Getting the best investment property returns isn’t just for investors with an established portfolio. Rookies, there are opportunities for you, too.
Owning a property is an excellent way to generate passive income, kickstart an investment portfolio and move up the next rung of the wealth ladder.
Real estate investments have a strong track record of appreciation and offer attractive tax offset benefits. They are often a preferred investments for many Australians with lower risk thresholds.
As with any investment, be it property, stocks, crypto or commodities, it’s essential to assess the earning potential, or the return on investment (ROI) that your investment can deliver. Before signing on the dotted line, you should consider “is this investment an asset or a liability?”
The good news is, getting the best returns isn’t just for investors with an established portfolio. Rookies, there are opportunities for you, too.
It’s just a matter of understanding the ways you can take control and maximise your investment property returns.
1. Reassess your investment strategy
There are two avenues your rental return comes from: rental yield and capital growth.
Understanding rental yield is a great starting point in taking control of your investment. Rental yield measures the profit you generate from your investments. It helps you determine a property’s value and potential.
How much rental income can your property generate per week, per month or over its lifetime? Higher rental yield equates to greater cash flow – and a greater sale price if you decide to sell up.
Rental yield calculation
To figure out the rental yield of your property, measure the gap between the rent you collect per annum, minus the your overall costs. Include rates, maintenance, repairs, body corporate and any other expense associated with renting it out.
When you know the rental yield of a property, you’ll be better able to understand your profit margins, the kind of cash you’re working with, and where you may be able to make improvements.
Ask yourself how long you plan to own your property and how much you’ll need to invest, not only from a monetary perspective, but also in time and energy. What expenses might arise not only month-to-month, but in the longer term?
Calculating rental yield will give you a good idea where your property sits in relation to the market and suburb, and where you might concentrate your search. You may also find you will get better returns in another suburb.
Reviewing the rent
Regularly reviewing the rent is also important in acquiring a long term understanding of your property investment strategy.
Keeping in touch with the market will help you understand the implications of a rise or fall in prices on your rental yield. Charging rent in line with the market value will help you stay on top of any changes in your area, and you will be able to assess if you need to adjust your rent price.
Did your council fees go up? Are the water and sewage levies increasing? Are your neighbours fetching more rent with less to offer?
If your property is negatively geared, there are some significant tax benefits that you can unlock through depreciation and property improvements – and the more properties, the better. A good tax strategy can improve your cash flow and provide a tax offset.
2. Consider a facelift
Taking control of the property’s value can also be done by improving the property itself. This in turn can increase the amount of rent the property attracts in the market.
Property appearance and rental income have a direct correlation. Managing and repairing the property to maintain and grow its value could look like a kitchen renovation, a bathroom refresh or adding storage.
You could even look at improving the street appeal, consider new living spaces, or offer a pet-friendly property. All options could attract long-term tenants, which saves you time and energy finding tenants for a high-turnover property.
Getting your hands dirty by purchasing a property that needs a little TLC is a great way to increase capital growth.
3. Get smarter about expenses, lower your overheads
It’s no secret that owning investment properties can attract significant operational costs.
While council rates, connection fees and levies are out of a landlord’s control, roughly 15-20 per cent of expenses can be considered controllable.*
Maximising investment property returns starts with assessing expenses. Work out which ones are non-negotiable and which aren’t necessary, or can be reduced.
Can you switch to a better insurance provider for a more competitive premium? If you’ve got a mortgage, it might be time to negotiate your interest rate. If you’re including utilities in your rent, it might be time to have a chat with the energy company, too.
Employing a property manager is one way to manage your property, but there can be hefty fees involved.
Managing a property used to be hard work, but it can be as simple as you make it.
Technology now exist that help you find, communicate and manage tenants, as well as maintenance, and take care of expense tracking for tax time. In fact, landlords that are willing to invest some time into DIY management stand to save around $2000 a year on every property they own. It’s a no-brainer for most landlords, but many Aussies don’t even know about this property management hack.
Property is a clever asset. If you hold onto a rental for a number of years and take the right steps, you’re bound to see a rise in value and maximise your investment property returns.
* Based on RentBetter statistics