18 December 2017

Rental market: what influences rental returns

Purchasing an investment property can involve a different set of considerations compared to purchasing a home to live in. Good, long-term stable rental return is the end game for many investors. Here are some considerations to successfully rent your property:

Renter’s budget

Whilst choosing an investment, you should decide if your property will cater towards a budget market or a high-end market. Quality should never be sacrificed. Poorly built and designed property is unlikely to attract a good tenant, resulting in no cash flow to meet mortgage repayments.

To minimise tenancy turnover and appeal to the higher calibre tenant, the property should be finished and presented to a standard that is more applicable to an owner-occupier. A relatively new or recently refurbished property, well decorated, with good quality fixtures and fittings is important to secure the right tenant who will stay for the longer term. Skimp on quality and you may end up paying more on regular maintenance and replacements.

Vacancy rate of 3% or under should be used to estimate your cashflow. This is an ideal figure and means your property would only be vacant for 1 to 2 weeks in any year.

Renter’s demographic

Consider the type of tenant you intend to target. Are you looking for young couples with no children or will you focus on the family market? Units are good for business couples, while the typical house and garden is more suitable for families. Business couples could eventually outgrow their accommodation, while families tend to move less frequently.

Suburb demographics can be found on the latest Census website, or on our Suburb Profile Reports.

Location, location, location

The next and most important consideration is location. A more attractive rental property will be close to necessary infrastructure such as public transport and good road systems. If your rental is family-focused you need to be sure it is close to schools, childcare facilities and sporting amenities.

Consider if there are places of employment in the close vicinity, such as commercial centres, attracting substantial numbers of employees – and potential tenants.

Rental supply in the area

A purchase of a house in a greenfield estate may appear to be great value, but the abundance of supply and distance from CBD prevents major growth. A house in a city centre might seem like a great purchase however low yields make it a cash flow poor investment.

Sound Property can provide you with a rental appraisal and supply report of the area and nearby suburbs, as part of our service to clients. You can also get these reports from an experienced local property manager.

Using a property manager or DIY

Property Managers can take the stress off managing an investment property. This service can cost anywhere between 6 to 8% of the rental value, which is a tax deductible expense. However, the benefits can outweigh the cost. If you decide to do-it-yourself, you must be available 24/7 in case of emergencies, as landlords have contract obligations under the landlord-tenant laws.

Let us do the research for your suburb of interest! We will provide you with Vacancy Rates as well as another 14 Key Investment Drivers for growth and rental yield.
Request a Suburb Profile Report now.

This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.

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