The age-old debate between capital growth and cash flow has long dominated property investment discussions. However, savvy investors understand that a harmonious combination of both strategies can unlock the full potential of their investment properties. Here, we explore the art of achieving high rents, high capital growth, and the critical factor of timing when navigating market booms.
The Power of Timing:
Timing is a pivotal factor that can significantly impact the outcome of a property investment. Purchasing a property at the right moment, particularly during the early stages of a property market boom, can yield superior rental returns and capital growth.
Early-Boom Advantage:
When investors enter the market at the start of a boom, they often benefit from an emerging wave of demand, driving rental prices upwards. This early advantage can lead to cash flow-positive properties from the onset, as strong demand allows landlords to charge premium rents while maintaining high occupancy rates.
Capitalising on Capital Growth:
Moreover, investing in a property during the initial phase of a market upswing allows investors to ride the wave of capital growth. As demand intensifies and supply diminishes, property values tend to escalate, resulting in substantial capital appreciation over time.
The Market Dichotomy:
It is crucial to recognise that property markets can be heterogeneous, with varying stages of boom or bust across different regions. While one market may be entering a boom, another might be on the cusp of a downturn. Thus, understanding market dynamics and identifying areas with favourable conditions is vital to achieve the optimal balance of cash flow and capital growth.
Extensive Research:
Informed decision-making hinges on diligent research. Investors must seek analysis on market trends, economic indicators, population growth, and other pertinent factors to identify locations that offer the potential for both high rental yields and capital appreciation.
Diversification:
Mitigating risk through diversification is a prudent approach. Allocating investments across regions with diverse market conditions can help balance the portfolio’s overall performance and safeguard against the fluctuations of a single market.
Maximising Rental Yields:
To achieve the goal of high rental yields, investors must adopt a proactive and informed approach. Here, there are several key strategies that can be employed to maximise rental yields::
Corporate letting – the golden goose
Unlike Airbnb or Stayz, involves professionals who rent the property for weeks or even months at a time, typically for work-related travel.
This type of accommodation is preferred by businesses for relocating employees or specific business travel needs. Corporate apartments are fully furnished and managed by specialised corporate accommodation agents to cater to longer-term stays, corporate relocations, executive accommodation, and temporary housing requirements.
Investing in corporate let properties can yield impressive gross yields of 9% to 12%. For instance, if you purchase a property for $500,000, the annual gross rent could reach as high as $45,000 to $60,000. Moreover, corporate letting is often favoured by Strata managers as it reduces the risk of disruptive “party houses” typically associated with short-term holiday rentals like Airbnb.
Professionally managed short-term stays
For those seeking even higher returns and willing to explore short-term leasing options, enlisting the services of a professional short-term property manager like Airbnb or Stayz can be advantageous. A specialised manager ensures your property is cleaned after each stay and employs professional property marketing strategies.
If you are interested in short-term leasing but lack the time to handle logistics such as cleaning and inspections, hiring an Airbnb management company can be a suitable solution. These specialists take care of property marketing, listing on multiple platforms, cleaning, linen services, regular inspections, maintenance tasks, and dynamic pricing to maximise returns.
However, it is essential to recognise that earning money from short-term rentals like Airbnb may take time to build up, as it relies heavily on your reputation as an owner. Additionally, the initial costs can be higher, as you are expected to provide high-quality furniture, decor, appliances, amenities, as well as Cable TV and Wi-Fi.
Housing of multiple occupancies (HMO)
Another option for achieving impressive yields is investing in Housing of Multiple Occupancies (HMO). HMOs are specialised properties with shared common facilities, where multiple family units or individuals coexist. In Australia, HMOs typically consist of 4 to 6 bedrooms, each with their own ensuite, kitchenette, and small living area, similar to a hotel room. The kitchen, living, and dining areas, laundry, and outdoor space are shared among all occupants.
HMOs offer significantly higher yields as you effectively lease to 4 to 6 different households. For example, a 5-bedroom HMO property priced at $850,000 could generate a gross annual income of $78,000 (averaging $300 per room per week), resulting in an impressive gross yield of 9.2%, surpassing the long-term rental yields seen in most capital city markets.
Conclusion:
The notion that investors must choose between high rents and capital growth is no longer an ironclad rule. With the advent of rental yield optimisation strategies, it is now feasible to achieve both remarkable rental income and significant property growth. Embracing this paradigm shift can lead to a high-performing investment property that thrives in the competitive real estate landscape, making it a game-changer for astute investors seeking clear and impactful success.
Why not reach out to the expert team at inSynergy and unlock the potential of your property investments? Don’t miss the chance to speak with a dedicated property wealth planner who will guide you through tailored solutions to achieve your investment goals. Contact us here.