How to improve the yield on your property investment
Property owners in Australia’s capital cities have benefited from extraordinary capital gains of late. In fact, the CoreLogic RP Data Home Value Index shows that in the 20 years since 1995 (when the index began), capital city house values have skyrocketed more than 436 per cent. Over the decades there have been many ups and downs, but the last year has seen the real estate industry put the pedal to the metal in terms of growth, predominantly driven by our two largest cities. Research from the Australian Bureau of Statistics (ABS) reveals that over the 12 months to June 2015, the weighted average of residential prices in Sydney and Melbourne increased by 18.9 per cent and 7.8 per cent respectively.
“The last year has seen the real estate industry put the pedal to the metal in terms of growth”
It’s clear that property investors have been profiting from surges in equity of their investments (provided their buyers’ agent pointed them in the right direction), but what about rental yield? Capital gains are great for lining your pockets in the long term, but it’s rent payments that do the work in the short term. In a recent report, Real Estate Institute of Australia’s President Neville Sanders declared that renters are benefiting from the influx of investment in Australian real estate, which has given tenants more options to choose from. “The increase in vacancy rates is being reflected in declining rents with the median rent for two bedroom units decreasing in Sydney, Melbourne, Brisbane, Perth, Darwin and Canberra in the June quarter of 2015,” he said.
In light of this, how can you raise your rental from your investment property?
Target your market
Before you buy your investment property, it’s important to know the what kinds of people are residing in the area, as it will allow you to make accommodations suited to them. For example, the ABS found that around 55 per cent of single parent families in Australia are renting, the greatest proportion in our country, followed by 34 per cent of lone person households. Therefore, a two bedroom property that is close to a school may prove to be an effective investment in terms of rental returns. Likewise, an inner-city one bedroom unit may be a good purchase, as the ABS asserts the majority of lone person households are young, studying or starting their new careers with low reserves of wealth. However, it is highly recommended that you seek advice from a buyers’ agent, as they will be able to identify your target market with exclusive insights to help ensure you make the right purchase.
Change your weekly rent
The Australian Securities and Investments Commission recommends looking for areas where the rental income is high compared to the property value, which a buyers’ agent will be able to help you with. However, depending on the circumstances, your weekly rent may benefit from being changed. If it is too high, it’s likely that you will struggle to secure tenants. Meanwhile, if it has been unchanged for a number of years then it’s likely that like your VCR player from the ’80s, it’s become out of date and has fallen behind, resulting in a loss of potential profits. While it is perhaps the most obvious route to increasing your rental yield, it does take finesse and careful consideration of what the market is doing to find the right balance.
Make your property pet-friendly
The Animal Welfare League Australia (AWLA) asserts that less than 10 per cent of rental properties on the market are listed as pet friendly – despite our nation having one of the highest rates of pet ownership in the world. While damage to your property can be a concern, AWLA affirms that potential benefits can include:
- More interest in your property from prospective tenants
- You can increase your weekly rent because of the extra roommate
- You can demand a bond for your tenant’s pet in case of any damages
- Having a tenant with a pet can keep your property occupied for longer
- When interviewing tenants, request that they bring their pet/s too so that you can use your own judgement on a case-by-case basis. For example, you will probably prefer a small, obedient and quiet dog over a large, unruly and aggressive one.
Renovate your property
According to the Westpac Renovations Report, renovating across our nation increased by 147 per cent between 2010 and the end of 2014, with almost nine in ten Australians agreeing that doing up your home is an effective way of increasing the value. It can increase your rental yield, too, provided you make the right decisions. For example, converting your dining room into an additional bedroom will give you the ability to house another tenant, and another source of revenue.
Use an investment property manager
The benefit of using investment property managers is that they can constantly overlook your assets, advising on what steps you should take to increase your rental returns. Provided you choose the right property agent, they can tailor an investment package to suit your unique situation. “Ensuring the performance of your rental property is their full-time job” Ensuring the performance of your rental property is their full-time job, and as such they are often intimately aware of what the market is doing. This means they can create informed strategies for any unforeseen circumstances.
Furthermore, an investment property manager can take care of advertising, vetting potential tenants, taking care of any maintenance or repairs and staying on top of weekly payments.