Buying a rental property is one of the more popular long-term investment options in Australia. Although there are no guarantees in the world of investing, the real estate market is a relatively safe option. Investment properties represent tangible assets that can generate regular cash flow and long-term capital appreciation.
With that being said, you won’t be able to just sit back and watch the money come in. If you want to get the most out of your investment property, you need to be involved in the process. So, let’s have a look at six ways to maximise your rental returns.
1. Find the right tenants
The first major part of the leasing process is finding the right tenants. Most real estate professionals will recommend finding good long-term tenants even if it means slightly reducing your rental price. The advantages of long-term tenants include a stable positive cash flow, reduced vacancy rates and a generally well-kept property.
A steady cash flow will help you pay for loan servicing as well as holding and maintenance costs. Additionally, having a regular income allows you to calculate the ROI on the property over the lease period. This data will help you evaluate other investment opportunities in the future. Meanwhile, reduced vacancy rates means you’re less likely to have an empty rental property for extended periods of time. Good long-term tenants are also more likely to keep the property clean and well-maintained. Having quality tenants will save you from having to pay for major home repairs and renovations in between leases.
In the long run, all of these advantages can help you make and save a significant amount of money despite not charging your ideal rental price.
2. Minimise vacancy time
Make sure that you have a plan in case the lease on your property is not renewed. It is not ideal for you to start looking for new renters only when the lease has ended. Not only can this extend the amount of time that you’ll go without a tenant, it will also put a significant amount of financial pressure on you.
It’s a good idea to start the leasing renewal process early. Communicate with your current tenants and try to see what their future plans are. If they indicate their intention to move at the end of the leasing period, then get that in writing and start advertising for new renters in advance. Real estate professionals recommend advertising the property three weeks before the current lease ends. Listing the property early will help you reduce the amount of time that your rental home goes unoccupied. This will help you reduce the amount of money that you lose due to vacancy.
3. Make a good first impression
When putting up a listing for your property, make sure you’re making a good first impression. Potential tenants will likely see your property for the first time via website listing photos. Because of this, you should consider hiring a professional photographer to take high-quality photos of your property. There are many professionals out there who specialise in real estate photography. Their high-quality photos will likely draw the interest of good long-term tenants and increase the chances of them visiting your property in person.
You can even get professionals to take a video tour of your rental home. This will give potential renters a better sense of the space, the colours and the ambience of the property. Although photos are a great way to attract good tenants in the beginning, they are limited in what they can show. By providing a video, you’re giving the tenants an authentic look at the property. This builds trusts, which hopefully is the beginning of a good tenant-landlord relationship.
If you have the resources for it, you can even consider providing a virtual 3D tour. This will allow potential tenants to inspect the property at their own pace. It also enables them to inspect specific parts of the property that might be crucial to their daily lives. For example, for tenants that have mobility issues, it’s important for them to check the accessibility of the property.
4. Study the market
Throughout your time as a property investor, the market is likely going to go through multiple changes. One major economic factor that’s going to affect your rental returns is inflation. Simply put, inflation raises the price level of the economy and decreases the purchasing power of the dollar. This can affect your tax, maintenance and insurance costs.
Real estate is one of the more effective ways of hedging against inflation. Investing in real estate helps you keep up with inflation in two ways: capital appreciation and increased rental income.
According to CoreLogic, Melbourne dwellings had a 7.7% increase in value in the past twelve months to July 2021. CoreLogic also reports that the national median house value has had an annual growth rate of 6.8% in the past 25 years to 2018. So, when the power of the dollar drops, the annual appreciation in value allows your property to increase in price at the same time. This can help offset the adverse effects of inflation such as limited spending and reduced purchasing power.
Another way you can hedge against inflation is through rent. By increasing the rental price of your property, you’re giving yourself additional cash flow as well as the ability to fight against the effects of inflation. Indeed, even just a small increase in rent can go a long way in maximising your rental returns despite changes in the economy.
When you’re increasing rent, just be sure that you understand the relevant laws and regulations in your state or territory. For example, in Victoria, there was a recent law reform that prevents landlords from increasing the rent more than once in a period of 12 months. If you’re unsure about such matters, it’s important to consult legal and real estate advisors.
5. Consider renovations and upgrades
You should also consider ways to improve the appeal of your property. One way to do this is through renovations. To improve your home’s kerb appeal, consider getting professional landscaping services to revamp your garden and lawn. When it comes to your interior, common renovations ideas include repainting the walls, adding double glazed windows, or installing a new HVAC system. Meanwhile, your outdoor spaces might benefit from a new patio or pergola.
Although these upgrades won’t directly affect the value of your home, they can improve its desirability. Improved desirability might put you in a situation where you can demand higher rental prices and gain higher rental yields. Property upgrades will also help your rental home stand out from the other properties in the market.
In addition to renovations, you should also consider preventative maintenance. Preventative maintenance typically involves regular inspections of the rental property itself as well as associated appliances or systems. For example, your plumbing system and your HVAC system are two important features of your home that would benefit from regular inspections. Indeed, pipe blockages and inefficient A/C units are common issues that you should look out for. Preventative maintenance will allow you to solve an issue before it turns into a more expensive problem. In the long run, this will save you money and help you maintain the appeal of your property.
Though refinancing can be a stressful and involved process, it can save you a significant amount of money. If you find a better mortgage rate, even if it’s just by a half a percent, you should strongly consider refinancing.
Simply put, refinancing is changing the terms of your debt obligation. A debt obligation will have a set amount of period payments, a set interest rate, and a specific timeframe within which the loan will be repaid. If the lender agrees, you can refinance your debt to change these terms. For example, you can refinance so that the time that you have to repay the debt is longer. Another example is refinancing so that the agreed-upon interest rate is lower.
Refinancing your investment property can offer a few benefits:
- Reduced interest rates
- Lower monthly payments
- Higher ROI
- Allows you to use equity for further investments
- Gives you the resources to renovate and upgrade the property
It’s important to note that refinancing your investment property and refinancing your primary residence might have different processes. For example, in terms of tax deductibles, there may be differences in what you can claim depending on whether the property is an investment or is owner-occupied.
As you can see, there’s plenty of work that goes into managing an investment property. Just because the money that you make from it is often described as ‘passive’ income, it doesn’t mean that you just get to sit back and relax. You need to study the market, maintain good relations with your tenants and take care of the property.
That being said, you don’t have to do it alone. Hiring a property manager is highly recommended. They’ll help you keep your tenants happy, advise you on the state of the market and help you manage multiple rental properties.
Of course, none of this will be possible without first finding a high cash flow property that suits your portfolio and your investment goals. And once you have that property, use the tips above to ensure that you get the best most from your real estate investment.