Todays article addresses the concept of how to turn a negatively geared property into a positively geared property and focuses on two simple strategies.
The first way to make your property cash flow neutral or cash flow positive is to reduce the expenses associated with holding a property.
The second thing you can do to turn a negatively geared property into a positively geared property is to increase your income.
Reducing the expenses associated with holding a property
The first thing you can do when assessing whether or not your investment is making you money or losing you money, is to look into the amount of money you are spending on the property each week, month or year.
There are 4 simple ways to reduce your expenses including:
- Switching your principle and interest home loan to an interest only home loan.
The easiest way to reduce the expenses associated with holding an investment property is to make the switch from paying principle and interest on your loan to paying interest ONLY.
It’s important to speak to your accountant or financial advisor before making any major changes in regards to the way you repay your loan.
Principle and interest payments per annum on a $400,000 loan:
$400,000 x 5% = $20,000 + $7000 (principle) = $27,000 p.a.
Interest only payments per annum on a $400,000 loan:
$400,000 x 5% = $20,000 p.a.
- Re-assess your interest rates
With the record low interest rates we are experiencing at the moment, you may find that you are paying much higher interest rates than you need to.
A lot of investors don’t do the necessary due diligence when it comes to getting the right interest rate and often settle for whoever is willing to lend them the money at the time.
You may find that if you go and speak to a mortgage broker, there are savings to be made on your current interest rates. They can compare the market on your behalf and find the best available rates for your loan. This simple review could end up saving you hundreds or thousands of dollars per year.
- Property Manager Fees
Another way you can potentially reduce the expenses associated with holding your investment property is by assessing the property manager fees you are paying and negotiate a lower rate.
A reduction in rates of 1 to 2 % may only be a saving of $5 or $10 per week, but added up could be the difference between your property paying for itself, or costing you money each month.
Simple ways of negotiating with a property manager can be asking to reduce the fees, or cutting advertising and administration costs.
- Tenant Paid Water Rates
A trend that is becoming increasingly popular is encouraging your tenants to pay their water. In the past its been common for an owner to cover water rates, while the tenant pays for electricity and other costs.
Getting your tenant to pay their water bill is a smart way to minimize the expenses on your investment and can save you hundreds of dollars per year.
Increasing your income on your property
The second way you can turn a negatively geared property into a positively geared property is to find a way to increase the rental value of your property.
This can be done a number of ways – its actually quite simple to increase the rent on your investment property.
- Are my tenants paying market rates?
This is the first question you need to ask yourself.
If your not sure what market rate is – ask your property manager. Find out what comparable houses in the area are renting for, and ensure you are making the most income possible out of your property.
There is a difference between being greedy and fair, but there is no reason why you cant increase the rent on your property, as long as it’s a fair market rate.
- What can I do to increase the rental value of my property?
There are a number of simple fixes that you can make as an owner to increase the income and yield from your investment.
- Add extra features
Something as simple as installing air-conditioning or a dishwasher, for example, can increase the rental value of your property, and is a cheap way to make more money from your investment.
- A basic renovation
A coat of paint, new carpet, polished flooring, new window furnishings or light fittings… These are all simple renovation ideas that can be inexpensive but have a great effect on what people are willing to pay to live in your house.
- Large renovation
This could be something like re-doing the bathrooms or kitchens, adding a back deck or rendering the outside of your property. Although these options are more costly they can increase the rental return of your property significantly.
- Ask the tenants
It can be as simple as asking the tenants for feedback on what they would be willing to pay an extra $10 or $20 per week to have in their house. They may be desperate to have a washer / dryer included, or insulation, or new blinds. Simple fixes may keep a good tenant in place, and willing to stay once the rent has increased.
As you can see… It isn’t actually as difficult as you may think to turn your negatively geared property into a positively geared one.
You just need to know the right questions to ask, and the right changes to make, and you could be saving yourself thousands of dollars per year on repayments and making thousands of dollars per year in income.
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