With interest rates rising considerably and inflation at a three-decade high, now more than ever it’s important for investors to look at ways they can increase the yields they are achieving on their investment properties.
Gross rental yield is the annual income generated from rent as a percentage of the property’s value. The higher the rental yield, the higher the cash flow which can then be used to build your buffer, invest in further high yield, high growth property, or contribute to living expenses.
Vacancy rates are at historic lows (1.3% in Sydney and as low as 0.5% in Perth) and rents are relatively high. With the re-opening of Australia’s borders and international migration returning, and low supply of new housing stock, the rental market will remain tight for the coming years.
Corporate letting – the golden goose
Corporate letting is different to Airbnb/Stayz in that the tenants occupying the property are generally professionals travelling for work and are letting the property for weeks if not months at a time.
Corporate accommodation is favoured by businesses that are relocating employees or have specific business travel needs. Corporate apartments cater for the needs of longer-term stays, corporate re-location, executive accommodation, and temporary accommodation. These properties are fully furnished and managed by a specialised corporate accommodation agent.
Gross yields on corporate let properties can be as high at 9 – 12%, that means if you buy a property for $500,000, your gross annual rent could be as high as $45,000 – $60,000. Corporate letting is often seen as more favourable by Strata managers as it reduces the risk of ‘party houses’ created by weekend revellers and short-term holiday lets such as Airbnb.
Professionally managed short-term stays
Engaging a specialist short-term specialist property manager such as Airbnb or Stayz to manage your investment property can be another way to generate higher returns over standard residential leasing. Advantages of using a professional manager include ensuring your property is cleaned following each stay and providing professional property marketing.
If the thought of having a property short-term leased and potentially achieving higher returns appeals to you, however you don’t have the time to organise cleaners or inspections yourself, engaging a specialist Airbnb management company could be the solution.
A specialist Airbnb manager will take care of all aspects of managing your property including professional property marketing, listing on multiple platforms, cleaning and linen services, regular property inspections, any routine or one-off maintenance items and dynamic pricing to achieve higher returns.
On the downside, it may take a while to start earning money from Airbnb, since bookings come largely from your reputation as an owner and your costs may be higher, as you’ll be expected to supply high-quality furniture, decor, appliances, and amenities as well as Cable TV, Wi-Fi, and more.
Housing of multiple occupancies (HMO)
HMO’s are specialist properties with shared common facilities (kitchen, living areas, laundry) that are shared by multiple family units or individuals. In Australia these usually consist of 4 – 6 bedrooms with their own ensuites, kitchenette and small living area – similar to a hotel room – with shared common spaces for all occupants to use; the kitchen, living and dining areas, laundry and outdoor space.
HMO’s achieve significantly higher yields as you are effectively letting to 4 – 6 different households. For example, an HMO property with 5 bedrooms and a purchase price of $850,000 could achieve a gross annual income of $78,000 (averaging $300 per room per week), giving a gross yield of 9.2%, significantly higher than any long-term rental yields currently seen in capital city markets.
Location, location, location
In Sydney, the gross yields are 4.09% for units and 2.83% for houses Vs a market such as Perth which is just starting to boom where gross yields are 6.1% for units and 4.2% for houses. This shows how significantly buying properties in markets at the right time in their cycle, with projected high capital growth and high rental yields will increase your cashflow.
Yields this high also substantially increase your borrowing capacity to the point where you could buy another $500,000 property with the increased borrowing capacity which could then result in another $20,000 positive cash flow. So, not only do you get the positive cashflow from the first property you get the positive cashflow and capital growth of the second property you otherwise wouldn’t have been able to own. You can then live off this added income or use it for debt reduction. This is as close to the holy grail of investing as you can get.
With the foresight of inSynergy’s industry-leading research, we’ve been helping our clients invest in high-growth, high-yield properties for years. If you’d like to know more about which suburbs and properties are leading the growth and obtaining the highest rental returns, please get in touch for a no obligation chat.