Property owners leveraging home equity to ‘get further ahead’: NAB
A new research showed that property owners are unlocking the equity in their homes for a range of reasons but with the s...
As the old saying goes, “Don’t bring me problems, bring me solutions”. And, as property investors, there’s one big problem facing most of us at this stage of the property market cycle: falling rental yields in the face of rising house prices.
So instead of analysing the problem, below are several solutions. These six tactics can help investors increase rental yields regardless of price.
Humans are sometimes a pretty superficial bunch. So even a basic cosmetic facelift to your investment property may be enough to command a few extra hundred dollars in rent each week.
This could include a fresh coat of paint, more modern light fixtures, or updated blinds and curtains to maximise light. The key here is to keep it simple, not blow the budget, and ensure all changes you make are mostly timeless.
Bright pink feature walls and rose gold taps may currently be “in”, according to House Rules, but you wouldn’t want to update cosmetics every few months to keep up with trends.
On the other hand, no amount of fresh paint will help if the kitchen and bathrooms look like something out of the dark ages.
Substantial renovations, like a new kitchen and bathroom, or new flooring, require capital and time, and of course a loss of rent, but can dramatically increase your yield. Apart from the immediate increase in rent, it will also reduce how much you will spend on repairs and maintenance in the long term, as you will have new appliances and fixtures.
So assess similar local properties to understand what the local standards are to avoid overcapitalising and to assist with budgeting.
Because an updated bathroom can do wonders for lifting rental revenues. But there’s no point installing a luxury spa bath with water feature if renters really just want the facilities for a five-minute shower.
Furnishing a property can instantly lift its rent, so long as this is appropriate for your location.
As an example, furnished properties may be ideal near universities where there is high demand for “turnkey solutions” by students. In this case, styling should reflect a younger demographic, and cater for potential wear and tear from socialising.
Travelling business people may also require furnished properties near airports or city centres, and may prefer not to spend through the nose on more expensive serviced apartments. In this case, styling should be simple, but modern and elegant.
And don’t forget – many pieces of furniture you buy for your property that are under $300 are an instant tax depreciation write-off. Added bonus!
Sometimes increasing the rent will simply be impossible. So the trick here is to reduce your expenses.
The most obvious and quick way to do this is to take out the real estate middleman, and switch to self-managing your property.
Many investors may think they’re not qualified to do this, that it will be complicated and time-consuming, or that they don’t even know where to start. But there are now a whole host of apps and digital platforms that can help to streamline this process for you – at a one-off fee that is an absolute fraction of the cost of a real estate agent.
Self-managing can be especially attractive if you have done a substantial renovation on your property, as you will have a lot less maintenance and repair jobs to organise, effectively reducing the job to finding tenants and then collecting the rent. Something to think about.
Airbnb and Stayz are fast becoming common ways to make some extra rental dollars. But it pays to be strategic about this to cater for the extra hassle that may come along.
One way to maximise your rental dollars is to apportion six or so months of the year to regular, long-term renting, and only opt for short-term renting during the high-demand months. An example of this might be a beachside property which is likely to be in high demand from holidaymakers during the warmer months, but which probably more strongly suits a six-month lease over the colder months.
For property investors who don’t want to get their hands dirty, a whole host of Airbnb property management apps are now also popping up. This means outsourcing all of the hassle, for a small percentage of the extra income.
Finally, you could simply seek to pay less interest. This is also becoming easier than ever before, as more non-bank lenders enter the market and increase competition and pressure on banks.
The first step here is to find someone who is offering a lower rate than yours, ask your lender if they’re willing to match it, and be ready to walk if they won’t. Keep in mind that the interest rate alone does not determine the competitiveness of a mortgage product.
There are many other fees and charges, and you need to evaluate your payments overall to decide how much you will save by changing products.
But the savings can often more than compensate for the short-term inconvenience of switching.
So, what are you waiting for?
Yield is defined as the earnings that were generated and realized on investment for a specified period.