Investors need to shift their mindset: Aviate Group

Investors need to shift their mindset: Aviate Group
Investors need to shift their mindset: Aviate Group

Taking a close look at the Australian Taxation Office’s recently release statistics, Aviate Group managing director Neil Smoli has said that investors need to fundamentally shift their mindset.

Pointing to the 1,895,775 property investors, he noted that 73% have one investment property, 18% have two, 5% have three, 2% have four, 1% have five and 1% have six or more.

“This breakdown is especially significant when you consider that just 1% of the population retires financially free. This means their investments are sufficient to provide the income they require for their retirement without the need to sell assets or rely on family or government assistance,” Smoli said.

With investors increasingly buying into the market, with an extra 84,601 in 2011/2012, he forecasts that in 2012/2013 the numbers should break the two million mark.

“The correlation between the number of Australians who retire financially free and those with a portfolio of five or more properties is more than coincidence. The lesson from these statistics is clear: those in a position to do so should not postpone a decision to invest in their own future,” he said.

He said that a common situation is that many investors who purchased in 2010 are now preparing to sell.

“While most would have purchased their investment property with an eye on the long term future, the fact so many are preparing to sell indicates that the proper due diligence was not taken into account at the time of purchase, relative to the investor’s individual circumstances,” he explained. This may be due to what he considers to be investors buying the wrong property.

The property may have become too hard to hold, however exit and entry costs in real estate are substantial.

“Where an investment property becomes too difficult for the investor to hold in the short term, so much so that they decide it’s easier to sell up and move on, this is symptomatic of the wrong criteria being applied to its acquisition,” he said.

“Some investors in choosing certain properties actually do the hard work – the heavy lifting so to speak – only for subsequent investors to swoop along and reap the benefits. It’s a scenario that’s very common and it occurs when investors purchase a property that causes them a financial struggle.”

He concedes it is often the case that properties become arduous to hold when the rent achievable does not yield an adequate return, leaving the investor paying out hefty funds to cover holding costs. He suggests looking at ways to boost the yield before selling or to get the property tenanted, rather than having a mentality that suggests selling straight away.

Turn the page for Property Observer’s rental yield boosting tips. 

For the full article on boosting your rental yield, including tips on minimising expenses and understanding your yield, read here.

Five tips for boosting your rental return.

However, there are reasons why you can increase the rent beyond natural increases in the market. For instance, you could consider one of the following:

  • Improvements

    A renovation or partial renovation, addition of an air conditioning unit or other outlay can be worthwhile to a tenant. They may be willing to pay more for this change.

    It’s worth getting your property manager to speak to your tenant, as well as doing a quick search as to the difference between your property and that asking a higher rental price.

    Are there any areas that you can easily improve? Consider adding bedrooms and bathrooms where possible for a potential uplift in rental return.

  • Adding another dwelling

    For investors in certain areas, this will be more possible. Those with houses, particularly in outer suburban areas, could consider adding a separate dwelling – such as a granny flat – that can then be rented out separately. Of course, this comes with its own combination of difficulties – such as a reduction of rent on the main house and, potentially, a higher vacancy rate.

    There can also be a hefty outlay to get a decent build. Here are some pros and cons of this strategy.Some swear by this strategy, while others remain sceptical.

  • Renting the property to multiple tenants

    Another option is to consider renting the home to a number of properties, perhaps on a room-by-room basis. While this, again, can see higher turnover and higher levels of wear-and-tear, and arguably a lower-quality tenant, you may see it give you the rental yield uplift you desire.

  • Consider turning the property into a holiday rental

    This is not going to be effective for all property owners, however those with a property in an appropriate holiday area with strong demand may find that the high returns available over the holiday period can push their yield up overall.

  • Furnishing the property

    This is, again, not a strategy that suits every rental. However, in areas where there is demand for furnished properties, it may suit to deck-out the property yourself. Specific tenants, particularly in shorter-stay locations, are willing to pay a premium for the property to be ready for an immediate move in.

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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