How To Increase Your Rental Yield…<< Back to Blog
The purpose of investing in property is to “make money” and provide “financial security”, which can be in the short term or long term. Investors will often have different objectives as to how and when they make their money. Some investors specifically want to make a loss on the property (negative gear) in the short term, to off-set their taxable income, and are then relying on long-term capital growth gains. If you want to increase the value of your investment, it is important to understand how to achieve this and then take every possible step to focus on increasing your rental yield.
The outcome of increasing your rental yield will make property investing more enjoyable, less stressful and assist in making the property more attractive to future potential buyers looking for an investment. Some simple yet often neglected methods of increasing your rental yield include:
1. Raising the rent
2. Increasing the occupancy rate or reducing vacancies
3. Minimising your expenses
4. Maximising your deductible expenses
In this article we will explore ways of achieving these goals.
The good news is that we have seen great rental increases across Australia, and predictions are that this will continue in most geographical areas. Rental increases should be considered just prior to the existing lease expiring. It is recommended to increase the rent at least once a year (market permitting) so that the tenant becomes accustomed to the increases and does not receive a considerable increase unexpected after 3 or 4 years. Please feel welcome to discuss rental increases with your property manager. Take advantage of vacancy periods during tenant change over’s. Utilise this time to mulch garden beds, replace old plants with more suitable plants (most local councils offer ratepayers free vouchers for plants), paint internal walls and ensure that the window coverings and carpets are in a well-presented condition.
Maintaining the property in a first class condition will attract quality tenants and ensure that you are receiving the highest possible rent. Adding air-conditioning or a dishwasher may allow your property to rent for an additional $10 to $25 + per week, or perhaps your existing tenant would like these property additions (which are a tax deduction) in exchange for a modest rental increase. An alternate strategy to increase your rental yield (which is the opposite to regular rent increases) is to ensure that your weekly rent is competitive, or even contemplate having the rent priced just below the market to attract and keep quality long-term tenants, reducing vacancy periods (lost rent) and the wear and tear on the property that comes with high tenancy turnovers. Remember, a gain in rent may easily be lost by a few weeks of vacancy.
The Tax Office admits that 52% of investors do not claim what they are legally entitled to. Don’t let that apply to your situation. Many investment property owners do not claim depreciation. Why? Often it is simply because they don’t know about it. To claim depreciation, you need a Tax Depreciation Schedule put together by a quantity surveyor who specialises in tax work. A Tax Depreciation Schedule is a report that outlines the depreciation allowances that an investor is entitled to on the property. There are two types of deductions, Capital Works Deduction and Plant and Equipment Allowances.
The Capital Works Deduction applies to the building and any structural improvements. The second deduction is the Plant and Equipment Allowances. Certain items can be depreciated at an accelerated rate, such as carpet, airconditioning, curtains and appliances. Contact your accountant or quantity surveyor for assistance or our Property Manager will be happy to provide you with a referral