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Not every investment property that you purchase is going to be a runaway success. Some of
the properties that you purchase are going to be underperforming properties that don't
generate you the income or the equity growth that you predicted. But don't give up hope
because in today's video I'm going to be sharing 15 ways to improve an underperforming property.
So you can take a property that was a dog of an investment and hopefully turn around
into an investment that you're proud of. Hi I'm Ryan McLean from OnProperty.com.au,
your daily dose of property education and inspiration. You can get the full shoe notes
for this episode by going to OnProperty.com.au/110. Today's episode is brought to you by BlueHorizonsProperty.com.
If you're interested in investment property with a high capital growth potential but investment
property that is also positively geared, then go to Blue HorizonsProperty.com to find out
more. So today we're talking about the 15 different
ways that you can improve or respawn to an underperforming property. And even financial
and investment gurus like Robert Kiyosaki the author Rich Dad Poor Dad or Dough Rouss
who is famous property investor say that when you invest in property you are going to have
some properties that are home runs, a runaway successes. You are going to have a lot in
the middle that is just tick away and then you going to have a few dogs that are just
these underperforming properties. So one option is obviously to sell the property but what
else can we do to underperforming properties to make them better or at least make you sleep
better at night? So number one is first to get your facts straight.
So by that I mean doing a financial analysis of your investment. We may think that it is
not a great performing property because it hasn't gone up in value or it hasn't performed
as we expected but first it's important to sit down and to go through the figures and
work out exactly how your property is performing and predict what it's going to do in the future.
So look at cash flow, how is the property going in terms of cash flow, is it positively
geared, is it negatively geared How much did you sunk into that property in the terms of
ongoing maintenance and cash flow? Look at the capital growth, maybe go about getting
your property refinanced or get a revaluation of the property to find out whether it has
that gone up in value. And be careful when you are getting bank revaluations because
they tend to err on the side of caution and maybe worth going to either your local real
estate agent just asking them for advice or getting a professional valuation done which
can cost you around $300. And that will give you an idea whether your property has gone
up in value. So even though the bank's value of might say "no it hasn't gone up". If you
pay for an independent valuation you may find that the property has actually increased in
value if you were to go and sell the property today. Get evaluation done, work out if you
have any growth at all. And also look at the rental growth to find out whether your property
has gone up in rental growth. If that's going to be a trend that happening in the future
I've got a video coming out tomorrow episode 111 so OnProperty.com.au/111 and I'm talking
about how you can find out vacancy rates for the area. So if you're interested in seeing
what your rental growth may be for the future why not start by looking at the vacancy rates
in the area? Vacancy rates are extremely low- well that may be an indicator that rental
rates might be on the rise in the future. It's not a perfect calculation but it's a
rough estimate that is going to give you an idea. So firstly do your analysis, get your
facts straight and workout whether this is actually underperforming property or whether
it is performing and you are happy with its performance.
Number two would be to find out what people in the area want. Often will go ahead and
will purchase a property without actually thinking about the demographics of the area
and what the area wants and how we could get either the best value for our property or
the best rental return for our property. So there's a few ways, a few tips that I've got
how you can do this. Firstly, is to head over to the consensus quickstats. So all you need
to do is go to Google and just type consensus quick stats 2011 which is the most recent
update. If you are listening to this way in the future then 2016 may be better but that's
a couple of years away. But go to the consensus quick stats type in your suburb address and
then have a look at the demographics of the area. And more specifically, have a look at
what hot a properties people live in. Is that one bedroom, is it two bedroom is it 3 bedroom
is it 4 bedroom, is it more living units. It will show you those statistics and what
you may find is that your underperforming property is actually outside of what the demographic
in the area want. So maybe have a two bedroom property but you can see that 80% of the population
lives in three or four bedroom properties. So maybe an extension to add an extra bedroom
might move your property up into that mass market appeal. Or maybe you want to move into
a three or four-bedroom property to access more people. Maybe you need to add security
screens or a fence or air conditioning. Find out what people want but start with the consensus
quickstats, then go on to search on realesatte.com.au or domain.com.au and have a look at what properties
in your price range have but then take a step up and look at properties that are maybe 50
or a $100,000 more than yours or go to the rental aspect of those web sites and look
at properties that are renting for maybe $20 or 30 or $50 a $100 a week more and find out
what features they have. Is it that extra bedroom we talked about, is it that privacy,
is that having air conditioning, is it having a double lock up garage. What is that these
properties tend to have that your property might be missing and then lastly speak to
your local real estate agent. Firstly speak to your rental manager because you're dealing
with them anyway but later we're going to talk about potentially getting a new rental
manager. So talk to other real estate agents in the area and find out what key is my property,
what are people in the area looking for and what can I do to improve that property.
Tip number three is to look at doing a renovation. So this could be a cheap cosmetic renovation
which is probably the best place to start or it could be a serious renovation where
you are doing extensions and you are doing some serious work. Easy things to do is to
paint the property. If you got a property that's not neutral colors paint it in neutral
colors, make it attractive to the broadest market. Don't have all these pink bedrooms
in an area that's mainly miners or males or something like that. Appeal to the most amount
of people. Maybe look at putting in new carpet or new floor boards or something like that,
you can get floating floorboards really cheaply or you can even get linoleum that looks like
floorboards which could be even better. So I the first property that I lived in when
I was married had linoleum which looked like floorboards. And although it's not as good
as for boards, for us it was much better than carpet, much better than any other linoleum
that they could have had and it looked great. It just wasn't made of wood. So it's amazing
what you can do now on a budget. You can look at sprucing up the kitchen or the bathroom
on a budget by giving them fresh coats of paint and look at the whole episode on this,
I'm not going to go into more detail. If you want to find out more ways that you can spruce
up your property so that you can increase the rental income then go to OnProperty.com.au/95
so 95 and that will redirect you there. So tip number three was to look at doing renovations.
Tip number four is to build a granny flat. In episode 112 which is coming up in just
a couple of days I interview Wally Gabriel who is from GrannyFlatSolutions.com.au.Wally
and his company focus on building granny flats and that is all they do, they build 80-100
granny flats per year which to me seems like massive amount and we worked out by doing
those episodes together that from deciding to build a granny flat to having a tenant
moved in can be done in as little as 5 months and in some areas of Sydney two bedroom granny
flats are renting for $600 per week. I'm so shocked I'm so amazed that a granny flat can
rent for so much money. And in other suburbs like in Western Sydney he see rental returns
of $300 per week and granny flats can cost with Wally there about he says around a 105
and $110, 000 so that's not a huge investment and the process after talking to Wally seems
really easy. So potentially building a granny flat which is a lower-cost building could
increase your rental yield, could put you into a positive cash flow situation and could
turnaround that dog of a property that underperforming property and make it into an investment are
you proud to have. Tip number five is to look at larger scale
development. Maybe granny flats don't work for you, maybe you are in a more rural area
or you're in an area where it's just not feasible for you. We could potentially look at a larger
scale development. That might be adding a property at the back of the house, maybe a
whole new property or it could be subdividing or it could be adding townhouses, there's
many different development opportunities that you could do which falls outside my level
of expertise, I need to get someone to come on and talk about development. But looking
at doing a larger scale development may be a way to access that portion of the market
that you might be missing which is the mainstream market or you could just turn that underperforming
property around. Tip number six is to spring clean the property.
So what happens over time if you got tenants in there? Tenants do not maintain a property
the same as an owner does. Tenants are not going to go out and invest in a carpet cleanup
to get the carpets cleaned, they're not going to go around scrubbing the walls to get off
all the dirt and the grind that comes from living in a property for many years. They're
not going to give a property a fresh coat of paint, they are just not going to take
as good care over property as an owner. So when you tenants move out why not consider
giving the property a spring clean? Going in there, maybe get some friends over the
course of a weekend, really clean up that property and make it look great. Those overgrown
bushes that tenancies haven't attended to for years, rip them out put some new low-maintenance
plants in there with some color, something that looks beautiful. Inside the property
fix-up just those little things that are broken, patty up those cracks in the walls and those
holes that have come when some kid shut a door too quickly. Spring clean your property
and just fix those little things because even though they are little things, it all adds
up. And if you can tackle that and you can spring clean your property, you may be out
to increase the rental return and the value of the property as well.
Today's episode is brought to you by BlueHorizonsProperty.com. My listeners are constantly telling me that
a number one thing holding them back from investing in property is actually being able
to find the positive cash flow properties. When I first met Coal and Eleen from BlueHorizonsProperty.com
one of the first things I asked them is do you help your clients invest in positive cash
flow properties. And their response was music to my ears, they said almost all of their
properties were positive cash flow properties with many receiving rental returns over 10%.
I was even more excited when I found out that Coal and Heleen personally invested in the
Sorout Basin, the high-growth areas that they help their clients invest in. If you want
to actual property partner who's going to help you every step of the way then visit
www.BlueHorizonsProperty.com and check out their featured properties. You are going to
be pleasantly surprised with what you find. Tip number seven is to consider renting your
property room by room. This work specifically well in areas with a large density of uni
students and younger people, people who are happy to live in a house with someone that
they don't necessarily know. If you're in an area that's predominantly families well
that might be a bit hard because I'm married I've got two kids, and I would never be looking
at a property where I would be sharing with another family. But if it involves a single
person going to uni and wanted to save money would definitely be something that I would
consider. So you could maybe rent it room by room. This is not something that you can
really do through a real estate agent There may be some rental managers out there who
are willing to tackle this but you might need to do it yourself which means more work upfront,
means more maintenance and stuff like that. But it could mean the difference between underperforming
property and a property that's performing extremely well. So consider renting by the
room. Tip number eight is to rent your property
furnished. So rather than having an unfurnished property you might be able to increase your
rental return by renting the property fully furnished. So this means going out and buying
some furniture or maybe it means taking the furniture from your property, putting it in
there, maybe you've got some extra furniture that you can find. It doesn't have to be extremely
expensive. Now that you've got places like Ikea which is extremely cheap or even Freedom
furniture which has really cheap couches and stuff like that. Now mattresses for $400,
my wife was telling me she works at Freedom that's how I know about the mattresses at
Freedom. They have really cheap beds, really cheap... All of this stuff can be done super
cheap now. And if you can invest a few thousand dollars to furnish a property and it's going
to increase your rental income you might be able to make back the prices of those furnishings
within your first year. Obviously you get to depreciate them as well and then everything
after that could be cream on top. So consider that but talk to you real estate agent, find
out if that's going to suit the area or not before you go ahead and do it.
Tip number nine is to become a pet friendly property. So there's not a lot of properties
who are happy for people to have pets and if you become a pet-friendly property you
open the door to renters who may not have access to other properties which means you
may be able to charge a higher price for your property without necessarily doing much work
to it. Obviously if you got pets there is probably going to be more maintenance that
you need to do in between tenants. More cleaning, more garden maintenance and stuff like that
but even someone like my mother-in-law who has a very small dog doesn't really cause
many issues but by being pet-friendly she was extremely narrowed to which properties
she could live in and she's probably I don't know exactly but she's probably paying a bit
more than someone who didn't have a pet. So by going pet-friendly it could be a good way
to increase your rental return on that property. Tip number ten is to add privacy on noise
reduction. So if you live on a main road or if you live in an area or your property is
designed in such a way that there's not really any privacy adding privacy elements to a property
can make a huge difference, or noise reduction elements as well. If you're on a main road
something that's going to turn away tenants and turn away potential buyers is the fact
that that road is noisy and you are going to hear that from the property. but by adding
a fence or by adding hedges adding something that is going to reduce that noise when people
come to the property and they view it and then realize that "hey it's not as loud as
I thought it was" well then the property my increase in value or you could rent it for
more because that noise is not so much of an issue. Add privacy and noise reduction
if you can. Tip number eleven is to go about refinancing
your property. So a friend of mine recently did this in just last year. He had purchased
a property, it would have been five years ago and he purchased the property of the plant,
built a new house and it was an underperforming property for him. It didn't to deliver the
return that he wanted or the rental growth that he expected. And so unfortunately he
was paying to have this property every single month because it was negatively geared. Well
the way that interest rates have gone down and down and down and now they've stayed down
at the moment. He went about and refinanced his property and did it in such a way that
he was saving money on his loan and that now turn into a neutral or even a positively geared
property. So by going ahead and refinancing the probably he still didn't get the growth
that he expected or the rental growth that he expected but he's no longer pouring money
into that property. He can now bide his time and sit and wait for that property to increase
in value because it's not costing him anything. Tip number twelve is to get a new rental manager.
This same friend did the same thing a couple years ago. He was having trouble renting his
property, wasn't getting market value for the property and was staying vacant for a
number of waits in between tenants. So he decided to get a new rental manager. And what
he did was he interviewed a bunch of different rental managers in the area and ended up choosing
a rental manager that he was happy with. The rental manager that he chose charged a lower
fee, 6% instead 7 or 8% so he was saving money on his rental manager fees. But the rental
manager was actually better at job as well and so he was able to get tenants in there
for market rate. So simply changing a rental manager can make a big difference to your
property. Little tip, whenever you sign up a rental manager try to get the clause removed
that says you need to give your rental a manager three months’ notice or sometimes six weeks’
notice before you terminate the agreement. Giving someone three months’ notice that
you are going to terminate them gives you a three-month window when they're not willing
to do anything for you because they know they getting the sack. And so you got this whole
three-month window where you don't really have that much help at all. So by removing
that, it means you can move on to a new rental manager quicker if you're having issues with
your rental manager. Tip number thirteen is to cut your losses
and sell. So if it is a dog if it is underperforming, you've looked at the growth, you've done your
analysis, you've considered these ways of increasing the value of the property and none
of them really seem viable. Well maybe it's time to cut your losses and to sell that property.
Can you take your money that you invested in that property and invest that money somewhere
else, maybe in another property that's going to deliver a better rate of return? Buy-and-hold
strategy doesn't mean that you need to buy a property and never sell it. Steve McNight,
I can't remember.. I can't remember if it was in one of his books or seminar or something
like that. He was talking about the rate of return that his money is getting and he will
sell a property when he can say that he can take the money that is poured in that property
and get a better rate of return elsewhere. So rather than just looking at one property,
consider where your money could be elsewhere and opportunity cost that you have holding
on to that property. So it might be time to cut your losses and sell.
Tip number fourteen is to be patient for growth. And this is extremely helpful if you can finance
your property in such a way that it is neutrally geared or it is positively geared. So this
means that you're not putting money into the property every single month in or not to keep
that property alive. So you might get to this position by increasing rents or by doing some
of the renovations that we talked about maybe through refinancing by getting into this position
and being patient can mean that you take advantage of growth in the future. I was recently at
a positive real estate seminar night where they talked about investing and they were
talking about two brothers that had bought in the same building. Owned the property for
about seven years, it hadn't really going up in value and one of other brothers went
and sold his property because he wanted to cut his losses and go somewhere else. But
then within the next 12 to 18 months that property went up significantly in value so
the brother who kept his property made a great fortune while brother who sold it, lost out
because he just missed window of time where the growth happened. So maybe if you can be
patient and you could hold on and hopefully finance in such a way that it's not costing
you significant amounts of money maybe being patient might pay off in the long run. but
obviously there's no guarantee. Tip number fifteen is to consider selling
your property via owner finance. I remember years ago in a forum a an investor had purchased
a property in Sydney that was negatively geared and they went through some personal situations
where they couldn't necessarily afford to continue paying for that property. So what
they did was they sold their property not at a loss but kind of breakeven but they sold
it using owner finance. And what this means is they didn't ask for cash for the property,
they provided the loan themselves to the buyout to the property. And this is great because
it means that you can charge generally charge a high interest rate, you can generally command
a higher price for the property because you're appealing to lenders, you're appealing to
purchases who couldn't necessarily buy a property otherwise. So they turned the situation around,
went from a negatively geared property to a property that was delivering them i think
it was over $500 a month in positive cash flow. So by going owner finance it may be
the way to flip the switch and to turn and underperforming property into a property that
spins off cash flow and maybe makes you a nice profit in the process.
So there you have fifteen different ways to improve an underperforming property. I hope
that this has been extremely helpful to you, I hope that some of this tips you can take
these away and you can implement them. I'm not a financial advisor so this is my disclaimer,
that none this is financial advice, this is for educational purposes only. And if you
want access to the full transcription, blog post, you want to download the podcast you
can go to OnProperty.com.au/110 t and it will take you directly to this web page. So until
tomorrow when the next episode comes out when I'm talking about vacancy rates and how to
find out what the vacancy rates are, remember your long-term success only happens one day
at a time.