How to Avoid Rental Revenue Loss By the End of 2022
As we’re nearing the end of the calendar year and the interest rates are rising to record highs, it’s important you ensure you’re protected against unnecessary vacancies if your investment property’s tenancies are expiring.
WA landlords and property investors should take proactive steps to strengthen their position in the Western Australian property market, especially considering interest rates are expected to continue to rise well into 2023.
Let’s dive into what is happening with interest rates and how you can avoid potential rental revenue pitfalls.
Why Are Interest Rates on the Rise?
According to Philip Lowe, Governor of the RBA, inflation in Australia is accelerating rapidly, just as is the case with most countries.
As of September 2022, the CPI inflation rate was 7.3%, and it’s projected to reach an all-time high of 8% by the end of the year. Some of the root causes of inflation include global supply problems, slow demand growth, and decreased commodity prices.
Due to inflation, the RBA raised the cash rate target by 25 basis points in November. The cash rate target basically translates to the cost of borrowing money. A higher cash rate target means that borrowing money becomes more costly.
So if you take out an investment property loan now, you’ll be charged a higher interest rate than, say, a few months ago. Similarly, you’ll earn more interest on your savings since they’re considered money borrowed by your bank.
The changes in the official cash rate can play a crucial role in the property market, with property investors regularly monitoring it closely to plan their strategies and adjust their rental prices.
Such economic circumstances, coupled with possible expiring tenancies at the end of the calendar year, present multiple challenges for Australian landlords and property investors. These challenges can lead to significant revenue loss.
What Can Australian Landlords and Property Investors Do to Avoid End of Year Revenue Loss?
Here are some steps you can take to prevent loss of rental income:
Get Landlord Insurance
Specialist landlord insurance can protect you from risks associated with renting, such as loss of income, content damage or theft, rent default, and legal fees. With landlord insurance, you’ll be able to save money, time, and effort by keeping your property and assets protected, specifically during the end of the calendar year when leases are expiring.
Consider Having a Rental Appraisal
With rising inflation and interest rates, keeping your rental pricing up-to-date is essential for maximising your ROI (Return on Investment).
Since the interest rates are expected to rise well into 2023, you might unknowingly undercharge for rent. Similarly, being overly cautious and charging a lot of money for rent could damage your relationship with your tenants and make it harder to keep your property occupied.
Opting for a rental appraisal helps you get the most accurate rates based on your property’s condition and current economic status. Rental appraisals also include current market conditions, comparison with similar rented properties, and marketing strategies.
Invest Time in Tenant Screening
Tenant screening is a key step to avoid revenue loss. Ideally, you’d want your tenants to be responsible and capable of paying their rent on time. Check their employment and housing details, as well as their credit score and debt-to-income ratio. You will also need to contact some living and personal references.
Define Criteria for Late Fees in the Lease Agreement
Creating a lease agreement that clearly determines the criteria of late fees is essential to avoid revenue loss. You can include an on-time full payment concession, or set a late fee assessment for the first and subsequent late payments.
Avoid Wasting Too Much Time Reletting Your Property
Reletting can be costly, especially if the process takes longer than it’s supposed to. The expenses of turning over your property include advertising, maintenance, mortgage, cleaning, and utilities. Avoiding long vacancy periods is important to keep costs under control. A rental property professional will have targeted leasing strategies to optimise returns and reduce outgoings.
At the same time, avoid rushing to get your property occupied without a diligent screening process, as an eviction can cost you even more, commercially and emotionally!
Rent Inspection and Maintenance Planning
Before a tenant moves out, make sure that you conduct a thorough rent inspection to prevent possible surprises and additional costs. A good practice is to inform the tenant of the qualification criteria required for them to get the highest per cent of their bond back. This will also help you plan for maintenance and how much you should expect to pay for it.
It’s Been a Busy Year, But Now Is the Best Time to Plan for Its End With HERE!
It’s never too late to reap the benefits of expert real estate consultation and avoid end-of-year revenue loss.
Get in touch today and let’s discuss how we can help you maximise your rental revenue!