Investors are continuing to reap rewards in one part of Sydney, with many turning to new tactics to maintain impressive returns.
According to real estate group Raine & Horne, it has been “rivers of gold” for investors on Sydney’s lower north shore since May 2012. But with extensive, double-digit capital growth, rents have failed to keep pace.
As a result, investors are finding new ways to entice tenants into their properties and increase rental returns, according to Drew Schofield, senior property manager of Raine & Horne Mosman.
“Around 25 per cent of our available properties in Mosman, Balmoral and Neutral Bay are now fully furnished – whereas 12 months ago, virtually not a single property came with furnishings,” Mr Schofield said. “So this is a major change in the mindsets of landlords with assets on the lower north shore.
“We believe more yield-hungry landlords are increasingly choosing to let out their investment properties fully furnished in the hope of beefing up their returns.”
According to the company’s research, a two-bedroom apartment in Mosman currently selling for $900,000 will rent for $750 a week if it’s unfurnished. Adding furniture will see it rent for $900 a week, Raine & Horne Mosman said.
This represents a gross yield of 5.2 per cent, compared to 4.3 per cent for an unfurnished apartment.
Mr Schofield noted that investors needed to do their sums before adopting this tactic, particularly if they are trying to secure long-term leases.
“Apart from the wear-and-tear on the furniture there are also the costs of producing a fully itemised inventory report, which needs to be monitored regularly,” he said.
“As furniture is involved property managers must inspect a property more regularly, which means landlords can expect to pay management fees of between 8 per cent and 15 per cent for the services of a property manager rather than 6 per cent if the property is unfurnished.”
Additionally, fully furnished properties will require contents insurance.
“While the contents insurance is tax deductible, it's still an extra financial outgoing that eats into yields,” Mr Schofield said.
“It's also fair to say fully furnished apartments can be harder to rent, as most tenants have their own furnishings.”
On the flip side, by taking a fully furnished apartment to market landlords can save on storage costs, according to Mr Schofield.
Raine & Horne Mosman said the best way to maximise returns on a fully furnished investment property was to have a mix of lease terms available, depending on the season, and ensure the property stands out from the pack.
“There must be no expense spared on the furniture, the fittings and the interior, which should all present in an immaculate fashion,” Mr Schofield said.
“The exterior must also present well, along with the foyer when you walk in, which can be tricky unless you own the entire block or you have a very strong say every time the body corporate meets.
“Only when the property presents at its very best can a fully furnished apartment on a short-term lease truly justify a premium weekly rent.”