During uncertain economic times, it’s not only cost-cutting saving tips that we should be exploring, but more importantly, how we can make smarter choices to increase our income, profits or return on investment (ROI).
A ROI is simply the ratio of a profit or loss made in a financial year that’s expressed as a percentage.
Most investors would agree that, over time, an average annual return of 5 to 12% on your passive investment dollars is good and anything higher than 12% is excellent.
ROI = Net Profit / Total Investment * 100
For example: If you invest $15,000 on improvements to the property that results in a $50 rent increase per week, the ROI would be 17.3%.
Calculation: $50 rent increase x 52 weeks = $2,600 / $15,000 * 100.
When planning to improve your property, always take into consideration the ROI prior to investing your money.
10 top tips to increase your ROI
A few simple changes can make a big difference.
- Tidy and improve the external appearance of the property by weeding lawns and gardens, mulching, trimming back trees/shrubs and replace the letterbox
- Paint the roof and front fence
- Sugar soap the walls
- Re-grout tiled areas
- Replace kitchen cupboard doors
- Replace floor coverings
- Install heating/cooling system
- Upgrade appliances
- Add an additional room extension to the property
- Invest in a quality Property Manager to ensure the maintenance of the property and best rental return
There are lots of ways that you can increase your income (weekly rent), profits and ROI. But remember, spending money on your investment property doesn’t always equal and increase in the weekly rent or produce a return on your investment. Sometimes, improving the property is simply to keep it up to date with market standards.
Take the time now to calculate a couple of ROI improvements.
Although there are certainly rewards to reap, investing does require you to put in some groundwork and planning! Discover the nine experts you should include on your property investment team here.