If you are considering investing in property in Melbourne, or already own investment properties, you may have already thought about how your property will give you a financial return. Setting a plan and making realistic targets to boost property value is worth careful deliberation.
At Wise Real Estate Advice, we look at a few different ways which you can add value to your investment property.
With such a wide property market as we have in Melbourne, knowing the kind of property you are interested in, and in which locality it will be, is essential in moving forward with the search. By having this information available, it facilitates a research process which looks at advertisements - both offline and online, analysis of sales, and rental results for the area. You may be looking for a residential property, or potentially a commercial property - including retail, office or industrial properties. Some of the larger quantity surveyor companies publish estimates of construction costs, which can help you to understand and appreciate costs in construction of commercial properties and how this might impact your outgoings in your investment. In terms of asset performance, you will find industrial properties at the simple end of the spectrum, while retail properties become a bit more complex.
Determine the location first, so you can narrow the search to a particular area. You may consider dividing your search into ‘primary location’, and ‘secondary location’. This will enable you to focus your search in these areas. With this, we can then delve into the following investment factors to maximize value in your property:
Look at the property from the occupiers view. Is it in good condition? Does it need improvements? What will their energy and/or operating costs be in this particular property? Take into consideration that tenants will lease a property that gives them the best access to amenities, services and is in better condition than a competitor’s property.
Expanding your leasable space
Understanding the location and demand for this property type will help to assess the validity of an expansion of your property, if at all feasible. Perhaps your property can be expanded. In doing so, you might increase your leasing income. But also consider the increase in marketing costs for this extra space, the potential commissions to pay, documentation fees, and increases to operational costs. This comes with leasing the extra space, and is quantifiable.
Raising your income
Look into the current rent in this property. Is it comparable to current market rent? Look into the rent reviews and how the rent could possibly increase over time. This property may have been in high demand, or it may have been under rented. You need to know the property’s predisposition.
Reduce the risk of vacancies
implementing a retention program and good leasing agreement can reduce your risks of tenant vacancies. Spend some time on your tenant reviews and assessments. Try to keep the good tenants, and target specific ones when you have a vacancy. And importantly, look ahead at when the lease will be expiring and plan for how these dates might impact cash flow.
Get good tenants
Be smart about who you lease your commercial property to. Some tenants can bring weight to your investment with their lease tenure and brand. Search the internet for any stories about potential tenants businesses. Do you find any financial reports which suggest they in economic strife? It is always worth asking and understanding about their business and how it could potentially impact your own. Finally, when purchasing a property which already has tenants in situ, look into corportate governance and tenant profiles.
Develop a better leasing agreement
When negotiating a lease agreement, work first on the clauses, and then on considering the risk factors in the agreement. Working in this order can protect your ingoings and outgoings over the life of the agreement. Most lease agreements can be improved through negotiations. Ensuring a solid lease agreement has the power to protect your investment, and can improve the salability of your property should the time come.
Minimizing your outgoings
Rates and taxes on an investment property, account for approximately a third of outgoings. This is where reviewing operational costs and developing a budget for the investment comes into play. Understanding, reviewing and managing the property’s operational costs can improve net income and ensure minimization of outgoings.
By Mark Ribarsky.