Renting out your property is a good way to pay off your home loan however, with the rising cost of living and interest rates increasing, everyone is looking for ways to stretch their rand while hanging onto their investments as the economy goes through this dip.
Below are 3 things you can do to cushion the blow of an interest rate increase on your rental property!
1) INCREASE YOUR RENTAL INCOME
Most rental properties have a 10% increase clause in their lease, so ensure that you escalate your rental income to cover the property’s monthly expenses at all lease renewals. Your tenant is probably going to negotiate with you, but remember that moving is a costly and tedious mission, so it may be less expensive for them to rather renew the lease than to find a new rental property. Also, relook at the services you are currently paying for to see if there are any budget cuts you could make, or pass on the services you currently pay for to the tenant’s account instead of the full increase.
If the tenant does not renew, then include your increase for the next tenant, or consider multi-let or short-term rental property (e.g., Airbnb).
2) CUT BACK ON EXPENSES
As long as you have good-paying tenants, then renewing their lease means that you will not need to pay an agent to source new tenants and can cut back on rental commissions. Tenants who look after and maintain your property will increase its value, those who don’t will cost you money, so do your renewal inspections. Keep an eye on all of the properties’ expenses and see if you can decrease them, or remove them. For example if your body corporate wants to impose special levels or challenge the municipality’s valuations that affect rates and taxes.
3) RESTRUCTURE YOUR DEBT
Consider the pros and cons of fixing your interest rate, and possibly review restructuring your debt (by increasing the term) which will reduce your monthly payments. As there are pros and cons to all of these suggestions, always speak to a professional to ensure that you are managing your property correctly so that you get the best return on your investment!
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