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When you own an investment property, you are running a business. To achieve planned rental income, you must ensure a couple of elements including both the tenants and your role as a landlord.
When you own an investment property, you are running a business. So while you’ll expect some capital growth from your asset, in the first place you want the property to generate rental income at a level and consistency that meets your goals. The rent may not cover your loan costs and other expenses, in which case you are negatively geared. However, even when you are negatively geared, you don’t want the shortfall between rental income and your costs to be too big, because you must fund the shortfall from other sources.
To achieve planned rental income, you must ensure two elements:
- that the property-type and location meets demand from potential tenants, and;
- that the property is of sufficient quality to meet your target rent.
In terms of location, think about buying properties with these features:
- close to public transport
- close to schools, universities and TAFEs
- convenient to major shopping centres and main streets
- in an area with parks, aquatic centres, beaches, playing fields etc.
- within travelling distance of a CBD or major employment hub
- in a heritage architectural area (federation, colonial) which has a sought-after element
The property type has to be considered in terms of the tenants you can attract and the length of their tenancy. Students are typically looking for shorter leases than families, for instance, so if you want long-term tenants, steer clear of property types rented by students.
To elaborate further:
- one-bedroom and studio apartments are suited to young people and students
- free standing houses with a garden are often tenanted by families
- two-bedroom apartments and terraces in the inner-city are suited to young professionals
The property’s quality and features are an important indicator of the rents you can charge, and are a good guide as to where you should spend money renovating.
Always budget your renovations, but here are some improvements to focus on:
- new bathroom and toilets make a property more rentable.
- a new kitchen with modern appliances makes tenants overlook other parts of an average property.
- if your property has a backyard, clean it up, mow the lawns and install a washing line to give yourself a better chance of renting to a family.
- a paint job can increase your chances of renting this property for a decent return.
- attend to major repairs before renting the property: roof, plumbing, hot water, electrical system and locks are better fixed and replaced before they fail, rather than after.
- Extra features can seal the deal and get you the rental income you’re aiming for. They include: lock-up garage, study/computer area, solar hot water, solar electricity, shaded outdoor living area, swimming pool, ceiling fans, air conditioning, cabling for Foxtel.
Lastly, before you become a landlord, get your attitude focused on the investment being a business: a business needs a product, a customer and ongoing management. If you want to manage the property yourself, make sure you’re within easy driving distance and be courteous and attentive to maintenance requests: these tenants are paying you – you’re not doing them a favour. If you buy an investment property away from where you live, you’ll probably use a property manager, which will charge you 6-10 per cent of the rental income (plus tradesman costs).
Property investment needs to be considered as a business and it has to make economic sense. If in doubt, get expert advice.
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