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Empower Wealth Blog post by Empower Wealth

Five creative ways to increase rental returns

Quite often investors ask us about clever ways to enhance property value. Most investors pay a lot of attention to the value of the property but why don’t they pay as much attention to the returns? Well, we do, and some clever investors out there do so as well. While we like to see our equity position growing, the bottom line for any ‘buy and hold’ property strategy is actually the annual returns…. THE RENTAL!

Here are our top five creative ways we’ve seen rents lifted noticeably….

 

1.       Fencing a front yard to attract tenants with small children

This is a simple, cost-effective and easy way to encourage tenants who have a requirement for a secure yard. Not every landlord allows dogs but for those who do, this can make the difference between a strong tenant pool and a languishing one. Getting good applications is twofold – you need the property to attract good tenants but also you need to have high demand to defend a strong price. As Property Investors, we’ve seen situations where multiple tenants have walked through a suitable property and they have been prepared to offer rental offers above the asking price JUST because the property so perfectly meets their needs (and obviously to race their application to the top of the pile).

 

 2.       Installing a neat, cost-effective kitchen

This suggestion is not meant to whittle away returns… investors sometimes get carried away with the new kitchen concept and over-capitalise on the whole thing. After all, it’s easy to picture yourself in the new kitchen and to continually upgrade fittings and fixtures until all of a sudden, the proposed kitchen is a $15,000 rebuild and the annual returns are back into strong negatives. A kitchen makeover on a tired rental property shouldn’t cost more than 3% of the property value. If it does – chances are you are spending too much on your new kitchen. The best cost-effective upgrades we’ve seen are flat pack solutions and clever combinations of existing kitchen carcases/cupboards and new benchtops. If there is a way to replace benchtops, add new handles, retain original layouts and stick to affordable appliances, the options should be explored. Obviously a high-end property will be an exception to the rule, but even then the 3% rule of thumb should apply.

 

 3.       New carpet and paint

This isn’t so much a ‘creative’ suggestion – more so a practical one. But it’s how investors go about it which can make the difference. Go to a local carpet shop and speak to a consultant about end of lines, off-cuts and cancelled orders. You’ll be surprised how cost-effectively a carpet provider and layer can assist you. They probably do other floor coverings so explore all options with them. Your scale of economy when it comes to tradespeople is best when you limit the number of workers and visits – so think laterally about where and how you source floor coverings. If you are planning to repaint yourself, get good advice so that you do a good job first time. Too often I’ve seen tardy owners do a rush-job, only to find they spend more money fixing up the bad workmanship than what a professional painter would have cost them. Find out about paint colours, coverage and application. Not all paint is the same and it’s a good idea to find out how to get the best coverage if you are going over previous colours. Keep in mind – paint accounts roughly for twenty per cent of a professional job and 80 per cent is labour. Keep the labour down if you can and don’t skimp on the right products.

 

 4.       Being flexible on longer terms in high-demand areas

Sometimes good tenants don’t just want to secure a property for the right price at the right time. Some want the certainty of being able to stay for a longer period than 12 months. Discuss this with your property manager and work out a fair but tailored approach with your tenant. You may  sign up a three year lease with $20 per week increases noted in their agreement every year. Or they may pay $10pw every six months. Work out a win-win so that they get security of staying on and you get a well remunerated return. A recent client secured a fabulous tenant on an 18 month rental arrangement with indexed increases throughout the lease. The win for my client wasn’t just an extra six months of leasing to a great tenant; it got their next tenancy in phase with the summer season – a peak period here in Melbourne and a much better time to find a tenant than the middle of July.

 

 5.       Enabling a share-house to run more comfortably as a share-house
House-sharers will tolerate a lot – but consider how lucrative an extra $20 per week from 3 people (each) can be with some clever and simple changes. For example, you may be able to separate the toilet (or add a separate toilet) away from the main bathroom. You may be able to introduce a second door on an ensuite so that you create a shared two-way ensuite. Good cupboard storage for individuals is great for house-sharers too (they can keep their own linen separate etc). And don’t’ forget outside shed or garage storage for those possessions which don’t fit into the house but are carried around by tenants. One clever investor we met had put locks on bedroom doors so that tenants had their privacy and goods were secure. Some of these little ideas are cheap to do and enable your property to appeal to a valuable tenant demographic (in the right area).

It’s important to note however – tap into your target tenant types. Don’t assume that one will value a new kitchen, or that another will value a share-house setup. It’s vital to know who you are appealing to. And don’t forget your valued property manager. They should be your conduit into the world of tenants in their area.

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