How to increase your return on investment

Investing is a serious business and maximising your return is always the main goal. There are two ways to increase your returns – raise the rent and reduce your costs. Here are our best tips for doing both.

Raising the rent

You can typically only raise the rent when market conditions allow and/or when you improve your property.

Ask your property manager to review weekly market rental values in your suburb at least annually to ensure your property is rented at the maximum possible price. Most managers tend to do this close to a lease’s end date. They will show you comparable properties that were recently rented and provide a recommendation.

You can also raise the rent if you improve your property.

Full scale renovating will obviously take your property to a new level of rental value; and you might also be able to take advantage of depreciation benefits on new fittings and fixtures.

If you’re not interested in a big renovating project, there are many low-cost ways to increase your rental returns. Here are our ideas:

• Consider investing in an air conditioner and/or dishwasher
• Install built-in wardrobes in all bedrooms
• Refresh the interiors, starting with the bathroom. Install a new vanity, add a modern wall mirror or cabinet, replace shower curtains with frameless glass, replace old taps, re-spray bathtubs and tiles
• Refresh the kitchen – repaint cupboard doors, replace old door handles with sleek modern styles, update appliances, replace a scratched and worn sink
• Outdoor living is very popular, so upgrade your outdoor areas to create pleasant spaces for your tenants to enjoy. Apartment owners might consider investing in a barbecue and vertical garden for a balcony; and pressure cleaning tiles and pavers. House owners can brighten up the exteriors with a house wash and garden make-over to maximise street appeal. If your backyard is simply lawn space, carve out an alfresco dining area with cheap pavers
• Replace carpet with hardwood timber floors
• Repaint every few years for an as-new look
• Update fixtures such as taps and doorknobs, replace white plastic light switch coverplates with stainless steel
• Allow pets (apartment owners need to check their building’s policy first)
• Add extra storage such as built-in cupboards and bookshelves
• Offer free broadband, Foxtel or gardening services
• If your property doesn’t have an internal laundry, install a washer/dryer in the kitchen
• Show tenants you care by responding to repair requests and other issues immediately. Tenants are more likely to stay and accept small rent increases if you look after them

“Good tenants can feel offended when you put the rent up,” said homes.com.au Founder & Managing Director, Pat Carbone.

“Make sure your property manager explains that the rental increase is solely due to market conditions. Show the tenants comparable properties currently advertised on homes.com.au or recently rented at the same price.”

Reducing your costs

• Insist on a 12 month lease as a minimum timeframe. Six month rotations will likely reduce your rental returns, even if you raise the rent each time. New tenants tend to cost at least a week’s rent in vacancy and another week’s rent in property management fees for a new lease
• Shop around when buying landlord’s insurance. Take advantage of multi-policy discounts offered by companies you are already with for other insurances, such as car and home contents
• Use depreciation to reduce tax. Before you rent your property out, have a depreciation schedule done by a quantity surveyor. The schedule will tell you how much you can claim as a tax deduction each year
• Take advantage of negative gearing to reduce tax. Negative gearing is when the costs of ownership (including your loan repayments) exceed the rental returns, resulting in a loss. If you are eligible for negative gearing, you can deduct the loss from your taxable income
• Monitor interest rates and refinance when significantly better deals arise. Saving 0.5% or more can equate to thousands of dollars per year