Q: The interest rate on my investment loan has just been increased. I can still afford the repayments but it’s eating into my rental return. Is there anything I can do that will allow me to justifiably increase the rent so I’m not out of pocket?
A: With interest rates going up on many investment loans, the cash flow or rental return generated from investment properties may be impacted.
So what can you do about it? First off, use this as an opportunity to review the rent you’re charging against the current market average in your area. Are you charging rent that’s reasonable, or are you below market?
If you have a property manager get their opinion on whether it’s time for an increase. It’s not uncommon for landlords to increase rent every 12 months in line with, or even slightly above, CPI.
Small rent increases are probably more likely to be acceptable to a tenant than large one-off increases. Just ensure you give your tenant the required minimum notice period, at least.
If you want to make a more substantial increase to the rent, then you may need to put your money where your mouth is first. Big increases to rent are unlikely to be achieved inexpensively, but there may be some things you can do to maximise your return that won’t cost you the earth, such as:
Refresh the bathroom
Full scale bathroom renovations can be costly, but a freshen-up can achieve a similar look at a fraction of the cost. Painting over outdated tiles, regrouting old showers, replacing old shower curtains and even installing some new fittings and fixtures can inexpensively modernise a dated bathroom.
Add a laundry
Internal laundries are a sure way to add value to your rental property, so if you can make some space in a kitchen or bathroom cupboard to fit a washer/dryer and have some money to put towards plumbing and the white goods, you will instantly increase your property’s value, appeal and rental return.
Recarpeting can make a real difference to a property’s look, especially if the current flooring is on the older side. And, it can be done fairly quickly and inexpensively if you have a small space.
Storage, storage and more storage
Tenants love storage, and easy additions like wardrobes in bedrooms will increase your property’s appeal and rental value. Budget friendly shops like IKEA and Bunnings have a wide range of affordable storage solutions that won’t cost you the earth.
Self-manage your property
Agent’s fees for managing rental properties typically range from 4-7%. If you’re willing to put in the time and energy needed, you could make a significant cost saving by self-managing. This does come with some risk though, so make sure you know what you’re getting yourself into before deciding to go it alone.
Don’t forget that any rental property repairs could be tax deductible and costs of improvements may be depreciated. Make sure you keep all receipts, seek professional advice from your accountant and your property manager or local real estate agents before you spend to ensure that you are not over capitalising.
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