Every landlord and owner wants to see a high rental yield, so what can you do to boost this?
Firstly, rental yield is the return on an investment as a percentage of the amount that you have invested. To calculate the gross rental yield you multiply the weekly rent by 52 and divide by the value of the property and multiply this figure by 100 to get the percentage. Example:
Weekly rent = $500
Property value = $600,000
($500 x 52) / $600,000 x 100 = 4.33%
Note: this does not take expenses into account.
If your property is in an area where rental demand is decreasing, one of your top priorities should be tenant retention and finding ways to keep your tenants happy to make them rent for longer. It is also important that you keep an eye on vacancy rates whilst watching the market.
For those who have properties in a stable area or an area that is performing more strongly like a high growth area then there are various options you can utilise.
Purchasing a property at the best price possible is important, whether it is through an auction or buying an apartment off the plan. If buying off the plan, you want to be one of the first people to buy as prices tend to increase the later you leave it and by getting in quick you have a better choice of apartments to choose from. By the time the development is completed, prices usually have increased, so you have already made money back without doing anything.
An off the plan apartment will also mean there should be low maintenance costs as it is brand new, compared to an established home which may require more repairs, replacements and restoration which can affect your cashflow.
It is important to watch the market and see what rents are being charged in the same area for similar properties. You need to be careful as you don’t want to be too greedy and charge too much, likewise you don’t want to be too low that you are not covering your costs. If you use a property manager, then they should be able to help you find the acceptable level for your market to remain competitive.
Natural increases will obviously occur through time, but there are other ways to increase your rent. 1) FURNISHING
Furnishing your home is not for everyone, but it can bring in the money. Typically the types of people who tend to go for furnished apartments include students, short-term renters, those new to the country or divorcees. A furnished apartment makes it easier to move in straight away without the hassle of finding furniture and these tenants are willing to pay more rent for this privilege.
Obviously, you need to do your research as the location plays a big part as to whether a furnished apartment will be a popular choice, but it can increase your rent by as much as $200 per week if you choose stylish pieces. Inner-city and metro fringe suburbs tend to do better. 2) IMPROVEMENTS
Adding improvements has the potential to create benefits for the tenant, thereby making them more willing to pay more for these additions. The best thing to do first is to see what other similar properties offer that charge a higher price and follow their lead.
3) MULTIPLE TENANTS
- Air conditioning - If your property does not include an air conditioning unit, this is one change that is definitely worthwhile, particular if the property gets a lot of heat. By adding an air conditioning unit, this can increase the rent by around $20 per week.
- Dishwasher - A dishwasher always comes in handy too, especially for tenants that are busy city professionals, or families with children who are limited by time. You can get a dishwasher today for approximately $1,000 which can last around 10 years allowing you to charge an extra $5 per week.
- Renovation - You might be able to do some renovation and create another bedroom or bathroom which will help increase the rental return. If you have a two bedroom apartment, having a second bathroom or ensuite will be greatly welcomed.
- Storage - Storage is another important factor for tenants, and built in wardrobes are another selling point which makes the rooms look tidier and more organised whilst also saves the tenant from having to buy their own wardrobes.
- Laundry Appliances - By including a washing machine and dryer, this will create more convenience for the tenant, thereby creating a reason for a slightly higher rent.
- Solar Power - You could also think about adding solar panels if your property allows which will not only help the environment by going green, your tenants will also be saving over $1,000 per year by not having to pay power bills, allowing you to charge slightly more in rent.
A good way to increase the rent is by renting out rooms if you have a house or large apartment. The downfall to this is that there is likely to be more wear and tear as well as the possibility of lower tenant quality, and higher vacancy, but it can help boost the rental yield. 4) HOLIDAY HOMES
This option will only suit certain types of properties that are situated in a holiday area with strong demand. Turning the property into a holiday rental can see a huge rise in returns, particularly over the holiday season helping to push up the rental yield.
So what happens when you have good, reliable tenants that pay the rent on time and you want to keep them? Another method to utilise is to reduce your expenses.
When it comes to thinking about reducing your costs, you first need to know exactly what your ingoings and outgoings are.
There may be some fees that cannot be reduced such as property management fees. If you are looking to save some money then you may want to think about taking on the responsibility of self-managing the property yourself, only if you have the time and can handle the responsibility.
Other areas to look at could include the interest rates on loans which might be high. It is important to check up on these figures to ensure you are getting the best rate possible and your mortgage broker can help you with this.
Published on 28th of November 2014 by Marty Stanowich