Is your investment property performing as well as it should? Are you charging the right rent?
Do you have problems keeping long-term tenants? Are you spending too much or too little on maintenance?
Running an investment property, whether privately or with the help of a property manager, isn’t easy.
We’ve identified a few of the common mistakes people make that end up costing them valuable rental income each year.
How to make more out of your investment property
Whether it’s a granny flat or luxury condominium, an investment property is there for one purpose: to earn you money.
Once you’ve got your finance sorted out and are ready to put it on the rental market, you’ll be faced with a number of options that will dictate how much return you’ll see from your investment.
Ideally, you want to be setting the highest possible rent and pay the lowest possible fees, taxes and upkeep costs, but this is easier said than done.
You’ll need to strike the right balance between a number of moving parts – you may stumble a few times, but eventually you’ll find what works for you. To help you avoid some of the more common pitfalls and get you on the road to maximum profitability, here are some tips to consider.
- Find good tenants
Good tenants aren’t just high-paying ones. While you might like the thought of a tenant who pays 12 months in advance, the fact that they have money doesn’t say anything about their qualities as tenants.
The ideal tenant is one that pays on time, doesn’t constantly demand maintenance call-outs, doesn’t damage the property, abides by the law, and stays for at least the full term of the lease.
Finding decent renters is half science, half art-form. It’s recommended that you call their previous landlord, property manager, employer or referees, and ask detailed questions. Access tenant databases if you can, and rather than thinking of reasons to say yes, think of reasons to say no.
You won’t need to go through all this legwork if you use a professional property manager, which leads me to the next point…
- Use a reputable local property manager… or don’t
An experienced agent or property manager will have access to tenant databases for background checks, and will have a finely tuned eye for spotting the bad apples.
While property managers will cost you a nominal fee, they will also ensure the property stays leased and running smoothly. They’ll also act as a helpful buffer between the tenant and yourself, dealing with the day-to-day management of the home, including collecting rent, organising inspections, handling maintenance, and so on.
If you have the time and ability to do so, you might want to consider doing all this yourself. We wouldn’t usually recommend doing this as the learning curve is quite steep, especially when conflicts arise. Tread carefully!
- Set the right rent
Choosing the right amount to charge for your property is trickier than you might think. Too much and you’ll have trouble finding and keeping tenants; too little and you’ll be making less rental income.
This relates to the previous point about property managers too – finding the right price requires insight and local market knowledge, and this is best provided by a professional.
Think about it this way: if you want to charge an extra $20 per week on a $500 house, this equates to $1040 more rental income per year. But if this higher price drives away applicants, in just one fortnight of vacancy you’ll have missed out on the same amount.
- Don’t skimp on maintenance and improvements
Sometimes you have to spend money to make money. In a tenant’s eyes, they’re going to be less inclined to take care of an old rental property that has fallen into disrepair than a well-maintained one.
Most experts recommend spending at least 1% of a home’s value on repairs and maintenance each year. We’ve come across rental properties where the owners haven’t spent that in a decade, and they all have one thing in common: low rents and uninterested tenants.
If you find yourself constantly having to pay for maintenance, your property may be in need of a bit of a renovation or upgrade. This doesn’t have to be anything major – it could just mean putting in new shower screens and kitchen appliances, or ripping up some old, musty carpet.
Spending even the bare minimum on keeping your investment property nice and inviting will not only raise the rent you can charge, but it’ll also keep it in better nick for when you eventually sell it on.
- Get tax smart
No one likes paying tax. The good news is that if you own an investment property you might just be able to claim deductions on expenses such as advertising, capital works (like the maintenance above), depreciation, agent fees, legal expenses, and so on.
Talk to a knowledgeable tax advisor and see how much you could be saving – this will mean your investment is both earning you money and saving you money at the same time!
- Treat it like a job
The whole concept of passive income, where you don’t have to lift a finger and money still streams into your account, isn’t quite a reality for most investment property owners.
The fact is that being a landlord is a responsibility, and you will be called upon from time to time. Try not to think of these responsibilities as a hassle or interruption to your day job, but instead think of them as part of a second job. After all, if it takes up your time in exchange for money in the bank, it is a sort of job.
You should also try to be professional and remove the personal element from your decision making when it comes to running the property. If you make decisions on setting rent, choosing tenants or performing maintenance as if you’re running a business, you’ll be more likely to choose the more profitable and less personally invested path.
If you have an investment property or are thinking about purchasing or selling one, get in touch with us at Madeleine Hicks Real Estate on 07 3355 6845 and we’ll be glad to offer our advice on how to maximise your return.