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Want high growth plus high rental returns? The answer may be outside

Wednesday, 8th Feb 2012

outside

A large block can help an investor build wealth, but tenants are typically unwilling to pay more to live on a large block. So, is there a way to make the outdoor space more valuable to tenants and therefore increase rental returns?

A small property on a large block can be an investor’s dream. It can deliver strong capital growth as well as the opportunity to add value through developing the property in the future. But while a large block can help an investor build wealth, tenants are typically unwilling to pay more to live on a large block, resulting in lower rental yields for this type of property.

So, is there a way to make the outdoor space more valuable to tenants and therefore increase rental returns? I believe so. Although the size and quality of a property’s indoor space plays a large role in determining what tenants are willing to pay, the outdoor space offers excellent opportunities to boost the rental value.

In fact, recent research and trends suggest that desirable outdoor spaces are one of the few characteristics that a tenant would be willing to pay more for. And in a place like Perth with long, hot summers and alfresco lifestyle, outdoor space is probably more important than in any other city around Australia.

But not all spaces are created equal. Properties with large outdoor areas can put off tenants because of the effort and costs associate with maintaining the outdoor area. Some tenants might discount a property entirely because of a high-maintenance outdoor area.

What’s clear is that tenants don’t want to open the back door to a sparse landscape of endless grass, an old Hills Hoist, and meters of bland fencing. Nor do they appreciate an overgrown jungle. The truth is many of them aren’t motivated to look after an outdoor area that they just don’t use.

Unfortunately though, this scenario is all too common as many investors place little importance on the outdoor areas of their investment property, focusing instead on the presentation of the interior. When the outdoor spaces do receive attention, it is usually the front garden that gets most of it. While this is valuable for street appeal, it might not be enough for tenants if the back area is poor and unusable.

So, what do tenants want in an outdoor area and how can you make your investment property more desirable to them (which will improve your rental yield and help you rent your property faster)?

What tenants ultimately want is an area where they can entertain guests, a relaxing environment where they can unwind after work, and green gardens that are attractive but require minimal maintenance.

Here are some key features and ideas you may like to consider for your property:

BBQ area

Just about every tenant would want a space where they can place a table to entertain guests by the BBQ. A simple paved area or small deck would be ideal, or even a gravel area with stepping stone pavers would do. If there’s existing ugly concrete, consider painting it or laying do-it-yourself decking tiles over the top for an inexpensive update.

Sun coverage

To make the space more usable and complete it as an ‘outdoor room’, consider some sort of shade structure. This could be as expensive as a covered pergola or as cheap as an open pergola with a vine or some shade sails.

Hardy plants

A bit of greenery will never go astray, but choose plants that are hardy, slow growing and need virtually no maintenance. Visit markets and discount nurseries to pick up some bargains and make your dollar go further. There’s no need to go overboard; using plants as borders around hard areas (like paving) and in a few feature beds is all that’s necessary.

Partitioning

Sometimes the size of the yard can make it too big a job to improve and too expensive. In this case, consider partitioning or screening off a part of the yard and instead focus on just improving a smaller, more usable area nearby the house.

Of course, when it comes to improving the outdoor space of your property, the exact specifications of what is desired will vary from area to area.  For example, properties in family areas may need to have grass for the kids, while in other areas tenants may prefer no grass at all but prefer a large shed with plenty of storage.  It’s worth doing some research by looking at other competitive properties on the rental market to see what you’re up against and what the outdoor areas are like of properties that appear to be most in demand.

Don’t forget that improving the outdoor spaces isn’t just about attracting tenants; it also adds value to your property. For buy-and-hold investors, it can be worth spending a bit more on the outdoor areas. For those looking to redevelop in the near future, it doesn’t make sense to spend too much if it’s only going to be torn apart, however some small, inexpensive changes can make the world of difference for the short term.

Speak to your Momentum Wealth Property Manager first about updating the outside of your property. They can give you an idea of the market expectations and what potential value an update may add to your property.