How to increase rental yield – Comprehensive Tips & Hints guide

updated 4th October 2016

Do’s and Don’ts

Top value-adds

  • Built-in cupboards and wardrobe
  • Sheltered, lock-up garage
  • Plenty of power outlets
  • Dishwasher, air-conditioners or ceiling fans
  • Security or alarm systems

Dud income-earners

  • Personal decoration choices
  • Swimming pools
  • Cheap, low-quality window and floor coverings
  • Too much furniture
  • Expensive, fussy light fixtures

Tip # 1: Present it like a pro

Potential tenants are quick to make decisions, so having a well-presented property will give you the greatest opportunity to attract the best tenants.

“Furniture in a property can make a big impact,” says Rolls. “If you want to increase the number of enquiries that you get, I suggest that you hire really good furniture for just one day and get some professional photos taken.”

Rolls says you can then use these pictures every time you rent the property out – so even if your current tenant is very messy, the property will present very well when listed online or on promotional flyers.

“It will cost you about $800, but you can keep using those pictures year after year every time you re-let the property. For a house that rents out at $400 per week, it doesn’t take long to recoup your costs.”
Best suits: All property types, particularly premium properties.

How to do it: Hire furniture – and even a stylist – through furniture rental companies such as www.rentacentre.com.au and www.rentalstogo.com.au. If you’re on a budget and you have a good quality digital camera, snap the pictures yourself, or for really professional results, engage a photographer. Make sure that you own the copyright, so you can use the images in all future marketing materials, and keep the images stored on file. A well-presented property could rent for $20 per week more than a sloppy-looking pad.
$$ value: $1,040 per year.

Tip # 2: Increase the rent

“Put your rent up,” Rolls advises. “It sounds really dumb, but you’d just be astonished by how many landlords are out there who don’t consider it. If you’ve had a property rented out at the same amount for more than a year, you’re under-earning.”

Some investors prefer to under-rent their property to maintain a stable, long-term tenant, which Rolls agrees is something that each landlord should “do a calculation on”.

“If your property is rented at $400 and is under-rented by $60 per week, and you up the rent and your tenant moves out, you lose $400 per week while you find a new tenant,” Rolls explains. “But if you sign up a new lease a week later at $450 a week, it only takes you eight weeks to catch up to the one week of rent you have lost. The key is not to increase the rent by too much at one time.”

Best suits: Properties that have not had a rental increase in more than 12 months.

How to do it: Speak with your property manager to determine what rent similar properties are achieving. Discuss options for building smaller, ongoing rental increases into future lease agreements. Increasing the rent by $20 per week will earn you an extra $1,040 annually.

$$ value: $1,040 per year.

Tip # 3: Slow increments

Average rent rates are increasing by 4–6% every six months, Rolls says, which is roughly $10 per week on a $200 lease, or $20 per week on a $400 lease every six months.

“We’ve actually found it is easier to increase rents slowly, rather than hitting tenants with a huge $50 increase each 12 months,” Rolls says.

His advice is to increase rents by a smaller amount every six months to meet market rent, which is ideally calculated in consultation with your property manager, as they know the rents that similar properties in the area are achieving.

“The worst offenders are those that manage the property themselves,” Rolls explains, “because they develop a bit of a relationship with the tenant and they don’t want to increase the rent too much as a result. Instead, they up it by $5 or $10 every year – so they’re potentially losing out on thousands of dollars.”

Best suits: All property types, particularly those in the $400-plus per week price bracket.

How to do it: Discuss with your property manager and build six-monthly rent increases into lease agreements. For example, with a 12-month lease, include provisions for a $10–$15 increase after six months, and another if they want to re-sign after 12 months. Give your tenants as much notice as possible, being mindful of the amount of notice required by law in your state or territory. By upping the rent, you increase your rental income by between $500 and $1500 per year.

$$ Value: $1,000 per year.

Tip # 4: Throw in some extras

Most tenants supply their own appliances. However, some extra amenities – such as a dishwasher and air-conditioning – can squeeze a few more dollars from a potential resident.

“A dishwasher can cost as little as $500, and can get an additional return,” Rolls explains.
“Also polished floors, for example, will always rent better than a property with carpet.”

Any appliance or amenity you put in is your responsibility to maintain or repair, which means if the dishwasher breaks, the cost will come out of your wallet. Keep in mind, however, that premium appliances tend to attract premium tenants.

Best suits: All property types, particularly those that need extra “selling features”.

How to do it: The best time to install new products or appliances is between tenants. However, if it’s not too disruptive to the current tenant, you can arrange for installations mid-lease. You could even attach a rental increase to the new feature. If you install air-conditioning three months into the lease, for example, you could advise tenants that as a result, the rent will be increasing by $10 per week. Upping the rent by $10 per week will earn you an extra $520 per annum.

$$ value: $520 per year.

Tip # 5: Timing is everything

There are certain times of the year when your property will attract a higher level of interest. Those times are usually January/February and June/July. The population is generally more transient during those months, so you end up with more competition and higher demand.

Rolls says the properties let during this period typically attract up to three times more interest than properties rented out during other months.

“The bottom line is, the more enquires you get, the more demand there is – and higher demand means you have a better chance of achieving a higher rent,” Rolls says.

He advises that you avoid letting a property during November and December because, generally, no one wants to move before Christmas.

Best suits: All property types.

How to do it: If your lease doesn’t expire at peak letting times, allow tenants to remain on a month-by-month basis until you reach December or May. Press tenants to re-sign at this time, and if they decide to move out, you will be re-letting your property during the peak rental period. The higher level of competition means your property is less likely to sit empty between tenants, adding a couple of weeks rent to your annual rental income.

$$ value: $600 per year.

Tip # 6: Staggered leases

Although six- and 12-month leases are standard, Rolls says there is “no requirement” to stick with these terms.

You will be better served if you schedule lease agreements to coincide with peak letting times. For example, if you have a tenant and their lease is due to expire in September, you don’t have to sign them for another six or 12 months, according to Rolls.

“You would be better off signing them on for, say, five months, so that the lease ends in February. That way if they decide to move out, you would rent the property much more quickly in February than you would in March or April.”

Best suits: All property types.

How to do it: Take note of your current lease terms, and structure future lease agreements to fall around the peak letting periods. This strategy will minimise the time between tenants, saving you between one and four weeks’ rent per year.

$$ value: $800 per year.

Tip # 7: Consider renovations

As a general rule, more bedrooms equals more rent – so if you have a spacious apartment with ample living areas, Rolls recommends you consider converting part of the living space into an extra bedroom.

“Typically, if there are two similar houses on similar-sized blocks, and one has two bedrooms and one has three bedrooms … the three-bedroom property will get up to an additional 40% rental return,” Rolls says.

According to the Residential Tenancy Authority (RTA) June 2007 statistics for Brisbane, the median rent for a three-bedroom unit was 39.5% higher than the median rent for a two-bedroom unit, while the median rent for a three-bedroom house was 18.75% higher than for a two-bedroom house.

If you don’t have enough space to create another bedroom, Rolls suggests investing in an outdoor area, such as decking and patios. “Outdoor areas are very attractive to tenants, particularly those living in warm climates in Queensland,” Rolls says.

Best suits: Houses with large, easily converted living areas.

How to do it: Engage a builder to survey the area and arrange a few quotes. It would be best to time this renovation to take place between leases, as tenants won’t want to live with noisy and invasive renovations for weeks at a time. An extra bedroom would generally increase the rent by at least $50 per week.

$$ value: $2,600 per year.

Tip # 8: Fully furnished

While furnishing the property can increase the rental income a great deal, Rolls recommends that investors consider their property type and likely tenant pool before they decide to furnish their investment property.

“You will rent your property for more if it’s fully furnished, however, there are so few tenants looking for fully furnished properties that you end up with vacancies for longer periods of time,” he says. “Inner-city serviced apartments and executive apartments are the only exception.”

Rolls says investors must be mindful of the fact the fully furnished properties generally attract tenants who want a tenancy of less than six months, which will equal “more wear and tear on the property”.

“To put it in perspective, we manage about 2,000 properties, and of those, about 10 are fully furnished – so the percentage is next to nothing,” Rolls says.

“It suits a very specific type of property, so you would be best off consulting a property manager beforehand to determine whether your property fits the bill.”

Best suits: Holiday-let properties and executive rentals.

How to do it: Consult your property manager to determine which types of furnishings would be most appropriate, then visit furniture wholesalers such as Ikea, Amart and Harvey Norman. Try to buy all of your furniture at the one time, so you’re in a position to negotiate a discount. Furnished properties achieve an average of $50–100 per week more than unfurnished properties, adding $2,600–5,200 to your rental income.

$$ value: $5,200 per year.

Tip # 9: The right advice

Never rely on the selling agent’s opinion of what a property will rent for, Rolls says.

An unrealistic rental asking price could render your property untenanted for weeks, and many investors have been burnt in the past by inflated rental estimates that have seen their property left untenanted for weeks on end.

“Always get an opinion of rental value from a specialist property management organisation,” Rolls advises.

“That way, you know you’re not getting an inflated rental valuation to help convince you to buy the property.”

Best suits: Apartments and units, especially those in off-the-plan developments.

How to do it: Approach at least three different property managers with rental listings in the area, and ask for a rental estimate for your potential investment. They’re the rental experts with tenants in the region, so if their estimates don’t stack up to what you’ve been told, proceed with caution. With a competitive and realistic asking price, you could slash four weeks off the time it takes to find a suitable tenant. Assuming weekly rent of $300 per week, that’s an additional $1,200 in your pocket.

$$ value: $1,200 per year.

Tip # 10: Take care of your tenants

If you have a good-quality tenant and you want to keep them, you need to factor their feedback into the negotiation process. If your tenant has been requesting that you attend to repairs for the previous four months and you haven’t taken action, and then you hit them with a rent hike, they’re not likely to be receptive.

Pamela Yardney, director of Metropole – Property Investment Strategists, suggests that the best way to achieve a mutually agreeable outcome is to rely on your property manager to guide you.

“They have experience in negotiating with tenants, and can often gauge the tenant’s willingness to accept a rental increase,” Yardney says.

“You don’t want to lose a good tenant for the sake of a few dollars extra a week. Tenants expect rents will increase over time, but landlords must also be realistic and not expect more than what is acceptable.”

If you negotiate with your current tenant, you can avoid having to re-let the property to someone new, potentially saving you from having to cover the mortgage for a few weeks while a new tenant is found.
Best suits: All property types.

How to do it: Listen to your tenant during negotiations as it makes them feel valued and appreciated. It is a negotiation, so be flexible. If your tenant baulks at the mention of a $20 per week increase, offer a staggered increase of $10 at first, increasing to $20 in three months time. Liaise with your property manager to determine the best course of action, and remember that you will also save on any repairs that need to be undertaken to bring the property up to scratch for a new tenant. Two weeks’ rental income at $300 per week, plus an allowance of $400 for repairs, is potentially an extra $1,000 that stays in your pocket.

$$ value: $1,000 per year.

Tip # 11: Monitor supply and demand

Vacancy rates are historically low in almost every property market across the country, but it’s not just the top-line supply and demand figures you need to consider.

It is the supply and demand of properties and tenants in your specific area – even in your street – that will impact your investment. There might be plenty of tenants seeking one- and two-bedroom apartments in your area, but if your property is a four-bedroom house, your particular supply won’t meet the market.

“While there are more tenants than properties available at the moment, the rents tend to rise once there is more demand,” Yardney says.

“We find that during the winter period, for example, fewer tenants are looking to move and therefore there is more supply, which will have an effect on the rent – so it’s not as easy to increase rents at that time.”

Yardney suggests that landlords keep a constant eye and ear on what is happening in their local market, via their property manager and online. Investors should also try to time their leases to expire outside of winter months, particularly in cooler climate markets such as Melbourne.

Best suits: All property types.

How to do it: Talk to your property manager about similar rental properties in the area. What are the vacancy rates? What are similar properties renting for? Are there many tenants seeking your property type? Search similar vacancies in the area online to gauge the local market, and set your rental price accordingly. If you’re under-renting by around $20 per week, you’re missing out on an extra $1,000 annually.

$$ value: $1,000 per year.

This article has been republished with permission from Your Investment Property magazine. Try our Loan Repayment Calculator and find the best repayment strategy for you.

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