During uncertain economic times it is not only cost-cutting saving tips that we should be exploring, but more importantly, how we can make smarter choices to increase our income, profits or return on investment (ROI).
A ROI is simply the ratio of a profit or loss made in a financial year that is expressed as a percentage.
Most investors would agree that, over time, an average annual return of 5 to 12 percent on your passive investment dollars is good, and anything higher than 12 percent is excellent.
ROI = Net Profit / Total Investment * 100
For example: If you invest $15,000 on improvements to the property that results in a $50 rent increase per week the ROI on would be 17.3%.
Calculation: $50 rent increase x 52 weeks = $2,600 / $15,000 * 100.
When planning to improve your property, always take into consideration the ROI prior to investing your money.
A few simple changes can make a big difference.
1. Tidy and improve the external appearance of the property by weeding lawns and gardens, mulching, trimming back trees/shrubs and replace the letterbox
2. Paint the roof and front fence
3. Sugar soap the walls
4. Re-grout tiled areas
5. Replace kitchen cupboard doors
6. Invest in a hot tub
7. Replace floor coverings
8. Install heating/cooling system
9. Upgrade appliances
- Add an additional room extension to the property
There are lots of ways that you can increase your income (weekly rent), profits and ROI. But remember, spending money on your investment property does not always equal and increase in the weekly rent or produce a return on your investment. Sometimes, improving the property is simply to keep it up to date with market standards.
Take the time now to calculate a couple of ROI improvements.
THE 30/70 RULE – IT IS JUST A GUIDE *
When processing a rental application for a rental property, we are often asked “What do we take into consideration when assessing a tenant?”, which can be several different factors, including:
- The tenant’s ability to maintain the property in a clean and tidy condition
- The tenant’s ability to submit documentation to support and validate their application, such as employment, previous rental, personal or other references, bank statements, ID verification documents, and most importantly:
- The tenant’s ability to maintain regular rental payments
To determine the tenant’s ability to maintain regular rental payments many experienced and professional property management agencies are adopting the 30/70 rule (similar to a bank’s 30/70% rule) where you take into consideration the household total net income, and then apply the 30/70 rule where the reasonable amount of rent the tenant could afford (with some exceptions*) is 30% of the net income.
For example: The total household income is $2800 per week. 30% of the net income (or affordable weekly rent) is $840 per week.
As your managing agent, it is our responsibility to assess and collect the tenant’s documentation, so that you can make an informed decision on the best tenant.
Choosing the right tenant from the outset, is important to reduce and avoid any ongoing tenancy breaches and disputes.
* There is always the exception to the rule, taking into consideration varying living expenses and market conditions.