Maximising Your Rental Return In A Slowing Property Market
When it comes to the present state of Australia’s property market, it’s no secret that the Royal Commission into Banking has been akin to opening Pandora’s Box – with increased lending restrictions and higher mortgage rates for investors.
While experts say a crash is unlikely due to population growth, news headlines report Australia’s property market is slowing down, cooling rapidly after a strong period of growth. All this has left investment property owners seeking ways to maximise their rental returns and balance out any negative effects from increased expenses and slower capital growth.
So, what can rental property owners do to maximise their return on investment in a volatile market? Here are six ways to maximise the return on your investment property during periods of slow capital growth.
1. Develop the property to get a higher rental return (e.g. granny flat or look at subdivision)
Regulations around planning and development have become more favourable to investors in recent years which means it’s a great time to make improvements to your property – to increase value, and justify asking a higher rental amount. Ancillary dwellings like granny flats have become a popular value-adding strategy for investors, as they’re relatively inexpensive to build, and can be rented out as a separate dwelling or add a premium to the property as a whole. Other ways to increase value include extending and extra bedrooms, subdividing and building a second dwelling, or turning a house into a dual key dwelling.
Just a small warning, when having multiple different tenants on the same block of land you’ll want to make the two residences are as separate and private to one another as possible otherwise it will have a negative impact on rental value and make it harder to manage or reduce your tenant market.
2. Get an accountant who specialises in investment properties
You know what they say, ‘a dollar saved is a dollar earned’. The taxation system that surrounds investment properties is complex so finding an accountant who specialises in this area is essential to maximising your return and ensuring your finances are structured correctly, and in a way that reduces risk. They’ll make sure you’re making the most of the tax breaks and incentives available to investment property owners, such as asset depreciation.
3. Focus on finding great tenants who will treat your property like a home
Great tenants are worth their weight in gold. When you consider that it takes about 10 weeks to evict tenants if you end up at Tribunal, and you’re not likely to ever get that money back, that point really rings true.
It’s easy to get caught up trying to extract the highest price, but don’t lose sight of the importance of good tenants. Bad tenants that cause damage, get behind in rent, or vacate without notice can cost you thousands of dollars (and a lot of heartache). And while your landlord insurance might cover some of the costs, claims can take months to process leaving you out of pocket in the meantime.
4. Presentation and staging for viewings
When it comes to real estate, appearances matter. A property that’s in good condition, sparkling clean, and well presented can make a material difference to the rental amount the market will pay – tenants will pay a premium for a property that feels like ‘home’.
Professional cleaning and features that make home living more enjoyable – like a dishwasher and heating and cooling – make a big difference, too. Plus, regular maintenance can save you a lot of money down the track – as they say, ‘prevention is better than cure’.
5. Keep rent competitive to reduce vacancies
When looking for new tenants, you want your rent price as high as possible which means just equal to or just under that of comparable properties in the area. This will encourage great tenants to flock to your property, ensuring a new lease is signed before the property even becomes vacant – every day vacant could be costing you more than 100 dollars, depending on your property.
While tenanted, small rent increases each year – just below the market rate (this might 3-5 percent annually) – ensures you consistently receive the highest return without prompting good tenants to leave. However, if the area is experiencing downturn then you may need to decrease the rent to remain competitive and reduce the risk of vacancies.
6. Reduce property management fees and expenses
Hiring a property manager to take care of your property can cost anywhere between five to 10 percent of your rental income – not including all the additional fees such as letting fees, lease renewal fees, maintenance fees and so on.
Many owners find that while despite paying a property manager they end up spending a lot more time ‘managing’ the property – often paying more for things like maintenance than if they’d arranged it themselves.
Nowadays, online property management services and platforms (like Cubbi) provide an alternative at a much lower price point – allowing owners to save on fees and inflated maintenance costs, and make the best decisions on how your money is used and how your property is taken care of while saving money on fees. Plus, you have the opportunity to know your tenant and communicate with them directly, on common ground.