A cashflow positive property is when your rental income exceeds your mortgage repayments, rates and other costs. It means that the property is self sufficient and doesn’t usually need a ‘top up’ when your mortgage repayments or other expenses are due. Unfortunately these types of properties are quite rare!
On the contrary, cashflow negative properties are very common – and can be quite stressful.
A cosmetic reno could be the answer to getting rid of (or at least drastically reducing) those annoying top-up payments each month.
As long as you’re smart with how you renovate your property – and don’t go wild with your renovation ideas – this could be an excellent answer to your cashflow woes.
Note: If you have some equity in your property (and this is reasonably likely if you bought it before 2006 or you bought at a discount recently) you might be able to borrow against it without altering your present repayment amount. Talk to your finance broker or bank to find out how much money you may have access to.
Here are some key steps to turning your cashflow negative property, positive:
- The first thing you should do when reno-ing your property purposely for a rental increase, is to check your numbers. ie: What do other similar properties (same quantity of bedrooms and bathrooms, but previously renovated) in your area are renting for. Is it probable that you’ll be able to rent your property for more than you presently do based on this data? Double check with a property manager in your area.
- If the dollars work, then the next thing to consider is who your target market is. It’ll give you a massive advantage when planning how and where to focus your renovating budget. At Hotspace, we do this with our clients daily and it makes a huge difference to the popularity of one property over another (and therefore a considerable leap in what tenants are willing to pay for your property).
- Now you know who your target market are, you should think about what they want and need in terms of practical requirements for their home. For example, if your target market is young families, your reno would be very different to one for a home where the target audience are students, retirees or families with older children.
What does your target market place value on? Make sure you include those things in your renovation – and remember the more you fulfil their requirements, the more you can generally charge in rent.
- Lastly, you need to work out what to do to your property and how much money you’re going to spend on your renovation to achieve the best rent possible. You’ll have loads of renovating ideas, but filtering what you COULD do/spend from what you SHOULD do/spend, is paramount. I recently spent $13,000+gst (including project management fees) on a renovation of one of my own properties in Rotorua and am now receiving $60/week more.
I could have spent so much more and made it a lot more complex, but instead I chose to do things that were specifically focussed to my target market. Not only has the rental income increased, the overall value of the property has increased too.
This is one of the key areas we, here at Hotspace help property investors with. So if you’re thinking about a quick cosmetic reno to increase your rental income and cashflow, let us know. We now have two options – a RenoPlanXpress and a Renovation Action Plan.