When I raise my rental income, I do it with my eyes closed. The minute I look in my tenant’s sad, watery eyes, I end up feeling like a war criminal. Or maybe I’m just lying, and won’t admit I’m a spineless wuss who backs off when they threaten to “leave and set fire to this dump”. (Hint: I go there with a fire extinguisher). But both ways suck, so how do you maximize your rental yields?
So for another $500 a month, the front door will actually lock?
The Three Methods
There are three methods for a landlord to maximize rental yields.
- Raise Rental Income (Difficult)
- Decrease Vacancies (Somewhat challenging)
- Decrease Overheads (Easiest of the three)
The third method should be constantly reviewed. You want to be keeping overheads down all the time. Here’s some pointers on each of the three:
1. Raising Rental Income
There’s plenty of ways to raise rental income. Exactly zero of them are easy.
It usually involves high capital expenditure, because it means splurging on upgrades and extras. And there’s no guarantee what the returns will be. Some ways to raise rental income are:
Just Raise the Rental
Straight up ask the tenants for more money. Because you’re in this to make money, not friends.
Before doing this, check rental rates in surrounding properties. You might get away with charging more than other landlords, if you have the right justifications. But frankly, even charging 10% more is a major challenge. Getting money from tenants is like pulling teeth from a live tiger.
If you don’t have time to research and bargain, consider getting a property agent to do it for you. At the very least, get them to run a rental appraisal.
The right renovations could raise rental income. But this is hard to quantify. I can’t tell you, for instance, that marble counter-tops will raise your rental income by $X per month.
Most renovation packages cost about $30,000. If the designer has an unpronounceable or vaguely French name, it’s probably triple that. So even if renovations do raise your rental income, it might be a while before the rent covers the design costs.
I asked property investor Charlie Sng about renovations:
“You can raise your rental income by providing a fully furnished unit. So go for an inexpensive design, one that provides all the tables, chairs, cupboards and whatnot. But don’t go overboard. No point paying $100,000 for a top designer, because there’s a cap to how much rent you can charge. I think a lot can be done with $20,000.”
Charlie says a “nicer” unit could have higher rental rates; up to 10% higher than surrounding properties. But again, no guarantees.
Upgrade to Match Tenant Needs
Protip: Avoid tenants who use words like “splatter-proof”.
You can do this if you know your tenants’ demographic (e.g. Are your tenants mostly students in a nearby University? Expat white collar workers? Blue collar workers?)
Try to include features that demographic will appreciate. Property agent Marcus Seet says:
“Students tend to appreciate things like Wi-Fi or cable channels. Retirees not so much. So if I know I have good catchment for that demographic, I might consider bearing the cost of such things.
In the last unit I rented out, the owner left his Xbox and games library there for the student tenant, which was much appreciated!
I might be able to charge higher rental rates, which more than compensates for the small extras. At the very least, it might reduce vacancies.”
2. Decrease Vacancy Periods
Vacancies create huge dents in rental yield. Fortunately, these aren’t common in Singapore; we’re land scarce, so most landlords have hordes of prospective tenants.
But some people, you know…they can’t find a heat stroke in a desert. So these methods are for them:
Lower the Rent
It might seem paradoxical. But let’s put it this way:
Say your property’s rental value is $4,500 a month, but you can only get tenants at $4,000 a month. Maybe nearby construction work lowered its value. So you lose $500 a month, and that sucks.
But if you insist on charging the full rate, and get no tenants, you’re losing $4,500 a month. A single vacant month would do more damage than nine months of undercharging. So while it hurts to lower the rent, it’s worse if you don’t.
Brace yourself for the occasional need to do it.
Maintenance is Key
Never skimp on maintenance. Charlie Sng explains why:
“I can tell you that if a place looks like the dog house, even if you lower the rent tenants will not want it. If I offer you cheap rent, but the place is run down, the taps are rusty, the toilet is disgusting… will you take it? If you are like most tenants, you will say forget it, I rather spend more and be comfortable. They have to sleep there you know! I find the most important things are the front door, working power outlets, the air-con, and simple cleanliness. Every year I will re-polish the surfaces, and I don’t allow for any cracked tiles. If you don’t spend to maintain, you won’t even have tenants. What rental yield?”
Charlie adds that older resale flats, despite their good location, tend to have higher maintenance needs. Newer units require fewer replacements and upgrades.
If you’re renting out a condo, you’ll need to evaluate the management committee.
3. Decrease Overheads
The lower your home loan repayments, the higher your rental yield. You might consider refinancing into a cheaper home loan, especially if you foresee vacancies or drops in rental value. Another way to lower overheads is to control maintenance costs.
For example, using paint instead of wallpaper: If the wallpaper peels, and you can’t find something similar, you’ll have to strip it all off the walls and lay a new pattern. With paint, it’s cheap to paint over peeling patches.
Likewise, using wider tiles can mean less grouting (the spaces between tiles) to clean. For more such information, raise your maintenance concerns to a contractor or an Interior Designer.
Source : Yahoo