Maximise your investment property returns in 7 lessons
Introduction Do you own an investment property in Melbourne that is either managed by a traditional real estate agent or a specialist property manager that you feel is not helping you maximise the returns you are getting? Do you feel you’re getting the level of focus you need? Are they helping you understand the key strategies to leverage your investment? Chances are they’re not. Why? Because a real estate agent’s primary focus (often over 90% of their business) is on selling properties rather than managing investment properties. Likewise, some of the larger specialist property management companies are often more focused on shareholder value and economies of scale rather than being focused on servicing your specific needs and helping you get the most from your investment. We’ve compiled seven lessons to help you increase the returns you are getting from your investment property by up to 30% by: • Renting your property out to get 10-15% more rent, with no extra work • Managing your leases to align with seasonal peaks • Marketing your property to minimise vacancy • Understanding the types of properties tenants want • Guaranteeing you never miss out on rent, even if your tenants refuse to pay • Saving thousands of dollars in tax and making your property easier to pay off These lessons have been compiled by Synergy, in conjunction with partner property management firm, Rental Express (Brisbane) – two organisations that are helping property investors to maximise their investment returns through innovative property management strategies and high quality service delivery. Reap the rewards!
Know when to advertise your property
Lesson 2: Understand current rental market conditions and use leases to your advantage
Did you know the level of rental enquiry for properties is lower and higher at certain times of the year? For instance, there is a higher demand for rental properties in January and February for several reasons. Firstly, university take-ins start early in the year so there’s lots of students looking for accommodation. Corporate transfers also take place at this time because business slows down, and most families want to stay in their existing home until after Christmas. On top of this, it is the start of a new school year which means people finishing school move, and parents who don’t want to interrupt their children’s education also prefer to move during the summer holiday break. It makes sense therefore, that there is a greater demand at this time of the year and the statistics all support this theory. We know that the worst months to lease a property in Melbourne are June, July, late November and all of December. With Melbourne’s cold winter months, people tend to ‘hibernate’. Very few people have the desire to inspect properties or face a move during cold, wet days and as a result, the months of June and July are very slow for lettings. Late November and December? Well, we all know what a crazy time of year this is! So, has your current real estate agent or property manager told you that with a little negotiation you can achieve a premium rent by organising the lease on your property to only expire during the busy periods of the year? Do they even know the four different high demand months when you should be looking to lease your property? What about the low demand months which should be avoided at all costs? Make sure your leases end in the peak periods of January, February or early March to achieve higher rent, often 10-15% more.
Melbourne’s rental market at the beginning of 2011 is relatively neutral, but this will soon change as construction finishes on a significant number of ‘off the plan’ properties which will flood the market over the next eighteen months. Renters will have significantly more choice and landlords will face competition, as owners keep their rents as lean as possible in order to attract or keep tenants. For instance, let’s say a brand new off the plan 2br apartment is advertised at $630-650 per week, whereas a 2br apartment that’s already five years old might charge $600 per week. Renters will quickly learn the value of what their rental dollars can bring them: an extra $20 per week might get them a brand new apartment with all the mod cons. This will have a knockon effect within the rental market. It’s vital that landlords use leases to their advantage. Traditionally, the first lease has always been a fixed tenancy period of 12 months. We suggest to our landlords that it’s best to aim for the longest occupancy possible. When your property changes tenants, not only will you lose rental income but most properties also require light maintenance work such as paint touch-ups and cleaning. There’s also the additional cost of letting and advertising fees. When you factor these expenses into the rental equation, it becomes clear that it’s more beneficial to have one tenant over three years rather than three tenants over the same period. In our experience, leases have not always provided the security landlords may hope for. The Tribunal will often allow tenants to break leases with a notice period of around six weeks. If you have a good tenant whose lease is up for renewal, sometimes it’s easier to hang on to that tenant by letting that tenancy continue without a fixed term lease rather than pressuring them to sign for another 12 months. Though it may seem counter-intuitive, we’ve helped many landlords reduce their tenancy turnover using this method. It’s also important to carefully consider any rental increases. We’ve seen several landlords who’ve lost their tenants try to negotiate a 3-4% increase on annual rental. Unfortunately in most cases this has led to longer vacancy periods and resulted in the landlord losing as much as 10% of the rental by the time the property is finally re-let.
So, in summary, here are our top tips for landlords to ensure long tenancies and minimal vacancies: 1. Get an accurate assessment of your property’s market rental value 2. Don’t insist on a second fixed term tenancy when the original lease runs its course 3. Plan and negotiate small rental increases rather than slugging tenants with one big increase 4. If you do lose a tenant, make sure your rent is seasonally adjusted – advertising peak rental rates in the middle of winter will leave your property vacant for longer.
Lesson #3 Plan your rent increases It’s important to carefully consider any rental increases. We’ve seen several landlords who’ve lost their tenants try to negotiate a 3-4% increase on annual rental. Unfortunately in most cases this has led to longer vacancy periods and resulted in the landlord losing as much as 10% of the rental by the time the property is finally re-let. Here at Synergy we have regular procedures in place such as annual rental reviews and routine inspections that help our landlords get the most from their investment property. It’s also worth considering how landlords can use leases to their advantage. Traditionally, the first lease has always been a fixed tenancy period of 12 months. We suggest to our landlords that it’s best to aim for the longest occupancy possible. When your property changes tenants, not only will you lose rental income but most properties also require light maintenance work such as paint touch-ups and cleaning. There’s also the additional cost of letting and advertising fees. When you factor these expenses into the rental equation, it becomes clear that it’s more beneficial to have one tenant over three years rather than three tenants over the same period. In our experience, leases have not always provided the security landlords may hope for. The Tribunal will often allow tenants to break leases with a notice period of around six weeks. If you have a good tenant whose lease is up for renewal, sometimes it’s easier to hang on to that tenant by letting that tenancy continue without a fixed term lease rather than pressuring them to sign for another 12 months. Though it may seem counter-intuitive, we’ve helped many landlords reduce their tenancy turnover using this method.
Lesson #4 Marketing that works Good photos, text and presentation – the critical elements of advertising properties for rent. Photos – have lots of them, approximately 5-7 per property advertisement Text – describe the features of the property clearly (don’t use short hand jargon) and speak to both men and women in your descriptions. Know that women are more interested in the look and overall feel of the property, while men are after the facts! Presentation – it’s where the decision is made by tenants. The presentation of your property is critical and can be the difference between achieving 10-20% more rent than a property that is poorly presented. Generally, most properties will need some upkeep, such as touch up painting, between tenancies. Cleanliness – nothing turns off a prospective tenant more quickly than a property that is not quite clean. If a property was cleaned by a vacating tenant, and it has been vacant for a week or more, or works have been done such as painting, it will most likely be very dusty and need cleaning. Optimise marketing investment – It is also important to understand where tenants look for properties. The internet is by far the most commonly used tool for rental enquiries (65%) by tenants, compared with walk-ins (21%), signs (12%) and print advertising (7%). At Synergy, we know from our own rental data over the last couple of years, that over 90% of our rental enquiries come from realestate.com ‘feature properties’, with other property search engines falling a long way behind. We know for example that by shifting from a standard listing to a feature property listing, the average days vacant for properties is reduced by 38%. These marketing strategies are what we are constantly measuring and are the reason why we can optimise the marketing investment for our landlords. Is your real estate agent optimising your investment across the right marketing channels? Or are they just absorbing your marketing dollars and running a scatter-gun marketing campaign?
Know what tenants are looking for
Maximise your depreciation
The factors that have the most impact on rental income, and therefore a positive impact on your investment property returns, are:
Make sure you have a tax depreciation schedule on your investment property which has been prepared by a quantity surveyor and NOT a tax accountant.
1. Number and size of bedrooms (equal size bedrooms are preferable)
Know what you can claim:
2. Cleanliness and presentation 3. Number of living areas 4. Outdoor entertaining 5. Car accommodation / off street parking Of less importance are: 1. Location 2. Busy roads 3. Views 4. Features and accessories that are of significance to property owners, but not tenants.
• Original construction after 17 July 1985 • Structural improvements after 27 February 1992 • Capital improvements after 30 June 1997 • Depreciable items (look at the ATO Rental Properties 2008 document which outlines items you can claim. There’s 200-300 items in the ATO guide that most people aren’t aware of.. The top seven items that people aren’t aware of! 1. Water tanks 2. Smoke alarms 3. TV antenna 4. Letterbox
5. Wheelie bin
Remove the risk
Would you like to know how to eliminate almost all your concerns about owning a rental property? Problems like tenants defaulting on their rent or tenants damaging your property?
How about tenants injuring themselves on your property and deciding to sue you? Have you been informed on how to minimise these risks by using the right landlord protection insurance? What if you could cover all this for approximately $250 a year as a result of the best available landlord protection insurance? Be warned, not all policies are the same. If you knew which policies to avoid, wouldn’t that give you peace of mind and allow you to sleep easy at night? Speak to a specialist property manager regarding which policies best suit your property –one who is focused on helping you get the best protection and returns. It’s really important you understand which policies have the best cover. Read the fine print!
A few bonus lessons... to help check whether your property manager is on the ball!
Bonus lesson #1 Has your real estate agent told you how many properties each member of their property management team looks after? How many properties can a single property manager provide a quality service to? A ratio of 1 staff member to 140 properties is widely recognised in the industry as a comfortable figure, however there are many agencies that have in excess of 200 properties per staff member on their books, making it virtually impossible for them to do their job properly. The first thing they get behind on is routine inspections that should be conducted at least every 26 weeks. This leaves you at risk of tenants doing significant damage to your property. When was the last time your agency conducted a routine inspection on your investment property? Bonus lesson #2 Has your real estate agency told you whether they give YOUR keys to tenants to look through your property? Did you know there are some ‘sales based agencies’ that hand out keys to tenants because their property managers can’t be bothered showing tenants through vacant properties? What’s wrong with that? Firstly, a prospective tenant has unsupervised access to your property and they can easily make copies of the key. The thought that a stranger is wandering the streets with a key to your home – is a scary thought for both you and your tenant. There’s also the risk of appliances being left on, or the house not being locked after the inspection, leaving you at risk of uninsurable theft. (yes, if someone steals from a property and you gave them the keys, it cannot be insured). Do you know if your keys are being handed out to strangers?
And last but not least... Bonus lesson #3 - Has your real estate agent or current property manager shown you what checks they do on tenants to ensure you don’t end up with a ‘bad egg’? One of my business mentors taught me that when dealing with staff you should hire slow and fire fast. Taking time to properly evaluate anyone you are dealing with whether a staff member or a tenant for your property is critical to the success of your relationships. Does your property manager do their due diligence before handing over a lease to a new tenant? For instance, do they: • Check out tenancy information databases (a log of people who have been bad tenants right across Australia). • Get payslips to ensure the tenant can afford the rent (ensuring the rent is not more than 30% of their income). • Get a reference from their previous rental manager. • Collect 100 points of ID. • Conduct a 30 minute interview with them prior to signing the lease. Bonus lesson #4 - How quickly do you get paid your rental money by your existing manager? The most efficient and customer focused specialist property management firms pay their landlords daily. If you are currently being paid weekly or monthly, you should ask your property manager why they’re holding on to your money? For more tips on how to select the best property manager to help you maximise your returns and to ensure you receive a friendly, helpful service, download our FAQ for Landlords from our website.
Call us on 03 9827 3355 or email us at email@example.com to find out more.
Suite 206, 9-11 Claremont Street, South Yarra Victoria 3141 P +61 3 9827 3355 F +61 3 9827 6155 firstname.lastname@example.org synergybsm.com.au