One of the most common questions I get asked by investors is how they can increase their rental yield. While the ideal outcome for most landlords is to have a combination of property price growth coupled with rising income from tenants, there are other ways they can maximise this return.
Here are five tips for increasing your rental yield:
1. Tenant retention
Don’t underestimate the value of quality tenants. They minimise wear and tear on your property, and tenants who consistently pay on time provide peace of mind, helping a landlord better manage their finances. Renewing a lease is much cheaper than the cost of finding a new tenant because it eliminates vacancy periods and reduces the costs involved in the search for a new tenant. Ensure your property manager has an effective screening process to get a quality tenant from the get-go.
One landlord was hesitant to change tenants, preferring to renew leases to avoid a vacancy period. While this seemed like the safer option, the tenant had a history of late payments and ongoing arrears, creating a larger financial strain than a short-term vacancy ever would. By reviewing the situation and seeking a quality, long-term tenant, the landlord was able to secure someone who paid on time, kept the property in excellent condition, and stayed for four years. The result? Consistent income, no arrears, and peace of mind – all of which were worth far more than avoiding a brief vacancy.
2. Regular rent reviews
The rental market is ever-changing, so you need to make sure your rent is competitive. It’s essential your property manager is reviewing current data, assessing market trends, and considering the property itself when providing recommendations. Falling behind on market trends and prices can see you miss out on a lot of rental yield over time.
Some landlords hesitate to raise rent, believing they are helping their tenants. However, if rent isn’t adjusted over time, it falls well below market rates. When circumstances change and a landlord suddenly needs to increase rent, the jump can be too extreme for the tenant to manage, leading to vacancies and financial loss. One landlord faced this exact issue – their rent had remained unchanged for years. When they finally increased it, the tenant couldn’t afford the adjustment and moved out. The financial loss from years of undercharging was substantial, and the property’s appeal to potential investors and tenants had dropped. A proactive approach to rent reviews and ongoing upkeep would have prevented this loss and ensured a steady return over time.
3. Property upkeep
Your investment property is likely to be one of your most valuable assets, so make sure you don’t let it get run down. Just like a unit block has a sinking fund, an investor should have a maintenance fund to address necessary repairs promptly. Look for a property manager who is giving you advice on what future maintenance is required. A proactive approach ensures your property value remains, justifies a higher rent, and also attracts tenants who want to stay. There is also the potential for tax depreciation benefits.
One landlord had great tenants who had been in place for years, but the home was becoming dated and in need of renovations. Rather than risk losing reliable tenants, the landlord strategically planned upgrades during the tenant’s holiday. With clear communication, a new kitchen and bathroom were installed, and upon their return, the tenants were thrilled with their freshly updated home. This approach allowed the landlord to increase rent significantly while retaining quality tenants, ensuring higher returns without any vacancy. Additionally, by completing these renovations, the landlord was able to increase their tax depreciation deductions, further improving their rental yield and overall financial return.
4. Assess your financial provider
Make sure you are regularly reviewing rates and loan products. Are you on the best interest rate available? If not, shop around. A lower interest rate or better loan product can lead to significant savings over time.
Consider regularly consulting with financial experts to ensure you are getting the best product and returns available.
5. Tax depreciation schedule
A tax depreciation schedule shows the eligible deductions you can claim for an investment property and it’s essential that your property manager has set this up for you. The right schedule will ensure you are maximising the returns on your investment property. Many landlords overlook the benefits of depreciation, but it can result in significant tax savings each year, improving your overall cash flow. Regularly updating your depreciation schedule, especially after renovations, ensures you’re capturing all possible deductions.
A bonus tip is make sure you have the right people around you. As an investor you don’t have to be an expert in all things property, but you do have to have the right team working for you. The hidden cost of poor property management can be more than you think. Build a strong team of professionals that you trust – who care about you and your investment journey – a good team knows that your success means their success.
Wondering what your investment property is worth or need guidance with your investment property?
For precise and commitment-free guidance, reach out to Claude Iaconi at Edison Property anytime at 0412 427 877. Being an investor himself, he will provide you with the finest advice!
Comments