Improving rental yield involves maximizing the income generated from a rental property while minimizing costs. Before assessing some opportunities and tips to improve rental yield, let’s explain what it is first.
What is Rental Yield?
Rental yield is a key metric used to measure the return on investment (ROI) for a rental property. It represents the amount of income generated from the property as a percentage of its value. Rental yield helps property investors assess the profitability of a rental property and compare it with other investment opportunities.
Two Types of Rental Yield:
- Gross Rental Yield:
- This is the simplest calculation of rental yield and does not account for expenses. It is calculated as the annual rental income divided by the property’s purchase price, expressed as a percentage.
- Formula: Gross Rental Yield=(Annual RentProperty Value)×100\text{Gross Rental Yield} = \left(\frac{\text{Annual Rent}}{\text{Property Value}}\right) \times 100
Example: If a property is worth $300,000 and generates $18,000 in annual rent:
Gross Rental Yield=(18,000300,000)×100=6%\text{Gross Rental Yield} = \left(\frac{18,000}{300,000}\right) \times 100 = 6\%
- Net Rental Yield:
- Net rental yield provides a more accurate measure of profitability because it accounts for expenses such as maintenance, management fees, insurance, and property taxes. It’s calculated by subtracting annual expenses from the annual rental income, then dividing the result by the property’s purchase price, expressed as a percentage.
- Formula: Net Rental Yield=((Annual Rent – Annual Expenses)Property Value)×100\text{Net Rental Yield} = \left(\frac{\text{(Annual Rent – Annual Expenses)}}{\text{Property Value}}\right) \times 100
Example: If annual expenses for the property are $5,000:
Net Rental Yield=((18,000−5,000)300,000)×100=4.33%\text{Net Rental Yield} = \left(\frac{(18,000 – 5,000)}{300,000}\right) \times 100 = 4.33\%
Understanding rental yield is crucial for property investors to evaluate how well their property is performing and to make informed decisions about potential investments.
Tips to Improve Rental Yield?
Now that we have addressed what it means, lets explore and summarise ten practical steps to enhance your rental yield.
1. Set Competitive Rent Prices
- Research the local rental market to set competitive but fair rental prices. Overcharging can deter potential tenants, while undercharging will reduce your yield.
2. Offer Amenities and Upgrades
- Adding desirable features like high-speed internet, modern appliances, or in-unit laundry can justify a higher rent and attract quality tenants.
3. Improve Property Appeal
- Invest in curb appeal and interior upgrades such as fresh paint, modern lighting, and landscaping. Well-maintained properties can command higher rents.
4. Target Good Tenants
- Market to tenant groups that are willing to pay more for specific amenities, like professionals or families. Consider allowing pets to broaden your tenant pool.
5. Reduce Vacancy Rates
- Minimize downtime between tenants by actively marketing your property and renewing leases early. Keeping vacancy periods short will boost your yield.
6. Consider Short-Term Rentals
- If your location allows, explore short-term rentals through platforms like Airbnb. These can offer higher rental yields compared to long-term leases, though they come with more turnover.
7. Negotiate Lower Management Fees
- If you use a property management company, negotiate lower fees or switch to a service with lower rates to reduce ongoing costs.
8. Reduce Operating Costs
- Look for ways to cut costs without sacrificing quality. This could include switching to energy-efficient appliances, lowering insurance premiums, or optimizing property maintenance expenses.
9. Review your Investment Loan
- By reviewing your investment loan, you may find the opportunity to refinance your loan at a more competitive rate. A seemingly small difference in interest rates can add up to a lot over time.
10. Regularly Review and Adjust Rent
- Annually review the rent in line with market trends and inflation. Incremental rent increases, while ensuring you stay competitive, will help improve your rental yield over time.
By applying these strategies, you can maximize your rental yield and ensure that your property investment remains profitable. There are other effective ways to improve rental yield, such as implementing some capital improvements to the property, a renovation or event setting up a low maintenance garden. These are many great strategies, but these are just some effective methods to consider.
How to source an investment property?
When sourcing an investment property, there are many opportunities that offer some excellent investment returns. There are many factors and fundamentals that should be considered to measure if the investment is best suited to you or not. Seeking advice from a property adviser (buyers’ agent) will be the best way to buy the right property for you.
If you’d like some assistance sourcing a brand new or off the plan property, please don’t hesitate contact us.
We would welcome the opportunity to help with your property purchase. Our YouTube channel and Market Insights also provide a wealth of information to assist you with many areas relating to property.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more, please contact us. We welcome the opportunity to assist you.
August 2024
