door
So how can investors crack this niche market? As we mentioned earlier, contacting relocation companies is a good starting point. Cher offers some other tips. "We'd recommend choosing a property management company with offices in more than one state because a lot of executives who rent are people who are moving interstate," he says.

"This means they can get the ball rolling in Melbourne say, before they actually move to Sydney. And because executives do so much research on the website before they venture out to inspect a property, make sure the property manager has a prominent website which is very easy to navigate. "It's also important to be realistic about your property - if it's 25 kilometres out of town, or not in very good condition, it's highly unlikely you will attract a corporate tenant. Executive renters want to be close to the CBD and they want good quality, well maintained properties.

"You need to make sure your property looks contemporary too - if it's more than eight years old, it's probably beginning to look a little old fashioned and we'd recommend updating it before renting to the corporate market, especially the bathrooms and kitchen. Executives these days are interested in the latest look and that currently includes stainless steel appliances, glass splashbacks, frameless shower screens and granite benchtops.

"If the property has a large garden or pool, you can expect to pay for gardeners and cleaners to maintain them - executives simply don't want to waste their weekends mowing lawns and weeding and cleaning out the pool and they often expect that service to be all inclusive in their rent. "You also need to be prepared to be a little patient. Because they're earning good salaries, executive renters are often in no rush to take the first property they see. They can afford to stay in temporary accommodation such as a serviced apartment or hotel until they find their dream apartment or house. "The good news is that once executives find a property they like, they do tend to stay longer than the average tenant does."

 

 

© Australian Property Investor magazine - www.apimagazine.com.au. Reproduced with permission. To subscribe to API, go to www.apimagazine.com.au or pick up a copy from your local newsagent.

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