What can I do with a rental property that is losing money

This article is not intended to be used or considered as financial advice. We recommend that all landlords and investors speak to a licensed financial advisor for advice tailored to their individual circumstances.

For decades, the real estate market has proven a lucrative opportunity for savvy investors worldwide, but it isn’t always going to be a sound financial strategy. Whether it’s broader economic factors creating an unfavourable rental market or individual property concerns, it can be troubling and overwhelming if you are a landlord losing money on a rental property. You may feel like you have few options or need help figuring out where to start.

Fortunately, there are several steps you can take to turn your rental around and get back in the black. In this article, Dynamic Residential explores these tactics in more detail.

What is the Difference Between Negative Gearing & Losing Money on a Rental Property?

Even if you are still new to property investing, you will likely have heard of a strategy known as ‘negative gearing’. This is a situation where the expenses associated with owning a rental property, such as mortgage interest and property maintenance, exceed the income generated from renting it out. This results in a net loss, or ‘negative’ cash flow, for the landlord.

Negative gearing isn’t the same as losing money on a rental property, however, as the owner may be able to use the resulting loss to reduce their taxable income and pay less tax, ultimately achieving a positive financial outcome. In this article, we refer to total losses stemming from situations like an inability to attract new renters (and, as such, collect rental payments).

Methods to Potentially Increase the Return on Your Rental Property

Explore increasing your rental prices

One potentially obvious solution is to explore increasing the amount of rent your charge for your property. Be mindful of the local rental market and ensure that your prices align with other similar properties in the area. You can also consult a local real estate agent who can provide valuable insight and advice.

Don’t get greedy, though. It’s also important to consider the potential impact on your tenants – if they can’t afford the higher rent prices, they may choose to move out, leading to even more financial stress.

Ensure you’re utilising tax breaks

Landlords are essentially running a business and may be eligible for certain tax breaks to help offset your rental property losses. It’s a good idea to consult with a tax professional to help you identify which tax breaks you may be eligible for and ensure that you’re taking advantage of them.

Some common tax breaks for rental property owners include deductions for expenses like mortgage interest, rates, insurance, maintenance, and repair costs. You may also be able to claim a depreciation deduction each year to account for the decline in the value of the building itself, but you will first need a depreciation schedule compiled by a professional. By taking advantage of these tax deductions, you can reduce your overall losses and improve the financial performance of your rental property.

Add new features and facilities to increase the rental value

When landlords are losing money on a rental property, it can feel counterintuitive to re-invest additional funds. With that said, adding new features and facilities to your rental property can increase its value and potentially accelerate the return on investment as it becomes more desirable. For example, this could range from general renovations (new coats of paint, changing the flooring, updating the kitchen with new appliances) to more extravagant inclusions, such as air conditioning, solar panels, or even a pool and fitness centre.

Of course, any upgrades or improvements you make will need to be carefully considered and planned. You should ensure that the changes you make will actually increase the rental value of your property and provide a good return on your investment. Again, it helps to conduct further market research to see how these features impact rental rates on similar properties in the area.

Reassess your property management approach

Another potential solution is to reassess how you are currently conducting your property management approach. Are you doing all of the work yourself? Is your property management team able to effectively manage the property and handle issues like maintenance and repair requests in a timely manner? What about keeping the tenant accountable for their behaviour within the property?

Moreover, it’s a good idea to review your rental agreement and make sure it’s fair to both you and your tenants. For example, do you have clear policies in place for late payments or damages to the property? By having a well-written rental agreement in place, you can help protect your financial interests and reduce the likelihood of disputes with your tenants.

Consider changing your property manager or implementing new processes and systems to improve their effectiveness.

Learn More from Our Team at Dynamic Residential

If you are a landlord losing money on a rental property and want to take action to improve your investment portfolio, reach out to our property management experts at Dynamic Residential today. Our specialists have intimate knowledge of the Victorian property market and are happy to share our insights to help you achieve the highest rent possible.

Call directly on +61 3 8600 1200 or submit an online enquiry today.

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