November 18, 2020 by Dymphna

Nine ways to increase rental return, pt.2

People think there are no cash-flow positive properties out there. But if you can’t find one, make one.

So on Tuesday I introduced you to four income accelerator strategies – techniques for getting more rental return on an investment property. Today, I give you another five.

So on Tuesday, the four we went through were:

Income Accelerator #1. Direct Cash Cows

Income Accelerator #2. Regional Cheapies

Income Accelerator #3. Partial Sell-downs

Income Accelerator #4. Short-term leasing

So, let’s look at a few more:

Income Accelerator #5. Multi’s

With multi’s I’m talking about properties that have multiple income streams off the same title. So it might be a block of units with multiple rentals. Or it could be in the commercial space with strip shops, or storage sheds.

We’re also talking about granny flats here, or built-in units, although there’s not as much opportunity in this space as there was 5-10 years ago.

But the key here is rentable doors. The more rentable doors you have, the more income you can create.

Income Accelerator #6. Rooming and Boarding Houses

This is a specific form of multi’s where you create multiple income streams not just from the same property, but from the same dwelling.

The returns here can be massive, but there’s a lot to learn here and a lot of regulatory hoops you have to jump through, so beware.

A residential house is a class 1a building. A rooming house is a class 1b, while a boarding is normally over 300sqm and is a class 1c building.

Different states and different council areas have different regulations and zoning requirements around rooming and boarding houses, and the safety regulations in particular can be onerous.

Never-the-less, if you’re willing to put in the work, there can be lots of opportunity here.

Income Accelerator #7. Lease and sub-lease

This is about controlling a property without actually owning it. So provided that the head-lease allows it and the owner of the property is fully on-board, you could take out a head-lease on a property and then sub-lease individual rooms to other tenants (as long as you’re on the right side of rooming house regulations), or you could take out a long-term head-lease, and then put the property back on the short-term holiday letting market. 

In this strategy you are creating and capturing value by taking on the work involved in managing the situation. However, that work can very well be worth the effort.

For example, I had a student who was a stay at home mum, looking for a way to bring in a bit of extra income. What she did was that she found some properties in a good area, rented them out and then turned them into Airbnb’s, managing the properties herself. As a result, she was able to increase the rent going to the owners by $10-15,000, and take another $10-15,000 for herself. Win-win!

This is about applied knowledge, and it can be a great starter strategy for someone without much to work with. Get a handful of these deals, and you’ve replaced your income!

Income Accelerator #8. Commercial

We’ve touched on this a few time now, so I won’t go into great depth again. But the playbook is the same: it’s about increasing the number of rentable doors (adding storage sheds to an unused car park for example), or improving the yield by increasing the property’s value to your tenant (better street access or signage for example.)

Income Accelerator #9. Business Real Estate

This isn’t going to be for everyone, but sometimes you can buy a property that has a business already attached to it. You’re actually buying two things – the property and the business. So it could be a backpackers, caravan parks, hotels, guest houses, or even pubs with accommodation etc.

Now, you’re going to have to actually run the business too, so you’ve got to keep that in mind. You’re going to have to do all the administration, and book-keeping and promotion etc. However, if you’re in a job you hate and you’re looking to buy yourself a new job in a new field, this could be a great option. I’ve had students who have been able to step into a completely brand new life and have loved it.

However, running a business is not without risk. Even if it is under management you still need a plan in case your manager quits or gets sick. So you really need to work through the business case of the business attached to the property.

That said, a poorly performing business will pull down the value of the total, and if you can quickly turn the business around, you can score the property at a very cheap price.

Accelerate Your Income

As I said on Tuesday, the devil is in the detail, and there are an infinite number of ways to cut each strategy up. You can also combine or ‘stack’ strategies to get even more cash-flow return.

Anyway, I just thought I’d share this with you here. If anyone tells you it’s impossible to find or make a cashflow positive property, show ‘em this.