Five signs your rental property is underperforming

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With Perth emerging as one of the fastest growing rental markets in Australia, many investors may be wondering how their own portfolio performance is stacking up in the context of this broader market growth. While rental increases can certainly play an important part in driving performance in the right market, there are also a number of additional factors that come together to influence the overall returns, and health, of your rental property portfolio.

So, what are some of the tell-tale signs that your portfolio could be underperforming?

1 – You don’t regularly review your rents

Rental income is undoubtedly one of the most essential elements of your portfolio’s performance, both in terms of optimising cash flow and also maximising your long-term returns. No matter the current state of the rental market, it’s crucial that you’re taking regular opportunities to review your rental rates to ensure your property remains aligned with market conditions. When the market is more competitive – as it is now – then it is important to consider your rental price and whether it needs to be realigned with the growing market. Conversely, as the rental market cools it is equally as important to adjust your rents in order to avoid costly vacancy periods.

Many investors only review rents when an existing tenant vacates (which in some cases can be upwards of two years); in an improving market especially, this could mean missing out on valuable rental returns and growth for a significant period of time.

2 – You don’t do any proactive maintenance

Many property investors think of maintenance as simply fixing issues when they arise. However, one of the biggest cost drainers for investors, and a significant hindrance to rental performance, comes from not proactively looking after a property. Performing proactive maintenance is an important aspect not only in ensuring steady cash flow, but most importantly in preventing unexpected and costly issues that could diminish your rental returns. In addition to regularly inspecting the property for signs of wear and tear, your property manager should also be encouraging you to opt into regular servicing for items such as cleaning of gutters and timber pest inspections, as well as compliance checks of safety items such as RCD and smoke alarms. The small fee for maintaining these items on an ongoing basis will be a lot more favourable than the larger sum you may need to pay for non-compliance, or the expense you face if a small issue (for instance a minor leak) is left unattended and escalates to cause significant damage.

While rental prices have been rising in Perth, so too have the expectations of tenants. Our team are beginning to notice that prospective tenants are demanding nicer finishes and better maintained properties as their expectations rise in conjunction with rental prices.

3 – You don’t have a value-adding strategy in place

While reviewing the existing condition of your property is an important step in maximising portfolio performance, many investors overlook the impact that proactive value-adding can have on their rental returns. A good property management strategy should go beyond simply maintaining a property, to actively identifying opportunities to enhance value, whether this be through improvements to the property, or additions to capitalise on local market demands (for instance, do properties with more storage space demand a higher premium?) Of course, there are many ways to invest money into a property without actually enhancing its value, and tenant demands will often vary based on the demographic of individual locations. To avoid overcapitalising on improvements that won’t pay you back in returns, it’s important to work with a property manager who has strong local area knowledge to identify improvements that are going to provide maximum value for money.

4 – You haven’t reviewed your finances in the last 12 – 24 months

In addition to rental income, your ongoing loan repayments form another key element of your property’s outgoings. Importantly, you don’t want to be overlooking opportunities to reduce your property’s holding costs – something that could become even more important if you’re anticipating a change in income, or an increase in your repayments, perhaps due to the expiry of an interest-only period. The lending market in Australia has changed dramatically in the last 18-months and as an investor you need to work together with your finance broker and property manager to navigate these changes. Reviewing your loans on a regular basis will help you identify opportunities to optimise your portfolio’s cash flow, better positioning yourself for growth.

5 – You haven’t got any special conditions in your lease

Risk mitigation is a crucial aspect of maximising rental performance. Not only does this involve keeping on top of maintenance, but also ensuring you have the right lease clauses and policies in place to protect your property and mitigate unnecessary expenses. While industry standard conditions will cover some of this, there are other additional clauses which you may want to consider including in your lease to protect against other common problems. Some key examples include mould due to lack of ventilation, damage to walls from the use of adhesive materials and damage to floorboards from lack of proactive coverings under furnishings.

Free rental performance review

As the property market continues to change, it’s important that your rental strategy is adapting with it. If you’re wondering whether your property is performing as well as it should be, we’ve designed a short, ten question survey to identify how your property is tracking against key rental performance indicators.

Take the survey here for feedback on your property’s performance.

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