Clever Ways to Increase Rental Yield on Your Investment Property
Leading into the summer months is the perfect time to look at how to increase rental yield on your investment property. Warmer weather brings higher demand for rentals, especially in blue-chip suburbs near the beach.
If the lease for your investment property is ending soon, that’s ideal. This time of year is when people are looking to move, and it gives you a great opportunity to refresh or upgrade your property before re-leasing.
Before you get started though, check in with your lending adviser to see whether any works will align with your long-term goals. They can help you understand your current borrowing capacity and guide you through any financing issues you might have.
1. Start with Low-Cost, High-Impact Improvements
This is where so much money is left on the table for investors. Simple things go unaccounted for and as a result, the rent that can be asked is lower than what it could be with just a few minor updates.
Major renovations we see on TV might seem sexy, but there is far superior Return on Investment (ROI) to be had if you start with the small, boring updates.
Before you go diving into major renovations, look for the small things that make a big difference. People rent on emotion. The more pleasant a property is when they walk in, the faster they can see themselves wanting to live there.
Low-cost updates to consider:
- Fresh coat of paint
- New carpet or floor polish
- Updated curtains or blinds
- Deep professional clean (especially bathrooms and kitchen)
- Replacing outdated light fittings or tapware
These simple changes can instantly make your property feel newer, brighter, and better cared for. This in turn helps you attract higher-quality tenants and higher rent.
It’s incredible how much more appealing a property is with a few thousand dollars of repairs and updates. And that in turn, yields much higher rent.
2. Should You Include Appliances?
One of the most common questions from investors looking to increase rental yield is whether to provide appliances. However, just because there’s demand doesn’t necessarily mean you need to, or should, do it.
Air Conditioning
Air conditioning has become the #1 searched keyword for renters in Australia according to Domain, yet only around 35% of listings include it. That gap could represent a major opportunity for landlords.
Adding a split-system air conditioner can instantly make your property more appealing and justify higher rent. It’s one of the easiest investments to measure return on. However before you go running out getting one installed, we’ll need to run through the figures first (and we’ll get to that in a moment).
Other Appliances to Consider
- Dishwasher: A small convenience that can boost appeal, especially in family homes or apartments.
- Washing Machine: Often expected in units where shared laundries are outdated or impractical.
- Dryer: A bonus feature that can tip the scales for prospective tenants, particularly in coastal or high-humidity areas.
- Ceiling Fans: Low maintenance, energy-efficient, and a nice touch in bedrooms or living spaces.
3. Everything Comes Down to ROI
A smart investor always works from data, not emotion. So there’s really two things you should do before diving in and taking on any capital expenditure.
Speak to Experts First
One significant piece of advice if you are looking to increase yield on your investment property is to speak with your expert team first. Discuss your plans with your rental managing agent, accountant and lending adviser not only to see if it makes sense to them, but also if it makes financial sense in line with your long term goals. Put simply, don’t try and do this all yourself. That’s when mistakes are made and some of those can be extremely costly.
Think Spreadsheets, Not Emotion
After you have spoken with your team of experts, or indeed in consultation with them, you should calculate:
- What will the initial outlay cost?
- How much is maintenance?
- How much will the rent increase?
- What is the lifespan of this item?
- What is my ROI?
Here’s a simple example:
| Item | Upfront Cost | Annual Maintenance | Expected Lifespan | Rent Increase per Week | Break-Even (Years) | Profit After 10 Years |
|---|---|---|---|---|---|---|
| Split-System Air Conditioner | $2,000 | $100 | 10 years | $20 | 2.2 years | $7,000 |
Note: This table assumes the property is rented 50 weeks per year.
So in this example, a good property manager can help you calculate these figures based on current market trends. This approach removes emotion and keeps your investment decisions purely financial. If you put the numbers into a spreadsheet, you can play around with variables, such as the upfront cost, maintenance, lifespan and rent increase.
Once you have the spreadsheet, you can easily add rows for different appliances, or additions to the property.
4. Kitchen and Bathroom Updates to Increase Rental Yield
When people start looking at ways to increase rental yield on your investment property, kitchens and bathrooms are usually where they get started. This is because these are the two areas that most influence a tenant’s perception of quality (and therefore rental price).
Hopefully by now you understand that considering kitchen and bathroom upgrades should only come after you’ve got the basics handled. Sometimes, a kitchen might be absolutely fine for that rental market, so why would you go out spending tens of thousands to upgrade it? Again, you want to be thinking in numbers.
Kitchen renovations might look great, but will they increase equity and rental yield?
Kitchen Upgrades
In Sydney, updating a two-bedroom apartment kitchen can cost (as a very rough example):
- Full kitchen replacement: $20,000 to $50,000
- Mid-range update (new benchtops, cabinet fronts, handles): $6,000 to $20,000
- Cosmetic refresh (painted cupboards, new splash-back, fittings): $2,000 to $6,000
| Upgrade Type | Cost | Potential Weekly Rent Increase | Break-Even (Years) |
|---|---|---|---|
| Full renovation | $30,000 | $80 | 7.5 years |
| Mid-range update | $10,000 | $50 | 4 years |
| Cosmetic refresh | $5,000 | $30 | 3.3 years |
Bathroom Updates
For a two-bedroom Sydney apartment, expect:
- Full bathroom renovation: $20,000 to $40,000
- Partial update (vanity, fittings, tiles): $5,000 to $10,000
| Upgrade Type | Cost | Potential Weekly Rent Increase | Break-Even (Years) |
|---|---|---|---|
| Full renovation | $30,000 | $70 | 8.5 years |
| Partial update | $7,500 | $40 | 3.75 years |
Even if these don’t immediately pay themselves off in rent, they can reduce vacancy and attract better tenants which are both major wins for long-term returns.
5. Added Equity and Long-Term ROI
If you’re planning a renovation, get a valuation before the works and an estimate of the valuation after the works would be complete. This helps you understand how much equity you’re creating.
For example, if you spend $25,000 on renovations and your property’s valuation increases by $50,000, you’ve effectively generated $25,000 in new equity… instantly.
Conversely, people can spend $100,000 on a renovation and only see a valuation increase by $50,000. That’s not a great financial decision.
If you are able to create additional equity in your property, that extra equity can often be released by your lender and used as a deposit for your next investment property. Thus helping you grow your portfolio faster.
Not only will you increase rent and get a return on your money through rental yield, you can also get an immediate uplift in the property’s valuation giving you more access to equity in the property.
6. Increase Rental Yield with the Right Team
A great property manager should:
- Know what local renters want
- Advise on upgrades that add real value
- Provide ROI calculations for each suggestion
A great lending adviser should:
- Review your property equity position
- Help you access released equity for future investments
- Structure finance so you can keep building your portfolio
A great valuer should:
- Be able to value your property before making any capital expenditure
- Tell you what your property should be worth after you’ve made the alterations
And remember, all investment decisions should be made on a spreadsheet, not on emotion.
If You’re Looking to Increase Rental Yield on Your Investment Property
Experts will tell you that knowing how to increase rental yield is about balance. You spend strategically on the right improvements, guided by data and expert advice.
The best investors aren’t emotional about their properties either. They build a team of experts around them to help them run the numbers, make informed decisions, and this in turn allows them to grow their portfolio smarter and faster.
If you’d like to understand how your investment could perform better, chat with your Indigo Finance lending adviser about strategies to increase yield, build equity, and expand your property portfolio.
