If you’re a property investor you probably want to increase your rental returns.
And while you’ve most likely enjoyed strong capital growth over the last couple of years, moving forward this is likely to be more subdued – meaning getting better rentals is going to be even more important.
So how do you do this without losing tenants?
That’s what I’m going to chat about today with Leanne Jopson, national director of Property Management of Metropole so that at the end of today’s podcast you’ll have some hints about how, when, and how much you can increase your rents.
There are two recurring intervals with investment property 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
1. Find out what tenants want
One of the first steps you should take when making improvements to help increase rental yield is to find out what prospective tenants want to see in a property.
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.
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.
3. Add a unique selling point
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.
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.
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.
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.
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.
- 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. You may even be able to insert a clause into the lease covering damage done by pets or ask for a slightly larger bond amount just in case.
- 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.
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.
One of the best ways for landlords to determine whether they can increase the rent without losing their tenants is to compare the rent they’re charging with the rent of similar properties in the local area. If others are charging more, there’s a high chance you’ll be able to increase your rent.
In most states, landlords are only allowed to increase the rent after the fixed term period of the agreement has ended, although there are some exceptions to that rule.
Once you’ve worked out whether you’re able to raise the rent, you’ll need to provide your tenants with written notice of your intention to do so. The exact notice period required by law varies from state to state, but letters should always include the amount of the rent increase and the date the increase will come into effect.
States do not set limits on rent increases. However, if a tenant feels that the increase is excessive, they can appeal to their local tribunal or commissioner and request an assessment.
To determine whether the increase is excessive, the relevant body will consider the market rents of comparable properties, the difference between the proposed and current rent, the property’s current condition, the value of any maintenance work carried out by the tenant with the landlord’s consent, the time passed since the last increase and the terms of the tenancy agreement.
Should it decide in favour of the tenant, the tribunal will likely enforce a maximum rent, which usually stays in place for 12 months.
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