9 Min Read. Updated 7th of June 2021.
6 Ways To Increase Your Rental Income
As time goes by, the cost of living goes up. The same can be said for maintaining a rental property. Finding ways to increase your rental income becomes essential when you start covering the costs of maintaining a house. The cost of maintenance services and even local council rates can steadily increase over the years.
Essential maintenance such as plumbing, electrical or roof restoration works can all increase in cost thanks to labour and the materials being used. To accommodate for rising maintenance costs, it’s easy to gradually increase the property’s rent. But a rent increase doesn’t always sit well with current or potentially new tenants. Does your property become more desirable after a rent increase? What benefits do tenants get from a rate increase?
If you want to justify a rent increase, then consider making more improvements to your investment property. Renovating your property can add incredible value to it. Think of the value an extra bedroom, bathroom, or study would add to your property. Ducted heating, solar panels, off-street parking are just some of the features that can make your property more desirable among potential tenants.
To help you find new ways to increase your rental income here are six tips to get you started.
1. Renovate to impress
Is your investment property stuck in a time warp? Pink wall paint, green carpets, and floral print wallpaper have all had their heyday. And who knows? Maybe they will come back into fashion. Until then, it’s time to let go and reinvigorate the look of your investment property!
Rip off that retro wallpaper and add new colours of paint to the walls. New colours can instantly modernise the look and feel of a home. Remove any old and musty carpet from the property and you may discover some pristine timber flooring. Give the floorboards a good sand and polish to make every walkway and living space look tidier.
In some cases, you may have enough space on your property’s land for renovations. Sought after items like an additional bathroom or master bedroom are just two eye-catching features you could add. Knock out a few walls and you might have the potential to create a spacious kitchen and entertaining area.
For inspiration and ideas, put yourself in the headspace of young families today. Consider today’s most wanted house features when you’re thinking of new ways to increase your rental income. Or maybe put yourself in the shoes of a dual-career couple? Different people want different things. Consider what demographic will want to pay more for your investment property and adjust your goals accordingly.
2. Make the most of tax deductions
You may be surprised to see what you’re missing out on when tax time rolls around. Before you lodge your next tax return, speak to a tax accountant that specialises in property investment. They might be able to find extra items you can claim tax on. You could potentially be saving thousands on the cost of maintaining your investment property.
Bank charges, body corporate fees, and insurance are just some of the items you could be claiming tax on. You might also be able to claim on maintenance services such as structural repairs, renovations, cleaning and gardening services. Don’t be afraid to talk to a financial professional for advice. You could speak to a financial adviser or a tax accountant. Just don’t wait till the end of the financial year to make decisions. Be wise and plan in advance.
3. Rent a fully furnished property
Furnished properties tend to attract a higher yield. Unfortunately, the downside is they can attract a high turnover of tenants. Mark Ribarsky from Property Managers Melbourne explains that furnished properties are likely to be more appealing for two major groups; corporate clients and international students.
Fully furnished apartments are highly sought after by international students due to their low maintenance requirements. With everything set up for them already, an international student can arrive at their fully furnished property without the need for a fit-out. This makes the transition to a new country and residence far easier than most other options. The same can be said for a corporate client on a temporary 6 or 12 month contract.
International students tend to be a high turnover tenant thanks to their studying habits. Some students only stay until their course is complete. This could be anything from one to three years. Just be wary before your tenant’s study period is up. If they leave at the end of a semester, there could be an entire holiday period from four months (November to March) of no rent being paid until a new tenant comes along.
4. Off-street parking and storage space
The more in-demand features your apartment has, the more wanted your property will be. Getting one of these wanted features is another one of those great ways to increase your rental income. Off-street parking and storage space are two of the most sought after features you’ll find amongst tenants looking for an apartment.
With limited room in an apartment, extra storage space is always going to be a highly desirable feature. Especially for inner and outer city suburbs. Extra storage space usually comes in the form of a storage locker located next to an apartment’s designated car park. This storage is often used for items such as a bicycle that many would prefer to store outside of their apartment.
Off-street parking is another gem that will have tenants eyeing off your investment property. Particularly in outer city suburbs, curbside parking can be time-restricted or expensive to use. Off-street parking offers a fantastic lifestyle option for potential tenants who would otherwise have to rely on public transport or ridesharing services to get around their local neighbourhood. So always look up the parking options for the investment properties you’re eyeing.
5. Invest in a newer property
Look around at new property estates and you’ll discover plenty of potential for ways to increase your rental income. One of the best outcomes of buying a newly-built home is the reduction in maintenance costs. A newly built property from a house and land package shouldn’t require any hefty maintenance costs for at least the first ten years.
As always, do your research when purchasing a new property. Especially one from a new estate. Make sure there’s a healthy interest in rental properties for the area. Also, ensure you’re relying on a premium builder for your new home. Check the reputation of the builder and see what the condition of their nearby houses is like. It’s not uncommon for new houses to be built with cheap and unreliable materials. So it really pays to make sure you go with a premium home builder.
6. Rent by the room
Renting each room of a house is one of the most effective ways to increase your rental income. This strategy tends to work well when you have the right mix of tenants and location. But you will need a sustained interest in your property if you want tenants moving in after previous ones move out.
A perfect example of using this strategy is when you rent out a property near a university. When your property is near a campus, there’s a high chance you’ll get a sustained interest from students looking to move into that suburb. Most university courses can take anywhere from two to five years to complete. So there’s a good chance you’ll get long-term tenants if they’re happy with the property.
The potential for increasing your rental income is hard to ignore when you’re renting by the room. Consider the following scenario. You have a 4-bedroom house and the average rent for that area is $350 a week. You could get around this by renting each room for $120 a week. This would enable you to get a total of $480 per week. Before you commit to this strategy, make sure your local council allows it. Check if any boarding house regulations apply to your investment property’s suburb.
What to avoid when trying to increase your rental income.
We’ve covered ways to increase your rental income. But let’s not forget there are things that can negatively impact your rental income too. If you don’t pay attention to these things it’s only a matter of time until your rental income will start to decrease.
Just because a house is expensive, it doesn’t mean it will retain its value and become an instant money-maker for you. It can take a lot of time and careful planning to make an investment property work in your favour. Here are a few important factors to take into consideration:
Inflation
This may seem like an obvious item on the list but very few property owners really consider the effects of inflation. Inflation can have a profound influence on the success of your property being a good investment. If you’ve invested in property then chances are capital appreciation is the reason you’re doing it. Capital appreciation is the difference between the purchase price and the sale price of your investment property.
Ideally, you want your capital appreciation to be as high as possible for the inevitable time you or maybe one of your children decide to sell your property. The best way to protect your property from inflation is to plan for it. You can start doing this planning before you even purchase your investment property.
First, establish whether inflation will detract from the value of your investment property. Confused about inflation? Inflation is what happens when the value of your money decreases as the prices of goods and services in an economy increases. For example, $100 in 2021 will not buy you the same amount of groceries in 20 years time.
To work out how inflation will affect your investment property consider the following tips. Figure out if the interest rate earned on your savings is less than or equal to the current rate of inflation. If it is, then your investment property will suffer from the effects of inflation. This means there’s a small chance your investment property will be profitable.
If you are investing for capital appreciation and rental income, here’s what you need to consider. Establish if the average price for rental properties in your suburb will remain higher than the rate of inflation in the long term. If the average price for your investment property’s area doesn’t exceed the rate of inflation, then it’s a good sign not to invest in this suburb.
The downside of claiming tax
While there are lots of things you can claim as tax deductions, don’t forget all the things you will have to pay tax on. It can come as quite a shock. Especially in your first year of property investment. Be prepared to see a big change in the way you pay taxes in that first year.
A major tax item to consider is capital gains tax. This is the tax you incurred because you have profited from your investment property. This capital gain will be added to your assessable income. Another thing to consider is that you will not be able to claim an expense for your investment property unless you have proof. So always make sure you have receipts and bank statements for proof.
Overspending on renovations
Renovating your property is usually a fantastic way to add value to it and increase your rental income. But it’s not always one of the best ways to increase your rental income. Sometimes it doesn’t matter how good the quality of the appliances and fittings are. If your investment property is in a poor area then there probably will be a limit on what you can achieve with rental income.
Renovating your property will never improve local amenities like access to schools, public transport and freeways. So just be wary of the fact that there is a limit to your property’s earning potential. Especially when it’s in a bad area. You may have the best looking house in the street but that won’t be enough to help increase the area’s average rental rate.
Don’t exceed you’re borrowing capacity
It’s an all-too-common scenario for property investors to go all-in with their investment property. It’s not one of the best ways to increase your rental income. It’s better to be safe and purchase an investment property well within your means. For example, if you already own the house you live in, don’t use all the equity in it to purchase a new investment property. Be more realistic with your goals.
Don’t push your bank to get a high loan-value ratio. Borrow a lot less for your investment property. Aim for something you can comfortably afford. It’s easy for interest rates to rise and affect the profitability of your investment property. There’s not always a definite chance that your investment property will be leased all the time. Make sure you have plenty of leeway when it comes to the funds you have for maintaining your investment property.
Don’t get stuck on one area
After you’ve successfully invested in one rental property, don’t assume lightning will strike twice. Success with an investment property isn’t just about the suburb or street it’s in. There’s so much more to it than that. It can be a combination of the property type, the timing, and even the tenants themselves that can contribute to its success.
A savvy investor will know that broadening your horizon is one of the best ways to increase your rental income. Don’t be afraid to look at other suburbs for your next chance at an investment property. There are plenty of suburbs out there with the same level of potential. You just need to be willing to look. Don’t be afraid to look for all the obvious signs when it comes to new suburbs for investment. Consider things like access to public transport, schools, and major shopping centres. These are all drawcards for great tenants.
Final thoughts
Are you still struggling to find ways to increase your rental income? Sometimes it’s best to talk to the experts. Here at Property Managers Melb, we specialise in helping investment property owners maximise their earning potential. We believe that maintaining an investment property is key to maximising its potential. Part of that comes down to good property management.
Good property management is not just about the property. It comes down to looking after the tenants too. With happy tenants in your property, there’s a higher chance they will take the time and effort to look after it the way it should be. For more advice on ways to increase your rental income, contact us today.