20% plus Gross Yield

[Rosco]

The best part of our property seminar tonight was David (Lodge Rentals) talking about return on doing up a property. His client spent $40,000, which was mainly repairs so after the tax deduction the real cost was only $27,000. He 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, as if he borrowed $40,000 at 6% = $2,400 per year extra interest cost. The $5,750 extra rent would cover this plus give a $3,350 surplus.

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

Ross

[Toasty]

I love these kind of case studies where a little bit of thought = a boosted return.

Most of my places are new, and in Wellington they are on pretty small sites so not much opportunity to add on. However I have just recently started renovating an older concrete 6 flat block from the top down, so hoping that an upgrade to the decidedly 70's decor will result in a significant rental increase. At the very least it should encourage people to stay longer and stop the churn.

I have found that the way advertisments are written can have an effect on the amount of rent you can command if you pre position the place as having some sort of unique appeal. Lots of options.

[Rosco]

This one was a 2 bedroom unit. So I was a bit surprised that the figures could work this well on a unit.

Other part that is hard to work out, is the increase in value. Obviously depends on area etc, but one way of looking at it is the capitalisation rate on rent. Say 7% cap rate expected, on $5,750 rent = $82,000 increase in value. So in theory based on Cap rate valuation the renovations cost $40,000 (less tax perks), and increased the value by $80,000.

So overall good cashflow, plus good capital gain.

Ross