How To Maximise Rental Returns of Investment Properties
In my career, I have often been asked what kind of properties I associate with high rental returns. While there is no conclusive answer to this one, I feel that properties in good neighbourhoods of inner suburbs will never deceive you in terms of rental returns. This despite the volatility of the market!
Median priced properties in inner suburbs
The idea is to purchase median priced properties and hold on to them “till the cows come home”. This way, you will be able to ensure capital gains as well as high rental returns. This might happen over different phases of the property cycle but come to think of it, high rental returns can be an ongoing thing unless the sword of “high vacancy rate” falls over you.
Lack of supply keeps vacancy rates very low
To offer a counterpoint, high vacancy rate is not synonymous with the inner suburbs because such areas are marked by lack of supply. Those vying for rental homes in inner suburbs are generally working professionals who want to live close to their workplace. In addition, they hope to commute without much difficulty. These people also want to enjoy the cafe culture, shopping dens, and lifestyle amenities.
Now, keeping all this in mind, it is not hard to connect the dots. These are professionals with enough money in their bags to contest their case and they do not mind paying above-market rental rates. Of course, to reiterate, the supply being as low as it is in these areas, and working professionals rooting for it the way they do, the possibility of high vacancy rate is…..well, you coin your term, I will prefer to say ‘Zilch’.
Good for making capital gains, too
Not only does these areas solve the rental return puzzle but also give you a fair amount of capital gain when you finally choose to sell off these properties. To come back to the central idea of the article, allow me to recommend you a couple of ways to maximise your rental returns.
Due Diligence can earn you high rental returns
Research as much as you can about the house/unit equation. Historically (and keep the context pretty recent), what have people loved to pay for- a detached house or a unit and where in relation to the median price have they been prepared to go in both the cases? For instance, may be tenants/buyers have been ready to pay 20% above median for detached homes but way below the median for units.
I also feel that areas which are pretty proximal to the CBD, preferably within the 5-15 kilometre radius, fare a lot better than other areas in terms of the rental rate they command. So you know where to look for!
What is on your wishlist when you rent a home?