Skip to main content

Ways to Boost Investment Cash Flow in Response to Climbing Interest Rates

With the Reserve Bank of Australia recently increasing interest rates for the sixth time in less than six months, many landlords feel the weight of the added interest rate on their cash flow. Mortgages that have been negatively geared prior may need to be topped monthly from the owner’s pocket. 

That being said, there are several things you can do to offset the impact and protect your cash flow. In this article, we’ll explore strategies you can use to keep your cash flow healthy despite rising interest rates.

1. REVIEW YOUR CURRENT RENT

The first and foremost strategy is to review your rent. Of course, you don’t want to price yourself out of the market and lose good tenants, but it may make sense to modestly increase your rent to keep up with your higher operating costs. Just be sure to research beforehand so you know how much of a rent increase your tenants can realistically afford without moving elsewhere. 

Important note: There were recent changes to tenancy laws in NSW. 

On a periodic lease (month-to-month lease, in other words): Rent can only be increased once in 12 months after the minimum 60-day written notice is given to the tenant.

Get in touch with your Property Manager today to review your rent. 

Rental return is the goal, not the rent amount. Consider costs for replacing tenants. 

Suppose it is the case that you have already increased the rent in the last 12 months and the new rent is still under the market (the rental market has climbed up significantly since March 2022). In that case, you may have to terminate your current tenancy and go to the need to try to achieve optimal rent. If this is the case, please consider potential vacancy and leasing costs. 

Example: 

Current rent: $400 per week, increased in September 2022, so cannot be raised again until September 2023

Market rent: $500 per week

Annual difference between current and market rent = $5,214

Potential vacancy, lets’ account for two weeks at the new rate of rent = $1,000

Letting fee (1 weeks rent plus GST) + letting advertising ($300) = $850

Total Cost of replacing current tenants = $1,850

Net rent return difference: 📈 $3,364 per annum. 

In this instance, it is worth going through the exercise of replacing your current tenants as your property’s cash flow difference is positive $3,364 per annum.

2. REVIEW YOUR MORTGAGE

If you’re carrying a mortgage on your rental property (most of us do), now may be a good time to review your existing mortgage. 

Many banks are currently fighting for business and offering reasonable rates + cashback offers of up to $5,000.00 to win new clients. 

Get in touch with your mortgage broker. We can recommend a few we work with if you don’t have one. 

3. MAXIMISE YOUR TAX RETURNS – do you have a depreciation report? 

Any property built after 1987 is worth having a depreciation schedule for. 

A tax depreciation schedule is an ATO-complying document that helps property investors unlock their tax deductions.

We have found that even seasoned investors can overlook depreciation reports and miss out on thousands of dollars worth of deductions. 

Not all accountants recommend you get a depreciation schedule, so the onus is on the owner to reach out to a quantity surveyor and weigh your cost vs. benefit. 

Here is a sample depreciation schedule for a townhouse built in 2001. 

As you can see, in FY23, the townhouse owner can claim $10,312 on depreciation! 

How many receipts in a shoebox would you have to combine to come up to $10,000 worth of tax deduction? 

In conclusion, keeping up with your rental property cash flow can be challenging, significantly when interest rates increase as often as it has over a short period. However, by taking some proactive steps now, you can weather the storm and keep your cash flow afloat. 

AUTHOR

Joseph Fairchild

Joseph is an award winning real estate agent, local property economist and thought leader in the property industry. He is well versed in advanced property strategies (such as vendor finance, delayed settlements and back-to-back settlements for off-the-plan properties) which many other agents would place neatly in the ‘too hard’ basket.

Disclaimer:

Metro Realty or its employees or associates are not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly by this article.

Spring Sydney Walks We Cannot Wait For
Sydney Property Market: End Of Year Update with Joseph Fairchild

Work with Metro Realty

Whether you are holding, selling or buying an investment property, we are here to assist and be your real estate team.