How to improve the return from your property investment

Thursday 03 Jan 2019

Improving your return from property investment is about understanding who your demographic is – who is the tenant you are targeting and who is actually going to want to rent your property.

The reason why a property is not renting is not always because of the price.   It may be about the physical size of the property or features that your property may not have.

For instance, take an apartment in a high-density area that has a mix of older apartments and a lot of new apartments being built close by.  Some tenants are prepared to pay a little bit more for something brand spanking new, whereas a tired looking apartment may be inadequate and unappealing.

Under these circumstances, a cosmetic renovation might be necessary.   If new carpet, fresh paint, and new window furnishings are not adequate, and the property manager is advising you that tenants want more, you should look at the option of putting in a new kitchen or a new bathroom, but making sure that you don’t overcapitalize in the process.

Working on a percentage of the purchase price of your property (ie $400,000), you should be putting in only around 1.5% ($6,000) of the value of the purchase price into the renovation on the bathroom.  Likewise, for a kitchen, considering keeping your spend to no more than 1.5% or 2% of the purchase price.   Remember to renovate with your target tenants in mind.

If there is a lot of similar rental stock on the market, sometimes tenants will just want a few extra bells and whistles, such as paid water, Foxtel, or garden maintenance.  Think outside of the box.  Be creative.  Ask your property manager what the feedback is from prospective tenants, why it doesn’t appeal to them, and then come up with creative solutions, but make sure that they’re affordable.

It’s all about being pragmatic.  Sometimes improvements you make are not necessarily going to help you get more rent but it may help you make sure you keep your tenants, and that you reduce that number of vacant days.