The four core principles in getting good rental yield;
- Increase rental fees
- Decrease vacant period
- Increase tax-deductible expenses
- Manage proper accounts
1. Increase rental fees (monthly rental rates)
This will obviously help to improve your rental returns. Stay updated on the market rental rates, so that you will know how much to increase for the next renewal or new tenant. Do remember to keep your rental competitive because over-pricing will result in longer tenant-searching period, and result in longer vacancy period. You can provide incentive monetary schemes (on top of the commission) to attract more agents to bring tenants to your rental property. Many corporate tenants (especially for budgets above $5000) are exclusively handled by specialist agents. Getting them to like you and your property should result in your property getting better rental. A good rental property specialist who has a close network with the corporate specialist agents will be highly beneficial to you.
2. Leave your rental property vacant for as short a time as possible.
Expect realistic market rental rates instead of pricing yourself above the market range and subsequently having to reduce down to the market level after 2 months of vacant period. 2 months of vacancy already equates to at least 15% decline in gross rental revenue. During a downturn, the time taken to source for a tenant will naturally take longer because of the economy and job market situation. There is no solution for the market’s cyclical nature, however, you can work to mitigate the situation by capitalising on the depressed rental market to do improvement works to your property. Depending on your budget and range of work to be done, you can time the renovation to finish at the time your new tenant decides to commence the lease. Once the rental market starts to improve again, at the next rental revision, you can then get to re-rent your property faster (being renovated) and at a better rental value than others. A good property manager will be able to advice you properly on how and where to do the improvement works – doing a complete overhaul may not be the best solution.
3. Increase tax-deductible expenses (and reduce other unnecessary expenses)
A few deductible expenses to note (which may sometimes be neglected) include
- Repairs done to restore the property to its original state
- Cost of maintaining the property (e.g. painting, pest control, monthly maintenance charges to management corporations)
- Agent’s commission, advertising, legal expenses for getting subsequent tenants
- Costs of supervision and rent collection if you rent out a number of properties and incur costs in engaging a third party (e.g. property agent / company) to supervise the properties and to collect rent on your behalf, a sum not exceeding 5% of the gross rent or the actual amount spent, whichever is less, may be considered. Each case will be considered on its own merits.
- Penalty imposedon property tax (or late-payment)
- Cost of renovation, additions, alterations to the property or repairs done resulting in improvement
- Agent’s commission, advertising and legal expenses for getting the first tenant
- Depreciation of furnishings (e.g furniture, fixtures, electrical appliances)
4. Keep proper accounts for your rental property
Manage your rental property like how you would operate a business. The contracts and accounts should all be kept properly and in a systematic manner. This will help you to get a good overall picture of your “business” and substantiate appeals if tax expense claims are rejected by the authorities. Download for free – Rental Income Statement (excel spreadsheet) for reporting to IRAS.