I was enjoying a phone conversation with Chris, a Propertyology client, and he couldn’t contain his excitement while sharing with me that the rent on the (second) investment property that we helped them purchase a few months ago is about to go up by $60 per week (or $3,000 per year).
Added to Chris’s joy was the fact that the lease for his new tenant was signed two weeks ahead of the current lease expiring and the original tenant moving out. The property will only be vacant for a couple days while one moves out and the other moves in.
Chris and his family live in Sydney where, as at the end of September 2020, there were 26,000 advertised empty dwellings, vacancy rates were at a record high 3.5 percent, and rents are falling quite sharply.
In complete contrast, Chris’s two investment properties (located in completely different states / cities) are in locations with vacancy rates below 1 percent and rents have increased significantly over the last couple of years.
Chris’s annual rental incomes are surplus to annual investment expenses and the value of both properties are heading north.
My conversation with Chris got me thinking about how so many DIY property investors don’t realise their full cash flow potential.
With forward planning and following a simple yet structured process, property investors can maximise the real estate bottom line of the annual Profit-and-Loss Statement.
Here’s my 9-Step Tips for landlords to maximise their rental return:
- The buck stops with you. It is your property, and it is in your best interest to make sure that you have good information to be able to make good decisions about rental incomes and lease renewals. Instead of simply reacting to communication from your property manager, assume the position of captain of the ship;
- Diarise to begin the lease renewal process 3-months before the lease expires. To avoid ending up with several weeks of vacancy between tenants, your goal should be to establish whether the existing tenant is staying or leaving and to finalise documentation 1-month before the lease expires;
- In a majority of cases, tenants respect the property and pay rent on time (most tenants are good people) so the logical decision for the landlord would be to offer a lease renewal. If this is not the case, or if the tenant has plans to move on, begin the rental advertising campaign 3-weeks before the existing lease expires;
- First impressions count. Double-check that your property manager is using good quality photos. Make sure the cover photo is particularly appealing, not a boring street-view shot. Check that the advertising description (commentary) promotes the property features (air conditioning, parking, storage, room sizes, etc). Talk to your property manager about the pros and cons of paying a small advertising fee to boost your property towards the top of search engine portals;
- Keep an open mind to tenant applications that include pets. More and more, pets are becoming an important part of households. Provided you can get comfortable that the specific pet isn’t likely to cause significant damage to the property, a landlord’s preparedness to accept pets can result in slightly above-average weekly rents and reduced turnover of tenants. Just make sure that your property manager includes appropriate lease clauses for pets;
- Understand the current rental market in your location before deciding on how much rent to charge. Don’t just go through the motions and accept whatever your property manager suggests. Rental vacancy rates will rise and fall from year to year, so it is important to understand whether prospective tenants have either a lot or very little rental properties in your location to choose from. To acquire this important clarity, spend 15-minutes doing a rental online search yourself, and engage in (verbal) dialogue with (both) your property manager and your property investment advisor;
- When setting the specific date that your next lease expires, be mindful of traditional peak and quiet seasons. Generally speaking, tenants are more active during the months of November through to the end of February. There are plenty of times with my own property portfolio that I have instructed property managers to offer, say, a 9-month lease (as opposed to robotically setting it 6 or 12 months). The goal is to have the next lease renewal fall due in peak season;
- Consider the future outlook for your own rental market and be strategic about giving yourself the opportunity to make the most of a rising rental market. For example, an expectation of improving local economic conditions often has a positive influence on migration patterns and vice versa. Equally, an anticipated surge in new supply may cause rents to soften in future months / years. This is another area where a skilled property investment advisor can provide valuable professional guidance;
- Is it time to complete some basic renovations before advertising for a new tenant? Every property will require some attention from time to time. Often it is not necessary to do a lot of work all at once, but there is merit in progressively completing basic cosmetics (freshly painted internal walls, carpets, repolishing floorboards, curtains, a cost-effective kitchen makeover, installing an air conditioner in that third bedroom…).
The ongoing responsibilities of being a landlord generally requires very little demand on one’s time. But it is important that you are always in control of your own ship; don’t be a passenger!
Propertyology’s buyer’s agents are buying investment properties in several different locations across multiple states. As demonstrated with Chris’s property portfolio, these locations have a healthy capital growth outlook and rental incomes typically cover 100 percent of the annual investment expenses.
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.
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