Property Newsletter – March 2019
Six key strategies to maximise your rental yields
With Perth’s rental vacancy rate reaching its lowest level in nearly six years and competition picking up amongst prospective tenants, we’re seeing increasingly optimistic signs for Perth’s rental market. Whilst these initial improvements are yet to translate into rental price movements across the board, these transitioning markets can be a crucial period for investors looking to better position themselves to leverage future market opportunities. With this in mind, here are some essential tips on how to maximise rental yields during a dynamic market.
Understand what’s driving tenant demand
It’s one of the fundamental principles of property investment that demand drives growth, and the rental market is no different. In order to achieve the best rental yields in any market conditions, it’s important to firstly understand the factors driving tenant demand. Target markets will often vary from area to area, so researching comparable properties in the local market is a good starting point when identifying potential features to boost your property’s own rental appeal. For instance, is there a premium on rental properties with built-in storage space or air conditioning units? Your property manager can be a great source of information when it comes to understanding tenant expectations, and a proactive property manager should be able to advise you on cost-effective strategies and value-add recommendations to enhance your property’s rental performance.
Keep up the appeal
In a transitioning market, not all property investors will be realising rental growth at the same time. However, in order to put yourself in the best position to leverage market opportunities, it’s important to look for ways to improve the immediate rentability of your property, while also enhancing its long-term appeal and performance. Making these changes proactively rather than holding off until your property is worse for wear could not only improve the appeal of your property to new tenants, but also maximise tenant retention by attracting renters that are more likely to view your property as a long-term solution rather than interim accommodation. Given the costs of replacing tenants and re-marketing properties on a regular basis, retaining good tenants can be just as important as achieving strong rental rates when it comes to maximising cash flow and achieving the best possible rental returns.
Set the right rental rate
It’s a common misconception in the real estate industry that maximising rental yields is synonymous with increasing rental rates. In reality, however, achieving the best results for your rental property often comes down to setting the right rental rate in the first place. Whilst increasing rents, when the market allows for it, is a great strategy for improving cash flow, doing so outside of market movements (or similarly not adjusting expectations in line with the market) can prove more costly for owners in the long run if it means facing lengthy vacancy periods as a result.
Consider including additional clauses in the rental contract
If you’re anticipating future improvements within the rental market but are yet to see a significant uplift in market rents in the area surrounding your investment property, your property manager might recommend including additional clauses in the leasing contract that will allow you to review or increase your rental rates further down the line. This is a great strategy to ensure your property continues to align with wider market movements, but it’s important to be cautious of excessive rent rises and the impact these might have on your relationship with tenants.
Proactively manage leases with seasonal influences in mind
Much like the wider sales market, rental demand will often fluctuate based on factors such as time of year and seasonality, with some seasons lending themselves to higher levels of tenant demand than others. As an owner, this may mean reducing your rental expectations in low-demand periods (such as during the winter months) to ensure your property is leased as quickly as possible and avoid costly vacancies. Whilst one or two-year leases are often considered the industry norm, timing lease renewals to fall in higher demand periods can help owners achieve higher rental yields and avoid untimely reductions that set their property below market rents.
Speak to a value-add property manager
As an investor, it’s important not to underestimate the crucial role property managers can play in maximising the performance of your property portfolio. A good property manager won’t just manage the day-to-day maintenance of your properties and handle tenant relationships, they will be able to make strategic recommendations to proactively enhance the performance of your properties. The right property manager can be an invaluable asset when it comes to identifying value-adding opportunities, understanding the local market, and recommending clauses to ensure your property remains aligned with market demand.
Momentum Wealth is a full-service property investment consultancy dedicated to assisting investors in all aspects of their property investment journey, from financing through to property acquisition and property management. Visit our website for more information on our property management services.
4 critical reasons why using a mortgage broker is more important than ever
Australia’s lending market has once again found itself at the centre of conversation in recent months, with the release of the final report from the Banking Royal Commission raising new uncertainties as to what the future of the lending environment might look like. Amongst other things, the report brought into question the role of the broking industry – an event which has since sparked overwhelming support for brokers on the part of both consumers and industry professionals, in turn triggering a revision of the report’s initial recommendations. In light of these events, we reflect on the fundamental role of mortgage brokers and why they are more important than ever in today’s lending environment.
Access to more products in a challenging environment
In a lending environment characterised by change and uncertainty, understanding the different options available has become critical for investors. Whilst lenders are typically limited to their own range of loan solutions, established brokers will generally have access to products from multiple different lenders (in some cases, as much as fifty), and will be able to compare these different products to identify the rates and features best suited to an investor’s unique situation and investment strategy. At a time when loan choice has been somewhat limited due to changing lending criteria and tighter serviceability metrics, this tailored approach can be crucial not only in ensuring investors have access to different options and are receiving the best lending solution for their current situation, but equally importantly in ensuring they have the flexibility they need to progress with their investment goals.
Loan structuring that supports your long-term needs
Whilst using a broker can impact the number of products available to you, who you choose to secure a loan can also hold key implications on the way in which your lending portfolio is structured. Whilst lenders will typically look to structure loans in a manner that mitigates risk for them, a good broker will look towards structures that minimise risk for the borrower. This can be crucial in helping investors avoid potentially restrictive and high-risk loan structuring models such as cross-collateralisation, ensuring they have maximum borrowing capacity to support the expansion of their portfolio in future.
With many buyers already facing reduced borrowing capacity due to tighter serviceability metrics, having the right loan structures in place and being able to access credit has become critical in helping investors progress with their investment goals. However, it’s important to note that even brokers can structure loans unfavourably if they don’t have the right knowledge and expertise to understand and support their clients’ needs. Engaging a specialist broker with a strong knowledge in investment finance can therefore be crucial in helping investors establish the right foundation to build a successful property portfolio.
Important advice when it helps
As an investor, how you interpret your financial capacity (i.e. your ability to afford repayments) won’t always align with the lender’s assessment of your financial situation. Lenders take into account a multitude of different factors when assessing a borrower’s eligibility for a loan, with income and living expenses really only scratching the surface. With banks undertaking significant reviews of their lending criteria in the aftermath of APRA changes and in the run-up to the Banking Royal commission, keeping up with market fluctuations and understanding how these changes impact borrowing capacity has become increasingly difficult for investors.
However, brokers work with specialist software on a daily basis that provides them with access to the latest information from lenders. These market insights enable them to provide support not just during the lending process, but also in the lead up to submitting a loan application. Whilst these insights themselves can prove invaluable in helping borrowers prepare for a loan, most brokers will also be able to carry out a pre-approval process to assess the likelihood of a loan submission being accepted, in turn preventing multiple loan rejections which could leave a bad mark on an investor’s credit record.
Ongoing support to navigate the changing lending market
Whilst the support brokers provide prior to loan applications has become incredibly important to many investors in today’s changing lending environment, it’s the ongoing guidance and advice provided by brokers during and after the lending process that has become pivotal in helping borrowers navigate the complexities of the modern lending market. From researching the market for the appropriate lending solution to following up with lenders and addressing issues throughout the submission process, brokers have come to play an incredibly important role in guiding borrowers through what has become an increasingly complex and hands-on process.
This support will often extend far beyond the transaction itself, with brokers in many cases playing a fundamental part in the ongoing optimisation of an investor’s property portfolio through regular loan reviews, cash flow strategies and proactive advice on market changes. This guidance can prove crucial not only in helping investors navigate the market, but in putting them in a better position to achieve their property wider investment goals in future
As specialists in property finance, Momentum Wealth’s finance division are dedicated to providing our clients with the advice, support and knowledge they need to progress with their investment goals. If you would like to discuss your property needs with one of our consultants or want further advice on the changes impacting the lending environment, our mortgage brokers would be happy to discuss your needs in an obligation-free consultation.
The big misconceptions about investing in real estate
As one of the most popular investment asset classes in Australia, property is an incredibly exciting industry to be a part of. However, the real estate sector can also be subject to a lot of misinformation. With such an abundance of advice and market news out there from different sources, deciphering useful advice from misleading information can often seem like an impossible feat, especially if you’re entering the market for the first time or investing in an unfamiliar location. In this article, we address five of the biggest misconceptions about investing in residential real estate.
Australia only has one property market
A lot of people will already be familiar with the concept of the property clock, but one of the most common mistakes buyers and market commentators make in the real estate industry is applying property market statistics to Australia as a single property market. This generalisation is something we often see in the media and news reports, but Australia is in reality home to a vast number of property markets, all of which are at different stages of their cycle and subject to different market drivers. Take Sydney and Melbourne as an example – whilst these capital city markets are both experiencing significant levels of decline after coming off the peak of their property cycles and entering their downswing phase, we’re actually seeing the opposite scenarios in Perth and Brisbane, with these markets at the bottom of their cycle and showing early indicators of recovery following a period of decline.
Whilst often impacted by the same national regulations (something which is in itself a subject of dispute amongst many property experts), it’s important to note that each of these markets and economies are also influenced and driven by different industries. For instance, whilst Perth and Brisbane are largely driven by the resources industry, which means their property markets tend to perform better when the resources sector is performing strongly, Sydney and Melbourne are largely founded on the financial industries. As such, the latter tend to be more influenced by movements in the financial sector, as was seen with the Global Financial Crisis and the negative impact this had on these capital city markets.
All properties move in the same direction as the market
In a similar vein to the property cycle, another frequent misperception in real estate is that when a market is growing (or indeed declining), all properties within that market will be behaving in the same way. However, whilst statistics such as median house price can be integral in providing an indication of the overall performance of a city and the direction in which a market is headed, they don’t necessarily reflect the performance of every single property and suburb within that location. Even within separate markets, individual sub-sections will be at different stages in their property cycle and experiencing growth at different rates.
Perth has been a prime example of this in recent times with the emergence of its two-speed market. Despite the overall perception that the market is in a state of decline (which is true of the median house price and oversupplied outer suburbs), areas of the city’s sub-regions have been recording price growth for over a year, due largely to rising demand from trade-up buyers. For this reason, it’s vital that buyers conduct in-depth research not just of a wider area, but also of individual suburbs and properties when looking to leverage market opportunities and (equally importantly) minimise their investment risk.
Sticking to what you know is always best
It’s often natural instinct to look towards areas you’re already familiar when investing in real estate. This can understandably be somewhat of a comfort zone for buyers as it will often feel like the safer approach given they already have a strong knowledge of these markets and their features. However, limiting property research to such a small radius can often lead buyers to miss out on better investment opportunities elsewhere. In fact, by the time investors have narrowed down their search to properties that align with their budget, expectations and wider investment strategy, they may be left with a significantly lower number of properties that actually meet their criteria. As tempting as it may be for buyers to stick to what’s familiar, expanding this search radius could help investors identify areas and markets with higher growth potential, and potentially find more lucrative investment opportunities as a result.
Property is a set and forget investment
Whilst it would be great to be able to purchase a property and sit back whilst that asset increases in value, this also isn’t a realistic approach for investors looking to achieve the best possible outcome from their portfolio. Realising the full potential of a property isn’t just about selecting the right asset in the first place (although this is incredibly important), it’s also about effectively managing and monitoring that asset to enhance the property’s performance and ensure it remains aligned with market demand.
Proactively monitoring the market for value-adding opportunities, managing tenant relationships effectively and identifying strategies to maximise a property’s rental yields are all crucial in optimising an investor’s portfolio and enabling them to make the most of market opportunities. However, this approach also requires time, in-depth market knowledge and detailed research – something which often isn’t achievable for buyers with other full-time commitments. Finding a property manager who understands and actively supports these needs can therefore be crucial in helping investors maximise the long-term value of their property and enhancing the performance of their overall portfolio.
Buying cheap is always a good way to enter the market
Purchasing a cheap property to enter the market can be a very tempting strategy for first-time buyers or novice investors. However, whilst budget is a crucial factor to consider, purchasing a cheap property to get into a “better” suburb or enter the property market sooner can also be a risky approach, and one that won’t necessarily pay off in the long run. These “bargain” deals may seem great on the surface, but it’s important to remember that in most cases, a cheap property is cheap for a reason – because that’s what buyers are willing to pay for it. In many cases, this lower price point can also signify a wider problem with a property – perhaps noise pollution and traffic from a nearby highway, or lack of demand from buyers and tenants. Whilst purchasing a property within one’s means is incredibly important, it’s vital buyers also consider factors such as local supply, rental demand and nearby growth drivers to ensure they’re selecting a property that also supports their wider investment strategy.
Identifying the right advice amongst all the information that surrounds the property industry can be challenging for buyers. However, surrounding yourself by the right professionals and engaging a team with an in-depth knowledge of the local market can help you navigate these complexities and ensure you’re making informed investment decisions that support your long-term goals.
If you would like some expert advice on your next property investment or would like more insights on the topics discussed above, contact our team to organise an obligation-free consultation with one of our property investment specialists.
Momentum Wealth successfully settles iconic Trigg site in latest syndicate
Momentum Wealth is delighted to announce we have settled on the acquisition of 331 West Coast Drive in Trigg following the successful raising for our newest property development syndicate.
Currently occupied by the iconic Yelo Café, the 684sqm site is zoned ‘Local Centre’, with plans underway for a mixed-use development incorporating a commercial tenancy on the ground floor and a limited number of luxury apartments above.
The high level of investor interest received during the raising has served as an indication of growing demand for premium boutique projects in key locations across Perth, as investors continue looking for high-quality projects and investment opportunities that stand out and align with the appeal of the local market.
We have also observed increasing interest in residential property development syndicates amongst investors as they continue to be attracted by the benefits of being able to access high-potential projects and reduce risk.
The recent acquisition plays a key role in our strategy to address rising demand for more diverse housing choice in highly sought-after locations, in particularly boutique apartment products targeting downsizer markets where such housing options are in sparse supply.
A strong holding income from the existing tenancy and the prime coastal location of the site also served as key points of interest during the acquisition process.
News of the development has already resulted in a number of early enquiries from potential buyers, continuing to reinforce the appeal and viability of such projects from both a buyer and development perspective.
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