Getting a profitable rental return isn’t rocket science, but it does require planning. Whether you intend to manage the investment property yourself or get a management company to do it on your behalf, there are five things you need to ensure your profitable rental return:
Never pay more than the current market value of the property. The ultimate success of your investment will come from the appreciation potential, as well as the projected cash flow of the property.
Examine historical data and growth reports from respected market commentators. Look at median house price reports for the area, and compare the valuation to comparable property options. And finally, source an independent Valuation from a professional.
Charging the right rent is critical to making your investment work! Find out the average rent for similar properties in the area, and whether they are on an upward trend. You don’t want to buy into a location where rents are in decline.
You should aim for a rental return of around 4% or more. As a rule of thumb, this equates to a rental income of $500 per week on a $500,000 investment property.
- Vacancy rates
Vacancy rates are an indicator of a viable rental market. Low vacancy rates will indicate that you are likely to be successful in attracting tenants, and maintain, or even increase, your rental rates. High vacancy rates, on the other hand, generally result in lower rents as you compete to attract new tenants.
Aim for a property in an area of historically low vacancy rates. And check that there are multiple thriving employment sectors in the surrounding suburbs because this will support continued low vacancy rates.
- Insurance, property maintenance and repairs
Insurance, property maintenance and repairs will cost money – make sure you are realistic about what you need to pay for so they don’t undermine your rental returns. Consider any repairs needed upon purchase, as well as reasonable regular maintenance to things like showers, locks, dishwashers and so on. Remember to factor in landlords insurance and property insurance too.
Your goal is to keep the same tenants for as long as possible, preferably for years. The less turnover you have, the cheaper it is because there’s no need to re-market and so on. Therefore think about what will attract tenants to stay in the area, such as a highly rated school and good access to public transport, as well as being a good landlord.