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There is more to maximizing the returns on your investment property than simply increasing your rent. There are a number of steps you should take to immediately improve your investment property income.
These include:
Below, we explore these important steps in detail. Read on to find out more!
Australia is currently in the midst of a rental crisis. A mixture of low vacancy rates, a rising population, lack of new housing and increased migration has meant that rents have increased rapidly across the country.
Queensland has seen some of the highest increases, where rents grew by more than 20% in some suburbs in 2022. Read REA’s report for yourself here.
For investors, this is a golden opportunity to earn significantly higher rental income that should not be passed up. These rising rental prices will not last forever, so its important to maximise your rental income while you can.
North Brisbane suburbs are primed to see a further 10-15% increase in rental prices in 2023, based on record low vacancy rates in the 40+ suburbs where we lease properties across North Brisbane, Kallangur, Petrie, Dakabin, Griffin, Caboolture, and Murrumba Downs.
If you are looking to maximise your rental income in these suburbs, then Affinity can help you.
The most important step to ensure your rent is set at the highest possible level is to get a comprehensive rent review.
Consult a local expert property manager to get a comprehensive rent review, and ensure they understand the local market and how your property compares against other rental properties. To get the most accurate data possible, your property manager should look at:
The RTA rent data is particularly helpful, because this looks at all bonds lodged for every single property in a given suburb. The trends in this data provide a very good benchmark to see how much you can increase your rent. To access the Queensland RTA data – you can click here.
To get the most out of your rental property, there are times where it will be necessary to increase your rent to ensure it keeps up with the market.
However, when increasing your rent this means being fair to the tenant. Maintaining amicable relations between yourself as the landlord, and your tenant is essential to keeping your rental property performing to its maximum potential. A vacant property is losing you money.
Before deciding to increase your rent, review the terms of your rental agreement. Depending on whether your rental agreement is fixed or periodical, this will change the terms under which you can increase your rent.
If you have a long term lease, you can include terms in the lease regarding how rents will be increased and when these increases will occur. Such leases can be beneficial for the landlord and the tenant. The landlord has guaranteed rent increases and no re-letting costs. The tenant has guaranteed tenure and certainty regarding what rent they need to pay now and in the future.
For more information about rent increases, check with the RTA and consult with your property managers about the best way to go about increasing the rent on your investment property.
If a tenant feels that your rent increase is too excessive, they may take you or your property manager into dispute resolution or the Queensland Civil and Administrative Tribunal (QCAT) to resolve the matter.
By adding value to your rental property, you can increase your rent well above market trends. In most cases, this will require your property to be vacant whilst you complete any improvements. In many instances, cosmetic improvements can add 30%-40% additional rental income, whilst major renovations can sometimes double your investment property income.
If you decide you want to add value to your home through renovations and improvements, it is helpful to write down how these improvements will make your rental property more comfortable, attractive and convenient place to live. You should always be really clear on why you are spending money and what rental income you want to achieve once you have completed the improvements.
Examples of improvements and renovations which add value to your property include:
Building and repair costs have been sky high over the past 18 months. However, we are starting to see these costs reduce. In recent weeks more contractors have come to our office looking for work, so there should be opportunities over the next 6 – 12 months to get better priced trades to complete work.
If you are thinking of making some improvements to your rental property, you should look for a range of licensed trades and maintenance contractors who have strong reviews or come recommended by a trusted source.
Making sure your property is always tenanted is essential to maximising your rental returns.
Fast leasing means landlords have minimal vacancy risk and generate the highest possible income throughout the year. One week’s lost rent equals 2% vacancy rate for the year. It’s essential your property manager can demonstrate the steps they use to always lease quickly to high quality tenants. If they don’t have a proven process that works 100% of the time, then you should look for a different property manager.
When your property sits empty, you won’t be receiving any income from rental returns. However, you’ll still need to pay expenses such as the mortgage, council rates, insurance and the cost of maintenance and upkeep.
An untenanted investment property can quickly become a major drain on your finances. To ensure maximum profitability, make sure you always have paying tenants living in your rental property.
To keep your property tenanted, it is important to keep track of how long your tenants have left on their lease. The process for bringing in new tenants should begin before the departing tenants leave. We recommend you commence your marketing at least 2 – 4 weeks before you want tenants to move in.
The reason for this is that tenants normally give notice to their existing landlord at least 8 weeks prior to them vacating their property. Once tenants have decided to move they then start actively looking for a new property and usually commit to a new lease 2 – 4 weeks before moving out of their existing rental. Consequently, you want to attract good quality tenants within the 2 – 4 week window.
If you have duplex rental property and rent out both sides, you should structure your property so that the tenancies end at different times. This way, you are protected from having your duplex being totally empty.
Experience matters in property management. Inexperienced and poorly trained property managers end up costing landlords thousands extra. It’s very important you choose a property manager with exceptional arrears management and a great tenant selection process.
Tenant selection is incredibly important. A poor tenant may damage your property and cause you financial hardship. Ask your property manager how they choose tenants and how they match the right tenant for your investment property.
They should be willing to share their process on how they attract and sign-up high-quality tenants. Extra time and effort upfront with tenant selection often results in very good, long-term tenancies. If your tenants remain long-term in your property, this reduces landlords costs (no leasing or advertising costs) and increases your rental income.
To maximise your cash flow it’s important your tenants pay their rent on time, every time. Best practice in arrears management is for arrears to consistently be lower than 0.5%. Make sure you choose a property manager who can demonstrate their results and is happy to explain how they make sure your tenants pay their rent quickly and reliably – every time, so you are not out of pocket.
Many first-time investors forget this step and miss out on tens of thousands of dollars in tax deductions.
If there have been major improvements/renovations to the property you are purchasing, or the property is brand new, a quantity surveyor can help you prepare a tax depreciation report for your property. This report will enable you to claim depreciation expenses and capital allowance deductions as part of your tax return.
Tax depreciation is a tax deduction claimed for the natural wear and tear of an income-producing building and its assets over time. It is generally the second biggest tax deduction for property investors, after interest.
Claiming tax depreciation reduces your taxable income, meaning you pay less tax. You may be eligible for thousands of dollars in depreciation deductions each year. Tax depreciation deductions are available for both residential investment properties and commercial buildings. Most properties, new and old, have depreciation available.You don’t need to spend money to claim tax depreciation.
When you buy an investment property you immediately become responsible for managing a range of risks and need to comply with specific legal and regulatory requirements.
Landlord insurance is essential to protect you (the landlord) from potentially catastrophic damages and financial liabilities. The policies offer coverage for arrears in rent, vandalism and malicious damage, and contents cover. There are many places to research or find out more about landlord insurance.
Rental cover is particularly beneficial as it protects you from the loss of rental income up to a dollar amount, or number of weeks. With rental cover, you are reimbursed if your tenant misses their payments, is unable to pay due to injury or death, can’t afford to pay, or breaks the lease early and costs you lost rent.
Landlord insurance also protects you from financial losses that result from:
Don’t let a lack of insurance compromise your rental income. Before you choose an insurance policy, make sure to do plenty of research. To save money you can shop around for the best insurance that suits your needs. The video below provides a great overview of what is included in general landlord insurance policies.
There are many resources available to you to assist you with getting the most out of your rental property. For more information about getting the best return with your investment property, click here to find out more.
