Ten steps to improve the yield on your investment property
What does 'Rental yield' mean and how to get the best possible return for your investment?
If you’re new to property investment or looking to expand your portfolio, it’s good to understand what a rental yield is, what it means for your investment and how to get the best possible return.
What is rental yield?
Rental yield refers to the measurement of a future income on an investment. This is generally calculated annually as a percentage based on the property’s cost or market value and has nothing to do with capital gain.
For more information on yield and everything there is to know, check out our latest blog here.
Enhancing the yield on an investment property with depreciation strategies isn’t difficult, but it does encompass some planning and foresight.
1. Renovate your property
Renovations and cosmetic updates are essential to keep your property attractive in a changing market. This can not only help increase competition for your property and potentially boost rental yields, it can also offer you significant breaks at tax time.
For example, if you spend $25,000 on a new kitchen and appliances, curtains and carpet, you can potentially claim up to one-third to one-half of that amount in the first year alone with a depreciation schedule from a qualified quantity surveyor.
Even smaller changes can have a big impact, like a fresh coat of paint or updated joinery, without over capitalising. Most updates to your property will be a worthwhile investment and pay dividends in both the short and long term.
2. Depreciation schedule
If you've completed a renovation or updated the property, holding onto receipts is a good idea so you can get a depreciation schedule done. Investors can often claim between $4000 and $15,000 on their property in the first year. While it can be back-dated, getting onto it as soon as you’re finished will capture the most up-to-date values on your tax return.
While a depreciation schedule will cost you, the money you can save in deductions is generally worth it.
Consider speaking to a quantity surveyor to see what you can save. With a few basic questions on the part of the quantity surveyor, you’ll have a good idea of whether it’s worthwhile to create a report.
While only renovations completed after 1987 qualify for building allowance deductions, investors can still claim depreciation on plant and equipment items such as appliances, carpets and blinds – regardless of the age of the property.
Don’t forget that the cost of your depreciation report is tax-deductible as well.
You can also take advantage of small-ticket items that cost $300 or less, these can usually be written off for an immediate deduction on your tax return.
3. Offer longer-term leases
Being regularly forced to move is one of the big hassles of being a Renter, and it costs money too. For this reason, many people may be willing to pay more for the security of a longer-term lease. If your renters move every 12 months, you are constantly paying for re-letting and marketing expenses. A longer lease will certainly reduce these costs.
4. Pet-friendly property
While the recent changes to the Residential Tenancies Act forbid rental providers from denying renters with pets, there are still properties that aren’t suited for our four-legged friends. Making your home pet-friendly by ensuring it is well gated and safe, with the option for a doggy door may encourage pet owners to pay a higher price for peace of mind. It also gives your home a great point of difference.
5. Increase rent strategically
The art of setting rents is to raise them periodically without driving out your renters and suffering vacancy. Understand what comparable properties are available nearby, and take into consideration the cost and hassle of moving for the renter.
If you keep an eye on the market closely and work with your Barry Plant Property Manager, you will be able to ensure you are extracting the maximum price for your property.
6. Review your investment loan
Lenders can often change interest rates, so be vigilant and benchmark your loan to the market from time to time to see if there’s a better deal available. A seemingly small difference in interest rates can add up to a lot over time.
7. Stay on top of maintenance
Nothing will kill rental value like allowing the property to become run down and shabby. Broken fixtures and appliances are a particular turn-off. Your Barry Plant Property Management team will have a list of trustworthy tradies who you can rely on to fix any problem quickly and who will offer quality work at a reasonable rate. Fixing maintenance issues as they arise will also help maintain a good relationship with your renter.
A Barry Plant Property Manager will advise you if maintenance issues mean your property doesn’t comply with the Tenancies Act requirements so you can avoid fines. And if the property is well-maintained, looks good, and everything works, you will be able to command a higher rent. Your Property Manager will also be on the lookout for potential problems and wear and tear during regular inspections.
8. Capitalise on street appeal
When potential renters view the street appeal of your property, it sets the standard for what they will expect once they walk inside. If they arrive at your home and see dead lawns and overgrown gardens, they're going to assume the interior of the home is in a similar condition.
Before your home is advertised for rent, organise for weeding, mowing the lawns, and mulching your garden beds, and you’ll have a much better chance of attracting your ideal Renter.
9. Opt for a low-maintenance garden
Most people are time-poor and will prefer not to spend their weekends maintaining the front and backyard. If you can, avoid plants or trees that require lots of pruning or watering and choose some easy-care natives instead.
This will improve the rentability of your investment and keep your maintenance costs down.
10. Have adequate insurance
Being adequately insured is vital for a property investor, but there is no doubt that it is expensive. Reviewing all of your policies on an annual basis ensures that you are getting the best price and, more importantly, ensures that you have adequate insurance. As property prices increase, you may find that the level of cover you have is insufficient. Insurers can also offer bundle discounts if they manage multiple policies for you.
Disclaimer: The contents of this article are believed to be accurate at the time of posting. Any advice here is of a general nature only and has not been tailored to your personal circumstances. Please seek professional advice prior to acting on this information.