Let's Talk About Rental Return
Many agencies promote rental return when vying for your business, but what do they actually do to assist you in achieving maximum return on your investment?
A lot of agencies promote rental return when vying for your business, but what do they actually do to assist you in achieving maximum rental return? Our job as your property manager is to not only to lease your property but to rent it for the highest possible price. It should be a stress-free and profitable experience when done well.
An extra $10/week equates to $520/year and an extra $20/week equates to $1,040/year. If you can increase your rent by $20/week every year for 10 years, then in 10 year’s time you will be receiving an extra $10,400/year. That could be used to fund your lifestyle or pay for an expensive holiday every year.
Ensuring maximum rental return is determined by a few contributing factors that can really make or break an investment property.
How well the property has been maintained
A well-maintained property can do wonders to increase the rental return. Not only will it attract a better calibre of tenant, who more than likely will be able to afford the rent long term, but it also means that you are likely to keep tenants for longer. There is also less likely to be an issue with the tenant if you increase the rent during the tenancy. The number one reason tenants move is due to maintenance not being completed. Some of the most common maintenance issues that upset tenants include leaking or dripping taps, doors or locks not working, ongoing issues with appliances including oven and stove or electrics. In areas with new housing estates tired and run-down properties are competing with brand new homes with all the bells and whistles, so it is exceptionally hard to rent without significantly reducing the price.
Don’t despair though If your property is tired and run down there are four main things you should concentrate on putting some energy and money behind: The kitchen; the bathroom; the flooring (especially if the carpets are in bad condition) and giving the interior a good lick of paint in a neutral colour. In Queensland, with the hot climate for much of the year, a lot of tenants won’t even look at a property if it isn’t air-conditioned, so having at least one installed is a very valuable investment as well.
So, it goes without saying a well-maintained property is likely to attract tenants, keep them in the dwelling for longer and there’s likely to be less backlash if you increase the rent during the tenancy. Carrying out some maintenance with existing tenants in place can certainly soften a pending rental increase and entice them to stay on longer.
Presentation of a vacant property
An empty rental costs money. Finding good long-term tenants to keep vacancy periods to a minimum is every landlord’s dream. Just like maintenance though, presenting a property for advertisement is crucial to attracting the right tenant for the right price. With 95% of tenants now searching online for a property, it goes without saying that professional photos are key. However, there are still other items that assist in the presentation of a property. These include well-groomed yard and gardens; freshly painted walls if the property is looking tired; and obviously, maintenance items fixed. Good copywriting can’t be forgotten either and this should highlight the key points and features of the property including location and proximity to schools, transport and shops, and internal features including the number of bed and baths, built-ins, air conditioning etc.
Current rental market conditions.
We’ve all heard about the supply and demand phenomenon, especially when it comes to selling a property. The same is true for property management. Rental prices are also influenced by the supply and demand in the market place at the time you’re advertising for a new tenant. Typically when the supply exceeds the demand we see a drop in rental prices, so while you may have achieved $400 a week in rent for the last four years, suddenly a new housing development pops up around the corner and now your property is competing with 20 or 30 brand new homes, but the same number of tenants are applying for properties.
A good property manager will discuss the current market with you before re-advertising your property and set your expectations at a realistic level. In the opposite market, where demand exceeds supply, you have a landlord’s utopia, and a higher rental return is often achieved. It is also advisable to seek an annual rent review from your property manager and seek clarification on why they have given the suggested rental yield. Sometimes complacency by a property manager who doesn’t know her market place well enough can cost an owner valuable income, simply by just not going the extra mile and doing some investigation. On this note, going with a local agency who lives and breathes the local market place, is as a rule likely to achieve a better rental return than an agency from out of town. There are a few reasons for this and I will cover off on why a local agent is best in another blog.
Charging extras to tenants
It always surprises me when I have a conversation with potential new landlord’s and I ask are you charging tenants for water usage? So many have no idea. Just as a reminder, if your property is Water Compliant (a certificate is required from your plumber for older properties) you can charge the tenant the State Bulk Water Charge and the Water Usage charge, the landlord still pays the fixed access charge. If it isn’t water compliant you can still charge water usage up to a certain number of kilolitres, but this needs to be agreed in the General Tenancy Agreement. If tenants aren’t frugal with water usage this can end up costing you additional unnecessary money. There's nothing like having to pay for your own water to make you consider the duration of your shower!
There are also other charges you can offset to tenants including charging for Solar power. Generally, landlords can charge tenants any electricity used above the rebate, again this must be agreed to in the General Tenancy agreement. If you have a pool and you have it service monthly, you can on charge the chemical usage to the tenants if the GTA specifies they are responsible to pay for it.
We all know that the cheapest isn’t always the best and you get what you pay for. Ensuring your fees match or exceed the service you are receiving goes without saying. Do your research and make sure the agency you choose or are currently with provides fees that are competitive in the local market place. Also, confirm there are no sneaky extra fees, these can quickly add up. Some fees to keep an eye on include end of financial year statement fee, routine inspection fees and maintenance fees, as a rule of thumb these should be included in your management fee.
A Good accountant
It goes without saying a great accountant can certainly provide the expertise you need to ensure you are claiming everything you should be in terms of your investment property. Seeking advice on a Tax Depreciation Schedule may also assist in enhancing your rental return.
Finally, speaking with your Property Manager regularly and discussing the current rental market, the condition of the property and what the current tenants are like and their longer-term intentions can provide valuable insights into what is or isn’t happening in terms or achieving maximum return on your investment. Some property managers are too scared to approach an owner about some of the above items, especially when it comes to updating and modernising a tired and run-down property, but the rental reward long term will be much more valuable than the short-term issue of paying for some work to be done on the property. Your property manager should be able to seek quotes, coordinate the work and simply keep you updated on the process along the way so that it doesn’t cause any extra workload or stress on your end. Ensuring you are receiving maximum return on your investment should be a priority and reviewed annually. At the end of the day, your rental is there as an investment to make you money, and every available cent needs to end up in your pocket.