While thinking about your investments and finances,you could be wondering how to get the most rental yield from your assets. It is always good to think about the shape of your investment properties and what you could do to improve your return for the following financial year.
But First, What is Rental Yield?
Rental yield is a measure of how much income your property produces each year as a percentage of that property’s value. Gross yield is before you add holding expenses like bills, property management expenses and mortgage interest into the equation. Net yield is the number after you add holding costs in the calculation.
And What is a Good Rental Yield?
Having 5 % or above is a good yield. This number will fluctuate with the market. While yield is a good indicator for cash flow, don’t forget to balance this out with capital growth.
How Can I Increase my Rental Yield?
Review & Refinance your Loan – If you can save money on your mortgage, then you can save a big chunk on your weekly or monthly cash flow expenses.
How low can you go is basically the name of the game. If you’ve got a mortgage of $400,000, a one percent change on that is $4,000 a year. If you can get a 1% reduction in your interest rate, then that’s $4,000 a year, over $300 every single month.
Always review your loan and see if you can refinance your mortgage, especially when interest rates have dropped significantly.
Valuable Additions – Consider valuable additions that could increase your rental fees — things like a dishwasher, an air conditioning unit or an internal laundry. If it has a bathroom without a bath, look at adding a bath. Find a way to add an extra room or maybe an office or something like that.
Differentiation in the Market – Is there a way to differentiate your property from other properties in the same building? Look at ways on how to increase your rental income by making your property stand out. Have a feel of what renters are looking for. There may be people who prefer carpet over tiles, so by having carpet you can set a higher than average rental fees.
Adjust to the Rental Market – Talk to your real estate agent and say, “Look, I really want to increase my rental income. What does my property need?”. Try and get some ideas from them.
Add a Bedroom/s – A three bedroom home fetches more rent than a two, a four more than a three, and so on. For an outlay of only a few thousand dollars you can increase your rent by over 50%, and even increase the value of your property by as much as $30,000.
If you’ve got the time and the money to add another bedroom, whether it’s by converting a second living room or walling off a large entrance way – it could convert to an increase in both rental fees and property value.
Can I Rent Out Rooms Individually to Increase my Rental Yield?
Renting out the rooms of your investment property individually can be a profitable strategy, but you need to be aware of the risks and associated costs involved. There are different types of share accommodation situations so make sure you understand which laws apply to your agreement. Every state has its own legal categories of agreement covering share accommodation. Knowing this is essential for understanding the relevant rights and obligations that apply to your property.
Typically, you as the owner of the property will need to make some changes to the fixtures and fittings of the property and then market it as a Sharehouse or a Home of Multiple Occupancy (HMO) – applicable in NSW or what they call a “Rooming House” in VIC.
For example, if you own a five bedroom house that is renting for $480 per week, rent out the 5 rooms individually at different rates depending on the size of the room with the tenants sharing common facilities such as bathrooms, kitchen and living rooms. The reasoning, and often the reasoning of so-called property experts, is that by renting out each individual room to a separate tenant, you can probably collect a minimum of $200 per room per week, thus immediately increasing your rental return to $1,000 per week.
While it may look appealing to be collecting 40% to 50% more rent by renting out individual rooms, most owners who take on this strategy fail to increase their rental return significantly due to the associated costs. Education on this area is really the key to make this strategy a success as every state has different Shared Accommodation or Co-living legislations.
So if you like give this strategy a go, make sure you get educated, budget accurately for all the additional expenses you will incur and don’t forget to include the increased time it will take to look after the property.
What are the best suburbs to buy an investment property to rent out rooms? What are the Top 10 share house suburbs in Australia? What suburbs in Australia have a high room rental demand and have a good capital growth? These are the most common questions property investors ask and it involves a lot of time researching to find answers to all of these.
The good news is, we’ve already done those hard work for you. Within seconds, you’ll be able to identify which certain suburbs are more desirable from people who are looking for room/s to rent or have a high room rental demand combined with a good capital growth.
Check out our Room Rental Demand Report
It is the most comprehensive location report of all 15,000+ suburbs in Australia – with linked state, suburb, and postcode. It’s the perfect tool for property investors looking to buy a property to rent out rooms individually to have a positively geared portfolio.