July 28, 2011 investor 2 Comments

While it would be nice to charge our tenants whatever we like for renting our precious investment property, in reality we can only charge what the market is willing to pay or risk getting nothing at all.  Since we are professional investors, getting nothing at all is not really an option.

Of course, when you first start looking for an investment property it is wise to find one that has a good rental return as well as good prospects for capital growth.  However, once you’ve purchased that property, you will be at the mercy of the market as to how much rent you will get.

Having said that, there are things you can do to make your rental property more attractive to the rental market.

Market Rise

This is the most common way of increasing the rent and if you have a decent property manager, a price review will happen every 6 to 12 months.  If the property is already tenanted then you don’t want to be too aggressive with rent increases even if the actual rental market is surging ahead.

If they are a good tenant then raising the rent once per year at around 2 or 3% should not cause too much anguish for them.  However, when there is a changeover of tenants, of course you should re-advertise the property at the current market price.

Improvements and Renovations

If you have some spare cash that you would like to invest, why not put it into one of your existing properties?  First find out, what would be the most useful improvement for the type of people that rent your property?

For example, if your property is in a warm or tropical climate and it does not have air conditioning, then that would probably be a good idea.  Let’s see the benefit:

Cost of Air Conditioner = $1,500.00.

Installation of Air Conditioner = $1,000.00.

Total Cost = $2,500.00.

Increase rent by $10/week = $520 per year.

Therefore our $2,500.00 investment is resulting in an extra $520 income per year which represents a very decent 20% gross annual return on our money invested.

You might be able to get 20% in a good year on the share market, if you know what you’re doing, but this would be a much more secure and immediate return for your money.

Not only that, but the improvement should also boost the value of your property and help gain a bit of extra equity.

Furniture

Ask around your local property agents and find out what the demand is like for fully furnished properties.  If your property is in an area where there is a larger temporary population (eg. Workers contracting on the local mine or construction site) then a lot of these people will not want to move all their own furniture in when they could be leaving again in 6 or 12 months time.

This is where a fully furnished property can be in demand and you may well be able to charge 10 to 30% more in rental price for the privilege.  In fact, renting out your property as fully furnished is a good way to push it into cash-flow positive territory (if it isn’t already) but you want to be sure there is demand for it or else you will end up spending $10,000 to $15,000 and have a vacant property.

So do your research.

These are just a couple of ideas for increasing the rental return on your residential property.  The alternative is reduce the expenses that you pay (your outgoings) which I will discuss in a future article.