5 ways to improve your rental yield
December 18, 2015 / Written by Rich Harvey
One downside of the price hikes we've seen in Sydney investment property is a corresponding decline in yields. Rental prices simply can't match the growth that has been recorded in values, so yields have suffered a bit as a result.
For example: Residex data shows that in Marrickville, median house values went up 19 per cent between November 2014 and November 2015. Meanwhile, rental yields remained the same, at 4 per cent. Paying more on a home loan and getting less out of your yield can be a stick in the mud for investors, but there are ways to boost your returns. Here are five helpful tips.
1) Build a granny flat
This is essentially a second source of income for an investment property.
A lot of house hunters are worried that building a granny flat will lose them money, and that it can't recoup the construction costs efficiently. However, you've got to remember that this is essentially a second source of income for an investment property - which is always a positive thing.
They can be approved within 20 days if they meet NSW government requirements, and add great value to real estate. It's ideal for younger buyers or house hunters looking for a second property that want to quickly build equity.
2) Conduct a renovation
This can be an expensive task and one that will have stringent local and state government requirements, but in general boosts yield significantly. You could be adding a bedroom (which is great for value), or simply upgrading the finishes in the bathroom to suit higher tastes.
You have to make sure you aren't overcapitalising, and professional aid selecting appropriate renovations will be necessary. But with CoreLogic RP Data figures pegging Sydney's median yield at 3.7 per cent, it's worth considering. I've seen homes where a kitchen renovation can justifiably raise the rent from $700 to $820, so there's definitely room for gains.
3) Raise the rent to meet demand
It seems straightforward, and that's because it is. Raising rent to match market demand could be a great way to boost rental yield, especially in central areas. December data from the Real Estate Institute of New South Wales shows that inner Sydney vacancy rates have fallen 0.3 per cent to 1.8 per cent in total, while middle and outer ring suburbs have a vacancy rate of 1.7 per cent.
This means demand for rental properties is flourishing, and pushing rents up to improve your yield shouldn't deter a market that is hungry for rentals.
4) Add in extra features
Like a renovation but without as much elbow grease, providing extra features for your rental property could give you the edge to boost rent and improve your yield. It could be a whiteware package, including furniture with the home, or an air conditioner for summer.
Tailor the extras to the property. For example, a home next to a drycleaners might not be made much more appealing with the addition of a dryer. Think about what the tenants want, and meet the market with a solid extras package.
5) Go solar
With the right investment in solar paneling, tenants might not have to worry about paying power bills at all. In its 2015 State of the Market Report, the Australian Energy Regulator noted that peak demand was well below historic high points, and this was partly due to the takeup of solar.
By cutting out power costs for tenants, you could increase rent and boost your yield.
When you want to understand the best ways to engage with the Australian property market and boost yield on Sydney investment property, a buyers' agent can be your secret weapon. We've got intimate market knowledge and in-depth strategies for getting you the most out of the market.