Landlords can increase the amount they charge for rent, but there is a fine line between improvements that can increase rental income and those which may leave you over-capitalised.
You can use property improvements to support your rent increase.
Timing is particularly important in states where market evidence is required to support a rental increase.
If you want to increase the rental yield on your investment property, there are proven strategies to bring in a higher rent without driving tenants away.
With the right improvements, landlords can increase the amount they charge for rent, but there is a fine line between improvements that can increase rental income and those which may leave you over-capitalised.
The good news is that although increasing the rental income of your investment property is a key priority for property investors, it doesn’t have to cost you a fortune.
What is important to note is that there are two recurring intervals in an investment property’s lifecycle where you can take proactive steps to boost your property’s rental return:
- Between tenancies by way of improvements
- At regular intervals during a tenancy by way of rent review
With this in mind, I’ve listed several strategies which are proven to boost your rental return, and which you can implement across your whole property portfolio.
Of course, this advice is general and does not take the place of speaking directly to your property manager or property investment advisor, who should be able to guide you on specifics such as the market rent for the area and what local tenants are looking for.
Increasing rental yield — improvements
1. Find out what tenants want
One of the first steps you should make when it comes to making improvements to help increase rental yield is to find out what prospective tenants want to see in a property.
After all, as a landlord, it’s easy to get caught up and throw good money after bad when it comes to making improvements to your property.
You could spend thousands repainting or installing a dishwasher, when an air conditioner may have made the property much more appealing to potential tenants, at half the price.
Consult your property manager for their advice on what a tenant is looking for in your area and focus your attention and your funds on this.
And if you’re unable to offer some of them, such as off-street parking (which you can’t manufacture out of thin air), perhaps you can make up for this with another coveted feature, like solar panels to reduce their energy costs.
A well-planned renovation will of course increase the asking rent, but it can also mean a significant outlay.
Or does it?
It doesn’t have to be a super-expensive renovation with all the bells and whistles – improvements as small as a fresh coat of paint or new door handles on the kitchen cabinets could be enough to attract more tenants and bump up your asking rent.
There are myriad minor changes you can make that will give the property a new lease of life: think sparkling new taps, adding a second air-con unit in the master bedroom, or ripping up the tatty old carpet and polishing the boards underneath.
Many small jobs can even be done yourself, saving you the extra expense of calling in a tradie.
If on a tight budget fix what is “broken” first; if the front fence is falling down and the gate won’t open, your tenants aren’t even in the front door and they are already worried.
And if you have the budget to do more, the kitchen and bathrooms are big drawcards for tenants but they involve a lot more upfront cost, especially if you do both at the same time.
Whatever you decide to renovate or add to your investment property, you need to make sure that you’re investing your time and money into something a tenant is looking for, as we discussed above.
After all, ducted heating in Darwin is probably not a feature tenants are looking for but ceiling fans on the veranda and a water tank in the backyard could make the world of difference to the amount of rent you can charge.
Also, make sure you crunch the numbers to make sure the investment will pay off, and consider speaking to your accountant to ensure you understand exactly what is tax-deductible, as this may inform your reno choices.
3. Add a unique selling point
Have a look at the rental listings in the area.
How many have alfresco entertainment spaces, ducted air conditioning, or solar panels?
It’s well worth considering adding something to the property that will make it stand out from the rest, allowing you to justify why it is a little more expensive to rent than similar nearby properties.
What you choose to add will depend on the location and your target tenant of course, but remember that by improving what you’ve got to offer you could actually begin to attract a whole new demographic – one that has more spare cash to splash out on rent.
For example, professional couples likely crave an outdoor dining space, families will be impressed by a secure yard with safe, flat surfaces for the kids to play in, and eco-lovers will be drawn in by sustainable-power options.
But remember, whilst it’s important to have a unique selling point to set your property apart from the others on the market, it needs to be a “desired unique feature” not a “quirky feature” that may rule out a number of potential tenants.
Because no one wants an outdoor toilet, no matter how quintessentially Australian it may be!
Increasing rental yields — rent review
The ‘little and often’ method to increase rent (every 6 or 12 months) used to be the most successful way to hang on to good tenants and keep your rental returns increasing.
The thinking used to be that each of these small, incremental increases will be affordable for your tenants, meaning they’ll be less likely to jump ship and leave you with a vacant property that’ll cost you money to maintain while you find new tenants.
But since the Covid pandemic, things have changed a little.
Of course, any vacancy has an immediate impact on your rental return, but post-Covid it’s really become about the math, market, and legislation.
Now, in most states rents can now only be increased once per year.
And in a market where rents are only just now recovering, it may be better to delay a rent increase slightly before locking in the rent for 12 months.
Just think, $10.00 per week for a year is $520.00 per annum, and $15.00 per week served 12 weeks later equates to $600.00 in that same time period.
And it’s no longer just a case of hiking the rental rate whenever you see fit.
Timing is particularly important in states where market evidence is required to support a rental increase, for example, if the property is desirable because of school zoning, it may be advantageous to time a rental increase in line with seasonal market peaks.
And don’t forget you can use property improvements to support your rent increase.
It’s possible to increase your rent and retain your tenant through carefully selected improvements and this is where your property manager’s relationship with your tenant is so vitally important.
For example, if you have a great tenant but they are looking to move (and pay more) as they really can’t do another summer without air conditioning, then why not look at putting in an air conditioning unit and negotiating a higher rent at the same time?
And it doesn’t even have to be a big-ticket item; sometimes a larger clothesline for a growing family or shade sail over the rear deck will do the trick.
Increasing rental yields — others
Obviously, home improvements and rent review are the 2 go-to ways of securing a rent increase on your investment property, but there are also a couple of other options to help improve your yield.
1. Consider allowing pets
While laws in some states now make it illegal to discriminate against tenants who own a pet, many landlords still prefer their investment properties to be occupied strictly by humans only.
If you’re willing to allow pets at your property, your goodwill could see you rake in extra rent from a grateful animal owner.
Most tenants with pets will apply armed with references from previous landlords, so you’ll know they are responsible when it comes to limiting the damage their pets cause to the property.
You may even be able to insert a clause into the lease covering damage done by pets or to ask for a slightly larger bond amount just in case.
2. Audit your property manager
Property managers play a huge role in the success of your rental portfolio, from how they handle repair requests from tenants to giving good advice on when to increase the rent.
If you find your tenants fleeing when their lease is up, it could be the bad customer service they’re receiving, not the rent, that’s sending them packing.
Many tenants are willing to pay a few dollars a week more for a property manager who attends to issues promptly and communicates effectively with them, so it may be time to assess whether the one you’ve employed is giving you the best chance possible of charging premium rent.