It seems to me that 2011 will be a slow year for property throughout the country. In other words, don’t expect above average property price growth this year.
BY PETER KOULIZOS
Without the assistance of a general rise in property prices, are you still able to increase the value of your property? The answer is yes!
The key to increasing the value of your investment property is to increase your rent and/or improve the property.
Let me explain to you how it works with a simple example.
Assume that investors want a 5 per cent rental return from a flat or unit. If the current rental on a unit is $15,000 per year, which equates to approximately $288 per week, this would mean that the property is worth $300,000 (using the income approach of valuation).
Now imagine that you could increase the rent. This might be because you haven’t reviewed the rent for a while or you’ve upgraded the property. If you could increase the annual rent by, say, $1500, the new rent is now $16,500. Using the same valuation approach as above, the property is now valued at $330,000. This results in an increase in the value of the property of $30,000, just by increasing the rent by less than $30 per week.
Increasing the rent because you haven’t done so for a while is a relatively easy process, providing you follow the correct residential tenancies procedures. Some of the great aspects of reviewing your rent regularly are that you increase your cash flow, thus increasing your property value – and it costs you nothing!
Even if you have to spend money to upgrade your property so as to increase the rent, in many cases it’s still worthwhile. It all depends on how much money you spend.
Is it worth spending $1500 on, say, a new coat of paint, so as to increase the rent by $1500 per annum? Absolutely! This means that you receive a 100 per cent return on your money; you get back all the money you spent in 12 months and the increase in rent continues infinitum.
Is it worth spending $10,000 on a new cost of paint, floorboards and an air conditioner so as to increase the rent by $1,500 pa? Yes.
This is a 15 per cent return on your money. I don’t know too many other places where you can safely earn 15 per cent on your money!
Is it worth spending $50,000 to put in a balcony and increase the rent by $1,500 per annum? Probably not. This is a lot of time and money to spend on something that will only provide a relatively small return of 3 per cent.
The moral of the story is if you are looking to increase the value of your property in this slow market, consider increasing the rent.
Tell us about some of the ways you have been able to increase the rent.
Peter Koulizos is a property educator at UniSA and TAFE and the author of The Property Professor’s Top Australian Suburbs – a guide to Australia’s top suburbs for property investors and homebuyers, available from www.businessmall.com.au
Some ideas for increasing rent:
- Put in a reverse cycle air conditioner…in heat like we had in Sydney this Feb people would be happy to pay more rent for this
- Paint your bathroom: You can make a dated bathroom look fresh again with a coat of white tile paint. This can help you increase the rent.
- New kitchen doors/handles: You don’t have to put in a brand new kitchen to make your kitchen more livable. New cupboard doors or fresh stainless steel handles can be all it takes. A kitchen sells a house, so the better the kitchen the higher the rent is likely to be.
Comment by Ryan Mclean — February 8, 2011 @ 9:59 pm
Hi Ryan, your suggestions are spot on! Other methods that I commonly use to increase my rental yield, other than updating the property, include:
-Using a good property manager
-If I can’t find a good property manager, do it myself
-Charge the tenant for utilities, such as water use
-Claim all allowable tax deductions
Comment by Peter Koulizos — February 17, 2011 @ 12:59 pm