How To Increase Your Investment Property’s Rental Yield!
If you’re interested in property investing, rental yield is a term you need to be familiar with.
Rental yield compares the cash generation of a property as a percentage of the price of that property or the current market value. Whilst real estate investors typically use many financial metrics to analyse property value and rental success, yield is one of the quickest and easiest tools to help identify which properties will offer the most potential profit.
Rental yield can also help investors predict if the fair market value of a property will increase over time. Homes with higher yields could mean future tenants will see value in the house and, therefore, pay a higher monthly rent.
In short, the higher the rental yield, the better the potential investment. Generally speaking, the property probably generates more annual revenue based on gross and net income.
Rental Yield Statistics
A good rental yield in Australia falls between 7% and 8% for capital city suburbs. However, in the regional areas, the right houses can bring results of 12% to 13%, and apartment buildings will see 8.5% to 11% per unit.
Rental yields will always depend highly on where you live and the quality and location of the rental property in question. Before jumping into the rental pool with both feet, you need to know how to calculate rental yields correctly and utilise them to maximise profits and reveal the right locations for investing.
How Investors Should Use Rental Yield
Gross rental yield has some limitations. However in general, you should use it for the following scenarios.
Comparing Potential Investments
When analysing various investment properties, often in different regions and real estate markets, it's helpful for investors to set a minimum gross rental yield that they're willing to accept. When you divide the estimated (or actual) gross rental income by the market value or asking price of the property, you can quickly calculate the gross rental yield.
Establish Monthly Rent Payments
When rental yields are correctly calculated, you can easily set a ballpark figure of what the monthly rent on a prospective property should be before you get into further details. For example, suppose sellers are asking $635,000 for vacant property, and the rental yield from similar houses currently occupied by tenants is 8%. In that case, you can determine the monthly rent with the following calculations.
● Rental yield = Yearly gross rent / property value
● Yearly gross rent = Property value x rental yield
● A property value of $635,000 x 8% gross rental yield = $50,800 gross rent or $4,233 monthly
These calculations can help you create a list of potential properties to purchase based on the rental yield, and gain an understanding of their profit potential.
Increasing Rental Yield
If you're unhappy with the rental yield of a property you'd really love to purchase, rest assured that there are steps you can take to both increase the value of the home in the eyes of the renter, and increase your returns as the owner.
You can utilise various strategies to increase the gross and net rental yield of your investment property. The gross profit will increase by simply moving to raise the rent or finding ways to generate more revenue streams. Whereas many find that a reduction in operating expenses increases net rental profits.
Here are a few tips to help you increase your rental yields.
1. Screen tenants thoroughly and review their rent-to-income ratio.
2. Run background checks and credit checks, and review rent history reports.
3. Allow pets to see an increase in potential renters and generate additional pet renters.
4. Be fully aware of the market at all times, ensuring that your rental prices align with others in the area.
5. Invest in a property manager with a complete understanding of the market and a network of valuable vendors.
6. Proactively perform maintenance, such as replacing air filters and hiring seasonal services for home heating and cooling systems. This proactiveness can help you catch insignificant problems before they become too costly.
If you're ready to increase your rental property value and rental yields, the time is now. Demand for rental properties in Queensland is at record highs and it's time to strike while the iron is hot. Champions In Real Estate can help you take your investment business to the next level. Contact us today!
