11 Ways to Improve Cash Flow on your Investment Property
1) Claim depreciation benefits
Depreciation is becoming more widely known by investors, however many still do not have a quantity surveyor assess their investment property.
By bringing in the professionals to create a depreciation schedule, it will ensure that you maximize your tax refund at the end of the year and improve your overall cash flow position. Even older properties regularly have depreciable items, particularly if renovations, extensions or even moderate home improvements take place. Furnishings can also be depreciated.
Investor tip: Some quantity surveyors offer their service for free if they can’t get you back in depreciation more than their fee in the first financial year.
WRE reco: Valuit
Renovating and attending to maintenance, including upgrades on a regularly scheduled basis can not only increase your cash flow but safeguard you from vacancies as well.
Top quality rentals, and those kept in good condition, are far more likely to achieve high quality tenants first. A savvy renovation that focuses on bang-for-your buck changes can quickly boost your rental income by $20 per week plus.
When weighing up what work to do or where to spend your money it will be useful to calculate the ROI for each job, e.g. adding a heat pump for $3k might allow you to increase rent by $15/week, which represents a 26% annual ROI.
Consider the following alterations for quick boosts in rent:
- Bathroom and kitchen upgrades
- Adding a bedroom
- Modernising the look of the home (painting, new handles and other cosmetic upgrades)
- Installing fencing to the perimeter of the gardens (attracts families and pet owners)
- New light fittings and blinds
Be sure to check the market for what newly renovated similar properties are renting for and take pointers based on their renovations.
Remember that tenants will generally pay more for a brand new rental, but that a decently renovated older property of a similar quality should still be able to compete.
3) Build a secondary dwelling
Looking at dual occupancy options, such as adding a granny flat to a home, can bring in a second rental income that can be very significant in boosting your cash flow.
On top of the dwelling itself, you will need to budget for surveyors, engineers, plumbing, electrical work and landscaping. But generally, the yield on a minor dwelling will sit at around the 10% mark.
Some granny flats can be built in a way that allows them to be transported to another property as necessary. This may allow you to move the granny flat if it starts to underperform or remove it when you come to sell the property.
We have a lot of experience of building minor dwelling in Hamilton and Waikato and would be happy to share our experiences with you firsthand.
Click here to read how WRE's Olly and Michelle added a minor dwelling to their Dinsdale rental.
4) Furnish the property
Renters on all ends of the spectrum can be willing to pay a little extra for furnished accommodation. Buying low-cost low-maintenance furniture that suits the prospective tenant base has the capacity to boost the rent you can ask for the home. This will not be possible for all rentals and it’s worth considering the demand for furnished rentals in the area.
Those looking for furnished rental properties can include:
- Students looking for lower priced, low maintenance inner city pads
- Executives looking for higher end apartments, your “corporate” renter
- Short-term renters
Investor tip: Furniture packages are often available for investors and any furniture used in the rental can be depreciated.
5) Property management
Your property manager is your source of all knowledge for the local area and what tenants want, however they can also help you know whether your strategy is feasible.
Their expertise can be the difference between your property sitting vacant or having a long-term and diligent tenant. Ask your property manager these six questions before embarking on any cash flow boosting techniques in this category:
- Is there strong demand in the rental market for my type of property?
- What is the forecast for the market?
- Are you seeing any changes in vacancies or rental prices?
- What demographic is renting in this area?
- What type of strategies are other investors employing to boost rent?
- In terms of quality and desirability, where does my property sit in this area?
Use these answers to help determine key questions about how you can more effectively manage your property.
WRE reco: read our article, 12 Questions to ask when choosing a Property Manager
6) Undertake a rental review
Is your property currently rented out at the highest price it could be? Many investors forget to keep a close eye on the property market to the detriment of their portfolio’s performance.
If you aren’t sure what the current market value is for rent and how much demand there is for property in the area, it’s time to conduct a rental review with your property manager.
Research the following points:
- What are the asking rental prices on similar properties currently listed? Head to an online portal to have a look at what is available.
- How much rental demand is there in the area? Research local vacancy rates and speak to your property manager.
- What risk is there of my tenant moving if I increase the rent? Vacancies can sometimes outweigh any benefit of increasing the rent, so weigh up your options carefully. Armed with this information, you may find that increasing the rent is long overdue – causing you to miss out on hundreds of dollars a year. Be careful not to ask for too much on the market – a property that is vacant for a few weeks can quickly outweigh the benefit of having a tenant in the home for $10 less.
WRE reco: read up on Hamilton rent changes here.
7) Make your rental pet-friendly
Being open to renting situations where the initial response from other landlords is a flat out refusal might not only be more attractive to tenants, but they may also be willing to pay a premium for it. Never is this situation more crucial than with pet-friendly rentals.
Allowing your tenant to have a pet will not only make your property stand out, but it can also see many tenants stay for longer and ensure minimal vacancies.
When looking to make your rental property pet friendly, consider the following:
- Is your rental property fenced? For renters looking for a home where their dog can be safe, this is critical – particularly if you are on or near a main road. You can also consider including a small kennel in the garden. This may also encourage the owners to keep their pets outside.
- What information does the tenant have about their pet? If they are well cared for, with vaccinations and microchips up to date, then they are more likely to be a responsible owner. Know how long they have owned their pet/s for.
- How many other pet-friendly rentals are there in the area?
8) Refinance for a better interest rate
Another way to substantially improve your cash flow is to refinance to achieve a lower interest rate and therefore decrease your monthly repayments. When refinancing, you may also find that other features are available, such as offset accounts, that can assist with reducing repayments and increase your immediate cash flow, however usually the lowest rate loans come with few bells and whistles.
You may want to consider locking in the lowest rate achievable to provide some security for your cash flow moving forward, while others will want to opt for a variable rate to ensure they can make extra repayments at will.
A mortgage broker may be able to advise you and there are an increasing number of online comparison websites, allowing you to quickly know how your current home loan competes.
9) Consider an Interest Only Loan
Cash flow can be significantly boosted by opting for an Interest Only loan. For some investors, this decision can push their property into positively geared territory as it takes out one of the more costly aspects of your home loan – paying down the ‘principal’ or, the amount you owe outside of the interest on the loan.
This can often reduce repayments by hundreds of dollars a month and free up the funds for other purposes – be it for straightforward cash flow or to assist with improvements and maintenance.
10) Alternative uses for the property
While renting out the main home is your bread and butter when investing in real estate, you may find that some alternative strategies – even for specified periods of time – can help improve your cash flow outcome.
If you have an apartment and a separate garage, you may find that your cash flow is enhanced by renting the garage out separately. This usually works best in inner city areas where parking is pricey and opportunistic commuters look for alternatives.
You may need to reduce the rent on the property itself, however often the combined dual income stream works out more profitable overall.
It may be expensive in upfront costs and capital, however redeveloping can be one of the most substantial ways to improve cash flow.
By turning your one dwelling into a number of apartments or even a duplex, you have immediately opened up multiple streams of rental income. While this may be a step for more experienced investors, those dabbling with developing may be able to start with a subdivision. The subdivision may result in a block of land that is sold off – reducing the mortgage on the current block and retaining rental income – or it may be held for future development and building opportunities that will bring in the second stream of rent.
When looking to boost cash flow, it’s all about your individual circumstances and the property itself. Every investor is unique and will look to gain different things from their portfolio and when it comes to your rental return, this is no different.