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Setting the weekly rent on your rental property can be a bit of a tightrope.

List the price too low and you’ll be faced with hundreds of potential tenants at your open for inspections, as well as a deluge of applications. But list it too high and there’ll be tumbleweeds blowing through your applications folder.

So when your current tenants are moving out and you want to boost your rental yield from your new tenants, how can you increase the weekly rent but still ensure you attract a wide range of tenants?

Test the market

With thousands of renters on the lookout for properties each week in every Australian capital city, as a rental property owner the odds are stacked in your favour.

So why not see how much people are prepared to pay to stay in your property?

terrace house

You need to understand the market in order to maximise your rental yield.

Hocking Stuart Richmond property manager Jo Leonardis says the beauty of the rental market is that you can always start your price high and then adjust it down if required.

“For example, one property we might be able to lease between $550 and $600 in this market, so we’ll put the property on at $595 per week and see how that goes,” she says.

“We say to our clients, ‘Look, let’s try X amount for the first couple of open for inspections, and then let’s bring it down if we have to’. So we test the market if need be, but we don’t go over the top.”

But make sure you crunch the numbers. If you’ve got your heart set on a certain amount but your property is vacant, how many months at that higher amount will it take to make back what you’re losing because the property is empty?

Be strategic

Leonardis says if you want to achieve a rental yield that’s at the very upper end of what you think might be possible, it can be an effective strategy to advertise your property at just under a major price hurdle, in the same way that a consumer item might be sold at, say, $19.95.

“If you’re putting it on at $600 a week, then you’re cutting out a bit of the market that can possibly afford to pay in the high fives,” she says.

“If you’re putting the rent at $595, you’ll see that you’ll get a completely different set of tenants and people walking through the door. So it’s just that psychological justification. Even $5, it does do a lot for people’s interest in attending the open (for inspection).”

cosy rental

Price strategically – don’t forget there are tenants who might be searching just under your bottom line. Picture: Getty

Know your market

The simplest way to know whether an increase to a certain level will put off too many prospective tenants is to keep abreast of where rents are at for similar properties in your suburb and surrounds.

Leonardis says it can pay to regularly monitor what other properties are achieving in rent nearby, to ensure your expectations are realistic.

“People get put off by seeing other properties and competitors putting rents at a different scale,” she says.

“It’s all relative to the market. Week by week the market changes. So, for us, we look at it on a weekly basis.”

“Twenty dollars here or $20 there doesn’t affect too much, it’s when it’s a massive jump and you can’t really justify why it’s an extra $100 a week.”

Review regularly

Leonardis says you’ll also reap better returns for your rentals if you adjust rents up throughout a tenancy, as tenants then become conditioned to paying more as time goes on.

“Review rent every 12 months, and provide comparable properties to justify the increase,” she says.

“In a stable market, obviously you have to look at it a little bit more carefully, but we’ve been successfully increasing rents. Tenants have been OK with it. They kind of expect it, I think, every year.”

 

The positive cash flow property investment strategy involves seeking out properties where monthly income exceeds holding costs.  

This will generate surplus cash flow for you pre-tax.

Continue Reading…

They say too many cooks can ruin the broth, but when you own an apartment, townhouse or unit in a block, multiple opinions are part of the deal. That’s why body corporates exist.

A body corporate – or owners’ corporation, as it’s more commonly known – brings together all the individual owners within a single strata titled property, like a block of flats. Strata is a way of handling legal ownership of part of a building.

The owners’ corporation manages shared expenses, decides how common areas, like gardens and lobbies, are maintained and deals with issues between owners, like noise and parking.

common foyer area

A body corporate is responsible for common lobbies. Picture: realestate.com.au/buy

Emily Sim, the head of property management at Ray White, says the cost and specific rules of owners’ corporations differ between buildings and are spelled out in the contract of sale. She explains the ins and outs.

What does a body corporate do?

A body corporate makes the decisions for how they want the common grounds of the property to be maintained.

They also manage all the outgoing expenses for the maintenance of the building, Sim says.

It’s responsible for things like car parks, driveways, entrances, lifts and lobbies, pools, shared courtyards and gardens.

Do owners have to be part of it?

Across Australia, owners are legally required to be part of the owners’ corporation if their property is subject to a strata title, and must pay for things like insurance.

Owners will often pay an external strata company to do the job for them.

“An annual general meeting is held to review all of the practises and typically any changes to the plan only occur when there is a vote and the majority vote for an alternative,” Sim says.

An extraordinary annual general meeting can be called to deal with “unforeseen issues.”

How much does it cost?

Owners pay funds into the body corporate each quarter or year.

Sim says that in most cases the more square metres of the complex you own, according to your property title, the more in contributions you will pay.

“A good example is a property which has a car park and storage cage. This property owner’s financial contributions would be higher than a property owner with a one-bedroom flat in the same building,” she adds.

Most owners’ corporations also maintain “sinking funds”; a “small back-up pool of money to cover unforeseen costs,” Sim explains.

body corporate buildings

Owners pay funds into the body corporate each quarter or year, with the amount based on square metres owned on property title. Picture: realestate.com.au/buy

What is a “special levy”?

A special levy can be charged if there is a cost for the running or maintenance of the building that is in excess of the standard levies.

For example, it could be to pay for a new roof or to repair termite damage.

“It is always voted on in an AGM or extraordinary AGM, but if the work needs doing, it generally gets voted in,” Sim explains.

Should owners be involved?

Every property owner should have an active interest in how their property is managed, according to Sim.

With the owners’ corporation in charge of how the property appears, as well as maintenance, there is an obvious link with how much an apartment, townhouse or unit within it is worth.

“Minutes from the AGM and history of the strata management can hamper a sale price and, in some cases, create so much fear that prospective buyers lose interest in the property; this ultimately will affect a sale price too.”

 

Working out if a property will make a good investment is undoubtedly complicated, but experts say it rests on three simple things; rental yield, capital growth potential and underlying demand.

Get these three things right and property investment success awaits.

Michelle May, a Sydney-based property flipper-turned buyers’ agent, and Danelle Hunter, managing director of Biggin & Scott Knox, in the eastern suburbs of Melbourne, explain how to assess if a property is a good investment.

What is the rental yield?

Rental yield is a key metric for any property investor and is often referenced by agents and vendors. The higher the yield, naturally, the better.

A property’s gross rental yield is calculated by taking the annual rental income, dividing it by the property value, and then multiplying it by 100. For example, a property which earns $375 a week in rent, for a total of $19,500 a year, on a property purchased for $450,000, returns 4.3 per cent gross rental yield.

Net yield figures are calculated by taking into account expenses associated with the rental property.

7 Alexander St, Surry Hills. NSW Real Estate.

Rental yield is a key metric for any property investor. Picture: realestate.com.au/buy

Rental yield should be evaluated carefully, but in conjunction with other factors, like capital growth potential, according to May and Hunter.

“Ideally, you want to have a property which has a reasonable rental return, (but) with maximum capital growth potential,” May says.

Hunter says yield is one key factor, but not the only indicator of potential success. “A good rental yield is good, but you need a low-maintenance property in an area that is growing and close to everything, so (it) rents quickly,” Hunter says.

What is the capital growth potential?

While $10 extra a week in rent is great, picking the right property for its future capital growth can make investors many hundreds of thousands of dollars more over the years, May explains. Smart investors strike a balance between high yields and capital growth.

Look for capital growth performance above the median price growth, May says.

Fitzroy North

Look for capital growth performance above the median price growth. Picture: realestate.com.au/buy

Is there underlying demand?

Don’t rely on figures alone when evaluating a property. The property itself – it’s attractiveness and appeal to the target market – is make or break too.

A quality property will always be attractive to buyers and tenants, irrespective of what the market is doing, May says.

“Stay as close to the CBD as you can afford, as there will always be an underlying demand for good quality rental properties. People will pay more to live in a ‘blue chip’ lifestyle suburb. Existing public transport links, ideally several options, are paramount.”

urban lifestyle

There will always be underlying demand for good quality rental properties close to the CBD.  Picture: Oliver Strewe

To be a successful investor, think like an owner/occupier.

“What is an owner looking for? Is it storage, internal light, parking, an ensuite? These are the things that attract people looking for a home to buy, so it will also attract people who are looking to rent,” May says.

“Ultimately, no one wants to live in a dark and dingy cave, no matter how cheap the rent is. If that is the only property you can afford in your preferred suburb, you need to move to a cheaper suburb and get a better property.”

Carefully research the market and then meet it. If targeting a family market, for example, look at school catchment areas, outdoor space and off-street parking.

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