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While rental increases are crucial in driving performance, several other factors influence total returns and the overall health of a rental property portfolio.
Amid a changing rental market, investors are encouraged to be proactive in adapting their strategies to current market conditions in order to avoid risks and maximise returns.
Momentum Wealth enumerates five elements to review in order to gauge portfolio performance and ultimately get the most out of a rental property investment:
1. Rental income
Instead of reviewing rents only when an existing tenant vacates, investors are strongly encouraged to do a more regular checkup and ensure they are aligned with market conditions in order to optimise cash flow and maximise long-term returns, according to Momentum Wealth.
Whether the market is hot or cooling, one needs to be able to adjust accordingly to avoid costly vacancy periods, it added.
Failing to do any proactive maintenance could be one of the “biggest cost drainers” for investors in the rental market, because this could mean facing unexpected and costly issues in the future that could ultimately eat up their rental returns.
With the help of property managers, investors are advised to regularly inspect for wear and tear and opt into regular servicing for items such as gutter cleaning, timber pest inspections and compliance checks of safety items such as smoke alarms.
While this could mean an additional cost, the small fee would be a lot less detrimental to rental returns than the larger amount that investors may end up paying for non-compliance or an unattended problem that ultimately escalates to cause significant damage.
Doing proactive maintenance may also address the higher expectations of tenants, who are now demanding nicer finishes and better-maintained properties amid rising rents, Momentum Wealth said.
3. Value-adding opportunities
Investors should also be on the lookout for opportunities to add value to their properties in the form of improvements and additions that capitalise on local market demands. This could mean anything from more storage space to a granny flat – depending on what would attract a higher premium in a certain market.
To avoid overcapitalising, Momentum Wealth encouraged working with professionals with strong local knowledge in order to gauge tenants demands and identify improvements that could provide maximum value for money.
4. Loan repayments
Apart from doing regular reviews of rental income, investors should also be aware of their financial outgoings to avoid penalties, identify opportunities to reduce holding costs and optimise cash flow.
This, Momentum Wealth pointed out, could be particularly crucial in the event of an anticipated change in income or an increase in repayments, as well as in the midst of a “dramatically” changing market. Therefore, rental property owners are advised to work with their finance broker and property manager to come up with strategies that could best help them navigate these changes.
5. Risk mitigation
Finally, Momentum Wealth said investors should stay on top of overall risk management – from maintenance to lease clauses and policies that could help them protect their property and avoid unnecessary expenses.
Apart from industry standard conditions, other additional clauses that they can include are “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”.