How to improve your cash flow on your investment in a tough market
If you are one of the many Australians who owns an investment property, your top priority is securing a good rental return. There are 2 critical components to the equation in a tough market.
1) The tenant
Firstly, you need to attract good, long term tenants. This is particularly important in a market where there are many options available for tenants and rental incomes are declining.
Presentation is key. Given our hot climate, proper air conditioning is a must, particularly if searching for a tenant in the warmer months. A dishwasher and freshly painted walls will also go a long way, as will ample lighting.
Finding the tenant
The key when looking for a new tenant is to understand the current market conditions. This means advertising at the right price, and being prepared to drop the asking rent weekly. Attempting to get a higher than market rent will quickly backfire, as your property becomes undesirable amongst a long list of advertised properties. The result is a stale property that will remain vacant until you meet market conditions or worse, you are forced to accept a rental income below market rent.
Keep the tenant happy
Once you have found a tenant whom is paying rent on time, and thus looking after your investment, do what you can do to keep them happy. Ensure that you approve repair requests from your property manager promptly and to a high standard. The result of regular maintenance is the tenant will feel they are being looked after and will hopefully encourage them to stay.
When it is time for a rent review, consider the market conditions. It is not worth chasing an extra $10 rent if it means losing a good tenant and your rent income for a few weeks (or longer as it likely in this market). Given the current market where tenants are spoiled for choice, it is likely that you would need to drop the rent to attract a new tenant.
In this type of market, offer the same rent if you can. However, you also need to be prepared to negotiate with the existing tenant and consider a rent reduction, as many tenants will simply move on rather than ask to negotiate.
2) Your interest payments
The second part of the equation has to do with cashflow. If you have borrowed to purchase the property, you are paying interest and given the low interest rates, it is worthwhile reconsidering your loan. Refinancing your investment, and any loans you may have, could save you significant money in the long term.
The other thing to consider is that if you bought the property off the plan or previously lived in the home, it is possible that your current structure includes principal, as well as interest payments. As your circumstances may have changed, this may not be the best set up for you. Consider speaking to an experienced mortgage broker to discuss your situation.
Readers should always seek their own independent advice prior to making any decisions regarding property or finances.
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