High Rental Return Strategies for High Interest Market

  • High-Rental-Return-Strategies-for High-Interest-Market

The intense rate hiking cycle of the past 2 years has seen borrowers paying hundreds and even thousands more dollars a month on their mortgages. And it’s hard to tell when or if there will be relief in sight, with inflation remaining sticky and the RBA not wanting to slash rates just yet. Even when that does happen, there will still be a long way to go before things get easier for borrowers.

If you’re a property investor, you will have been exposed to this and potentially many times over, depending on the size of your portfolio.

Say you have 10 investment properties and you are paying interest only. An increase of $300 a month on loan payments for each property may mean you are now paying an extra $3000 a month. For many, this can completely remove the prospect of getting value from their portfolio. Even though rents have risen at the same time, landlords can only hike once every year or at least six months, while the RBA were conducting monthly hikes and sometimes double the size of their usual 0.25% movements. So what can you do to boost your rental returns in the high interest rate environment?

Meet the market

Rents have been rising consistently around the country, with low vacancy rates caused by a lot more people looking for rentals than there are properties available. If you haven’t reviewed your rent for the last year or two, you’re almost certainly missing out on income. It’s imperative you get the market rate. We’re hearing stories regularly about rents increasing by more than $300 a week when properties get new tenants. That would more than make up for interest rate rises in a lot of markets.

Analyse asking rents of similar properties in your investment property’s area and if you haven’t already, engage a property management firm for an estimation. If you already have a management firm on the job, make sure they are constantly reviewing market value so that you can maximise your return and offset the rate hike damage.

The other way to meet the market is to make sure your property has all the requirements in place to compete strongly with other rentals in its neighbourhood for the best quality tenants. Does it have the right number of bedrooms, bathrooms, etc? Is it run down and in need of a spruce up? Are fittings and fixtures dated or malfunctioning? The rental cash cow won’t last forever, so you need to stay up to scratch to keep the applications rolling in.

Make some improvements

If there is room for improvement, then make some… as long as it doesn’t mean overspending on an asset and blowing your return margins. There may be some simple tweaks you can make to boost the value of your rental without breaking the bank. Fresh paint, modern fittings and fixtures in kitchens and bathrooms and even landscaping can generate more competition between renters. Landlords are also increasingly adding energy-efficient appliances and features these days, as they reduce bill cost for tenants and can appeal to the environmentally conscious.

Don’t burn good tenants

If you have good tenants, it can be worth trying to keep them long term by allowing them to make personal changes to your property, or offering not to raise rents for a fixed period if they commit to long term leases. Even in a strong market, turning over tenants every 6 or 12 months can eat into your returns in the form of advertising and leasing costs. And if you end up with a vacant property, any good returns will drain away in no time.

Be tax smart

Staying informed about tax deductions can be a very simple way to earn yourself a lot more money each financial year. There are the obvious deductions, such as property management fees, interest paid on mortgages and maintenance costs, but it’s also worth speaking to a finance professional about different ways you can structure your investments and finances to maximize tax returns. Getting it right could be the difference of thousands of dollars a year, which will be compounded if you have multiple properties in your portfolio. If you need help figuring out what your strategy looks like or you need more information, reach out to the Investor Relations team at B.Invested.

 

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