For a long time, generating rental income from property was long seen as a sure-fire route to financial stability. However, good ROI in real estate is becoming harder to come across.
Across all markets, rents have been dropping for several consecutive months. Meanwhile, high costs (partly driven by soaring interest rates) have squeezed landlord margins to the tightest levels since the 2008 recession.
This begs the question, what do you need to do to secure a decent ROI on rental property in 2023? Read on to find out exactly what you need to know.
Table of Contents
Know What Effects ROI on Rental Property
Before you can get strategic, you need to have a clear understanding of how ROI in real estate works.
Your return on investment is essentially your profits over time. It is the rental income you have generated, minus the costs you have sunk into the property.
This might seem like a simple matter of subtracting your mortgage or cash payment for the property from the rent you are charging. However, the ROI of rental property must also take into account:
- Property taxes.
- Maintenance costs.
- Upgrade costs.
- Tenant turnover.
- Insurance payments.
Once you take this into account, you start to get a better idea of your net operating income, and in turn your ROI on investment property.
Use Your Tax Advantages
So, how can you boost your return on investment, other than by simply raising the rent and hoping your tenants don’t high-tail it out of there?
One of the most important things to remember is there is a wide range of tax breaks and deductions available to help you offset the costs of maintaining a rental property.
For example, any losses you make (when your rental income does not cover your costs) can be tax-deductible.
In fact, this is now such a crucial component of ROI strategy that it has its own name – negative gearing. You can discover more about negative gearing and how you can use it to lift your ROI substantially here.
Strategic Upgrades
Another crucial way to raise your ROI is to invest and upgrade. However, you should be very strategic about this.
You can prioritize property upgrades that are relatively low-cost, but that will command a higher rent premium and high-income tenants.
These could include kitchen upgrades, security upgrades, and some curb appeal enhancements. You should also consider what amenities you could add to raise your potential rental income.
For example, laundry facilities or high-speed internet cost relatively little but can command a substantial rent premium. Make sure to consider your property and your target tenants carefully to find the strategic upgrades that will lift your ROI.
Making Your Money Work For You
Getting a good ROI on rental property in 2023 is far from guaranteed. The housing market is less predictable than at any other time in recent memories, and once-reliable tactics for maximizing rental income are no longer the case.
With these simple steps, you can fine-tune your property to get the best income for the most reasonable investment.
Make sure to consult our expertly-curated financial pages for more daily tips on how to start making your money work for you.
