How to Boost Your Rental Yield
Property investors naturally want their investment to generate the most rental return possible.
We take a look at how to increase your investment property’s rental yield.
What is rental yield?
Put simply, rental yield is the amount of money you make on your investment property.
The gross rental yield is the rent earned each year expressed as a percentage of the property’s market value. It’s calculated by dividing the annual rent by the property’s value and multiplying by 100. For example, if you receive $23,400 rent per year (that’s $450 per week x 52), and your property is worth $500,000, your gross yield is 4.68 per cent.
$23,400 ÷ $500,000 x 100 = 4.68%
Your net yield is your annual rent minus your property-related expenses, such as repairs, council rates, and property management fees, divided by the property’s value and multiplied by 100. If you receive $23,400 rent each year, your property-related expenses come to $5,000, and your property is worth $500,000, your net yield is 3.68 per cent.
$23,400 – $5,000 ÷ $500,000 x 100 = 3.68%
As of May 2021, the gross rental yield for houses in Brisbane was 3.8 per cent, and 5.2 per cent for units, according to SQM Research.
Why is rental yield important?
Together with capital growth, rental yield is considered one of the most important ways of measuring an investment property’s performance.
A steady rental income can help to cash flow your investment and pay for the costs of owning an investment property, such as mortgage repayments, maintenance, and body corporate fees. It can also provide a source of income.
How to increase your rental yield
The good news is that there are plenty of ways to increase your rental yield.
1. Undertake regular rent reviews
If the rent hasn’t been raised in years, it could be time to increase it. On the other hand you don’t want to make it too high – if it’s too high it might be worth decreasing it to avoid prolonged vacant periods. The ideal rate is market rent. A good property manager can advise on the best rent strategy for your investment property.
2. Consider lease terms
The advantage of a shorter lease is that it allows landlords to raise the rent sooner. If your property is in an area where rents are rising quickly, or the rental market is tight, a shorter lease could work to your advantage. The drawback is sacrificing the security that a long-term lease offers. The regular, albeit slightly lower, revenue that a long-term lease provides might be more appealing. Again, an experienced property manager can advise you on this.
3. Hold on to good tenants
Extended vacant periods can have a dramatic effect on your yield, so you want to minimise them as much as possible. A diligent tenant who looks after the property but pays slightly less rent could work out better for your rental yield over the longer term than a tenant who pays higher rent but doesn’t look after the property as well. Ensuring maintenance and repairs are attended to quickly can help to retain good tenants.
4. Welcome pets
Many landlords have an automatic ‘no pets’ policy, but by welcoming tenants with pets you automatically widen the potential tenant pool, and plenty of good tenants have well-behaved pets. Tenants with pets may be prepared to pay a premium for a pet-friendly rental home.
5. Refresh your property
Improvements to the property can attract quality tenants, allow you to charge more rent and may even increase the property’s value. It’s been estimated that a fresh coat of paint, new carpets and a bathroom refresh can increase the rent by 10 per cent, and a new kitchen can add another 10 per cent. Other improvements attractive to tenants include appliances like dishwashers or air conditioning, solar power (so they can save on electricity bills) and simple creature comforts like ample built-in storage and modern blinds and curtains.
6. Maximise your tax refund
A depreciation schedule prepared by a quantity surveyor will enable you to claim all the tax deductions associated with your investment property. By keeping track of all the items in and on the property that can be depreciated, it may lead to a bigger tax refund, which would improve your net rental yield.
For more advice about how to increase the rental yield on your Brisbane investment property, contact our expert property management team today.
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