20% gross yield by maximising what you already have

4th April 2013

Our recent free seminar highlighted some great things you can do to improve your rental portfolio’s performance. One example was David Kneebone (Lodge Rentals) talking about the return on doing up a property.  His client spent $40,000, which was mainly repairs so after tax deductions the real cost was only $27,000.  His client is now getting $115 extra rent per week, which based on 50 weeks is an extra $5,750 rent per year.  As a gross yield on the money spent this is 21%!!

The cashflow will also be great because if he borrowed $40,000 at 6%, the $2,400 per year extra interest cost would be covered by the $5,750 extra rent, giving a $3,350 surplus.

The other part that can be difficult to work out, is the increase in value. Obviously this depends on the area of the properties and other factors, but one way of looking at it is the capitalisation rate on rent. Say 7% capitalisation rate expected on $5,750 rent = $82,000 increase in value. So in theory based on capitalisation rate valuation the renovations cost $40,000 (less tax perks), and this therefore increased the value by $82,000.

So overall good cashflow, plus good capital gain.

With your rentals, can you concentrate on what you already own and maximise the return?

We will be holding the same seminar again either late April or early May, so please email us by clicking here if you would like to attend.

Cheers

Ross