Practical Advice for Property Investors: Enhancing Your Rental Yield

Let’s start by grouping the considerations/strategies into those that come into play at point-of-purchase, and those that can be initiated a little later down the line:-

Purchasing Your Rental Unit – Beyond PSF

Obviously when selecting property for investment, location is key. How well-connected a development is to transportation networks, amenities, schools etc and how popular the neighbourhood is with the expat crowd. (Since Singapore has one of the highest rates of home-ownership thanks to HDB, local renters form an almost insignificant component of rental demand.) URA will also provide you with plenty of rental and sale transaction data to help you determine the expected rental yield of a particular property. But as I often urge my clients and readers, let’s delve a little deeper than pure per-square-foot data.

The beauty of property investment is that it’s part science, part art. The art is in picking up the non-tangible elements of a development, the things that won’t be reflected in URA’s statistics. Let’s do a quick little case study – take One Devonshire, a relatively new 152-unit development right behind Somerset MRT.

One Devonshire – Image courtesy of Allgreen Properties Pte Ltd

Comprising a single 36-storey tower on a relatively small plot of land, location offers great convenience and connectivity. The playground and wading pool are not a prominent feature of the development, and facilities have a strong focus on fun and fitness: a basketball shooting range, good-sized gym, putting green, driving range, and even an air hockey table at one of the many sky gardens within the development. Unit distribution is as follows:-

Rooms Total Units Sizes (sq.ft.)
2 Bedrooms 15 904 – 914
3 Bedrooms 84 1,194 – 1,410
4 Bedrooms 37 1,463 – 1,603
Sky Suites & Penthouses 37 2,400 – 4,876

What sort of tenant do you think this development would appeal to? Based on what I’ve outlined above, I think most would conclude that this is more of a young yuppies’ residence than a haven for families with children. Younger, likely staying alone or just with a partner, possibly smaller budget, smaller space requirements too. This coupled with the fact that there are only fifteen 2-bedroom units in the entire development? I would definitely pick a 2-bedroom over a larger unit in this particular development. Case in point: there are zero 2-bedroom units available for rent at point of writing.

My point is, pick a unit type that is congruent with the general appeal of the development. Most new projects will invariably be marketed along the lines of “we have a variety of layouts to suit any taste/lifestyle/budget “, but I think few truly live up to that promise. The fact is, young swinging bachelors/bachelorettes and soccer-mums with 3-4 boisterous kids have very different preferences, and rarely want to live in the same compound. The former avoid family-centric developments with noisy kids running around the pool cramping their style, and the latter don’t want late-night rowdy parties disturbing their bedtime story-telling (I met a harried mother of 3 desperate to escape her Orchard condo, which had become colonised by young expat singles. The last straw for her came when one of the weekly parties cumulated in drunken revellers setting a poolside umbrella on fire! ) The exception would be for condo developments that have grounds large enough to accomodate both ends of the spectrum – developments like Trizon, Viva or Parvis come to mind.

One man’s playground is another man’s litter box. Consider the type of tenant the development attracts when determining what sort of unit to go for. (Image courtesy http://www.cartoonstock.com. )

Next, consider the layout. There are definitely folks who prefer to segregate their dining from their living areas, but given the shrinking size of apartments these days, a combined living/dining area gives the illusion of more space and is more versatile in terms of furniture placement, thus appealing to a wider tenant base, which is what you’d seek as a landlord. This reduces the chance of measuring tape rejection – ie. when you have a willing tenant with the right budget, but he just can’t squeeze his precious 3+4-piece sofa set into your living room.

What about which floor to pick? I would say 2 out of every 5 tenants I serve will specifically request for a ground patio or penthouse unit with large outdoor space. For a standard 10-storey residential tower, only 10% will have ground floor patios, likewise only 10% will be penthouse units. As the number of storeys increases, the percentage drops further. Thus owners of penthouse/patio units have a certain degree of pricing power over their prospective tenants. Again, bear in mind the feel of the development you’re intending to invest in. A patio unit becomes unattractive if situated right along a busy common pathway within the development (though you can counter this by providing adequate foilage for privacy), likewise a penthouse unit with roof terrace isn’t as appealing if there are taller blocks within close proximity gazing down upon it. Privacy, or lack thereof, will always be a foremost consideration to anyone looking for a home with lots of outdoor space (It’s termed private enclosed space, afterall! )

As I’ve emphasized repeatedly in this article, always consider how well the apartment sits within the development of your choice. For instance, it’s generally nice to have a little something extra like a private jacuzzi, but think about whether it makes sense in all respects. I’ve seen a ground floor unit that had its own jacuzzi on the patio. Great tenant magnet? Not so. Firstly, the whole appeal of having a private jacuzzi is that you should be able to soak in privacy. Hardly the case when you’re on the ground floor, bang smack in the middle of a small courtyard-style development where the neighbour living across from you can literally tell when your last leg waxing appointment was. Secondly, the unit was 5 steps away from the 4 common jacuzzi pools, so it’s unlikely any right-minded tenant would pay a premium for the said feature.

Managing Your Rental Unit

Unlike most investments, your ability to enhance yield doesn’t stop once you’ve bought in. Next comes actually getting the place tenanted out. Always bear in mind that it is usually less damaging to your yield performance to contract a slightly-less-than-ideal rent than it is to wait out 1-2 months or possibly longer for a better offer to come in. Say market rent for your unit is $5000/mth, and a firm offer comes in at $4,800/mth. Unless the start lease date is a month or more from today, or potential tenants are coming in droves, securing $4,800 x 24-months is preferable to waiting indefinitely for an extra $200/mth (i.e. $4,800 extra, benefit of which would be completely nullified if the higher offer of $5000 takes a month or longer to come in.)

Next tip – don’t discriminate blindly! Any tenant that pays you good rent is worth considering. Don’t rule out particular tenant profiles unless it specifically relates to unlawfulness/credit-worthiness, the latter of which you can to an extent counter by imposing a higher security deposit requirement and diligently checking that rent is duly paid into your account each month. If you expect to market your place for sale during the duration of the lease, then it makes sense to lease to a tenant that will keep the place in a pleasant condition, but otherwise all fears of a particular tenant damaging the property can be duly addressed via the lease agreement requiring them to restore the apartment to original condition and allowing deduction from the security deposit should they fail to do so upon handover.

Finally, about maintaining and renovating your investment unit. I’ve seen landlords from both ends of the spectrum – those that are penny-wise, pound-foolish, refusing to spend any money sprucing up their rental units… and those that go all out to renovate. A simple lick of fresh paint can do wonders, conversely, neglecting to patch up old water-damage can cause your unit to lie vacant for months on end – no tenant will dare sign up for a 2-year lease at a potentially water-logged home! I’ll admit, when we first started investing in property, we were extremely tight-wadded about spending a single cent. But over the years, I’ve had the opportunity to learn the ropes from some truly great property investors, and have come to realise the benefits of being a good and conscientious landlord/property manager.

When it comes to renovation – less is more. Each tenant will have slightly different preferences, so keep things neat and neutral. Be very specific about how your proposed renovation is intended to enhance rental – does it make the home appear more spacious? Does it enhance the bright & breezy factor? Don’t bother with aesthetic decor that merely add “character” to the place, save that creative license for your own home… rental units should present a blank canvas that tenants can express their own taste and preference.

A natural rock fireplace and hand painted wall mural may be the epitome of chic, but unless you’re leasing out boutique holiday homes, I’d be a little more reserved when it comes to overhauling rental units.

In my line of work, I’ve seen various attempts to creatively utilise bombshelter space. One had carpentry done to turn the shelter into a walk-in closet – it looked quite lovely, but in practical terms, who would willingly lock themselves in a bombshelter to get dressed?! Another had shelving installed together with a loft bed – this I found more acceptable. The prospective tenant could choose to use the shelter as a store room, and if they had a helper, they had the option of having her sleep above all the storage. (Not the most ideal arrangement, I’ll admit, but a viable option nonetheless.)

Roof terraces often have better potential for enhancement than bomb shelters. In their bare, concrete state they aren’t too appealing to potential tenants, but a basic trellis and simple outdoor furniture can create a more welcoming vision. The key is getting prospective tenants to see the space as somewhere they can see themselves relaxing or hosting parties as opposed to a void dead-weight space that they shouldn’t waste rental dollars on.

What I hope to drive home today is that optimising rental yield is a delicate balance. You want something generic/neutral enough for any suitable tenant to be able to envision himself setting up a home in, and yet to really harness exceptional rental, you need to have a unique selling point – be it a private pool, a spacious patio, or simply being the best maintained unit in the entire development (trust me, the latter is a killer selling point to would-be tenants! Not only does it mean a clean and comfortable home, it also indicates that the landlord is someone that takes pride in the unit and won’t give you too hard a time over simple maintenance issues during your 2-year lease!).

What I’ve covered in today’s article is far from an exhaustive list of methods to getting better rental – marketing the unit is an entire chapter in itself, which is why I’ve intentionally left this out for the sake of brevity. That said, I fear I have already rambled on for too long! Rather than my soliloquy, let me hear your thoughts and ideas on how you’ve personally sought to enhance your rental yields! Drop me an email, or just leave a comment! 🙂

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