How to Reduce Overhead Rental Costs
Australia’s property market has reached a new milestone, according to CoreLogic’s October Monthly Housing Chart Pack; the total value of residential real estate climbing to $11 trillion for the first time, increasing by $900 billion over the past 12 months.
While CoreLogic Australia Economist Kaytlin Ezzy attributed the slowdown in price growth to increased listing volumes and more cautious buyer behaviour, investors represent a significant proportion of the strong buyer demand, making up 38.6% of new loan commitments, the highest share since 2017.
Ms Ezzy said the high investor activity is likely due to a combination of factors, including perceived opportunities for capital gains and tighter rental market conditions driving potential yield growth.
“Along with capital gains, some investors are recognising the potential for long-term rental income growth, even as rental yields compress,” she said.
Essential for potential long-term rental income growth is minimising the overhead costs.
There are some overhead costs which you cannot reduce, such as council tax or strata fees. However, there are some areas you can review that can help minimise costs in both a direct and indirect way.
Here are some of them.
Evaluate variable costs
One of the first steps to reducing overhead rental costs is to evaluate and control variable costs associated with managing rental properties. These include:
- Maintenance and repairs: Regularly assess the condition of the property to address minor repairs before they escalate into costly issues.
- Review insurance policies: While insurance is a necessary expense for any property investor, it is worth reviewing your policies annually to see if you need to adjust your coverage based on changes in the property market or property value. Shop around multiple specialist insurers to find competitive rates without reducing your coverage.
Capitalise on tax-deductions
As well as the fixed costs associated with an investment property, other costs such as advertising cost may also be claimed for.
Depreciation is often overlooked, and can apply to older properties too. Consider obtaining a depreciation schedule from a qualified accountant or quantity surveyor.
If your taxable income is quite high, so property investors use the Negative Gearing strategy. This allows them to deduct any losses made on a rental property against their taxable income, thus reducing the overall tax burden.
We strongly advise you consult with a specialist tax professional to ensure that you are making the most of your financial situation.
Review borrowing expenses
While this is a tax-deductible expense, it is worth reviewing your mortgage and shopping around for a better deal when your mortgage is up for renewal.
Competitive rent
While you do want a rental income, your rent should be at a competitive rate to attract tenants; if your rent is above the current going rate for your type of property, potential tenants won’t apply, and your property will sit empty for longer periods of time.
While tenants do expect periodical rent rises, it must be in line with current legislation; You can increase rent once in a 12-month period for fixed terms less than two years, and it needs to be fair and within reason. For instance, you may have done some additional repairs and maintenance that have added value for the tenants.
It’s also worth considering whether an increase in rent may cause your tenants to move elsewhere – in which case, you’ll be faced with costs associated with finding new tenants, and your property being sat empty.
Use a Property Manager
Some may argue that you can save costs by self-managing, but how much is your time worth? Have you really got time to do the work associated with property management? And if you’re not on top of the latest legislation, or maintenance issues, it can be costly.
As members of Real Estate Institute of NSW, our team is across real estate best practice and the latest legislation. As well as regularly inspect your property, and ensure you are on top of essential maintenance, we also maintain a good working relationship with tenants, meaning tenants tend to stay for longer periods of time in the properties we manage.
Our management team consistently outperforms our competitors; because of our marketing and property management strategies, our properties are leased in well under the average time period of other agencies in our area, and our vacancy rate is frequently under the REI average.
We also have strong relationships with reliable quality local tradespeople, ensuring any maintenance is done to a high standard.
Our family run business has been in the business for nearly 50 years; we treat each and every one of the properties we are entrusted with like our own, and we are constantly looking for ways to get the best out of the properties we manage.
Find out more about our property management services – give us a ring on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or call into our Cardiff office.
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