6 Tips for Your Rental Investment

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Pricing your rental property. It’s always a massive headache. Between getting no inquiries and have 50 people attempting to rent it at the same time, is a tiny Goldilocks zone. We’ve seen properties go from 25% occupancy to 100% occupancy with an adjustment of as little as PHP2000 per month.

But how do you strike that balance, where you are able to both maximize occupancy AND returns?

1. Become a neighborhood expert.

Don’t know your neighbourhood? Good luck trying to price it properly.

As with any business, you need to know what is on offer from your competitors. Don’t assume you know how to rental market works. While the regional cap rates might be 7%, real estate is extremely location sensitive. One area might give you a cap rate of 15%, another might be a less attractive 3%.

If you aren’t able or willing to find out yourself by talking to the 5 or 6 nearest similar rentals, contact a real estate professional, such as Jobelle, who has knowledge of the area. Figure out what are the common features of properties in the area? What kind of people are renting there? What could be done better? How much are rental rates?

2. Decide on a market segment to target.

Now that you know your neighborhood, the next thing is to figure out who do you want to live there?

Now the default answer may be, oh, the same people that already live there, but are those people right for your property? Do their needs align with your expectations? Are they sufficiently high quality for you to be comfortable?

For example, a penthouse loft apartment is probably not going to appeal to many young families, even if they are the predominant renters in the area.

This way you will know what kind of tweaks or adjustments you would need to make to meet the needs of those people.

3. Gauge response rates, pricing, and the purpose of improvements.

So you’ve decided that you needs those tweaks, adjustments or even a full blown renovation. What is the point of spending all that money?

There should only ever be one answer to that question, and it’s not to make it look more stylish, or more comfortable or more attractive. It’s to earn a better return.

Every improvement, whether it’s new bedding, wallpaper, furniture, or flooring must be for the purposes of higher rent and occupancy. There is no other reason to improve a rental property.

Far too often we come across owners who have splurged hundreds of thousands of pesos on a renovation involving imported silks, cashmere pillows and plush king sized beds, expecting to earn 50% more than their neighbors, when in fact none of these additions have added real value to the rental rate, and they’re unable to rent their property for years at a time.

To avoid this from happening you need to go back to front. Start with how much you think an improvement will increase your rental rate, while still keeping an acceptable occupancy rate. A well priced upgrade can pay for themselves within 12-24 months. So, for example, if you want to upgrade the couch, you think a new couch will increase the rental rate by P500 per month. So you would want to spend no more than P6000-12000.

4. Use standout amenities as a strategy.

Sometimes unique amenities can act as a magnet for prospective tenants!

For example, adding some smart amenities such as a smart lock or security features that aren’t find in similar properties could bump up the rental rate by a surprising amount! Especially with security conscious tenants.

Brainstorm a dozen or so cheap but effective ideas and run them by your real estate professional. If they don’t fly that’s OK, eventually you’ll find something original and creative that does!

5. Remember: It’s better to under-improve than overdo it.

There are things in life that you can’t take back. You can’t un-bake an overdone roast chicken. In the same way, you can’t un-brick a wall, or un-do hardwood stairs. That P50,000 ain’t coming back. In fact, you would have to spend more money to remove it.

However, there’s nothing wrong with testing the waters. If you’re getting few responses to your listing, get your real estate professional such as Jobelle to update it with a new feature or amenity they recommend. If people are suddenly ringing up and setting up appointments, go ahead and implement it! If not, then re-adjust. It costs nothing but could save you hundreds of thousands.

6. Keep good tenants and gradually raise the stakes.

Here’s a good question for you:

Would you rather solid tenants that rent your property out constantly for years on end while gradually increasing rent, or a higher rental rate to start with, but less people renting it?

The right answer is the first one. Good tenants are like gold. They should be treasured. A low occupancy rate is the greatest killer when it comes to rental returns.

So how do you keep good tenants with you? Be responsive and courteous. Be proactive in making repairs and upgrades, and gradually raise their rents each year.

Gradually raising rent by 4-5% per year will be much more acceptable to tenants that a huge spike every few years, and you’re covering inflation so you never go backwards.

Good tenants also regularly will talk to you about upgrades and repairs that would make the place more marketable the next time around you try and find tenants. If you do go ahead and make those repairs while also increasing your rental rate, these tenants are also the most likely to continue to rent from you as they understand the value you are putting into the property.
If you need help deciding how you can add value, price or market your rental property, we can help! Simply contact us below or text or call us on +63 908 618 5568.

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