Different Types of Rental Property: What to Look For
It is incredibly important for prospective buyers to be aware of the options available with their property investing, as it allows them to weigh up which property type can help them best achieve their investment goals. With many investors getting onto the property market as a result of the RBA setting the cash rate to its lowest point in Australian history, at 0.25%, now has never been a time to weigh up your property options. This article touches upon different types of rental property and what benefits and drawbacks they provide for an investor.
Type of Rental Property 1: Detached Single-Family Home
Detached single-family homes are one of the most common types of rental property within Australia. They are single standing structures intended for the purpose of housing a single family, or group of friends. The rental payments for these properties are collectively paid with a single tenancy agreement.
Easy to manage, financially flexible and attainable.
Detached single-family homes are cheap, easy to occupy and sell, and also appreciate in value faster than other property options. As rental payments are collectively paid, it is not on the landlord or property management to collect individual payments from multiple tenancy agreements. Having a single group of tenants, either family or friends, occupying the property also removes the potential for disputes between different tenants occupying the same property.
When unoccupied, these types of rental property do not provide any income for the landlord, unlike multi-tenant properties. It is therefore required that the landlord has the time or capital to spend on real estate agents to ensure that the transition between tenants is as short as possible.
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Type of Rental Property 2: Duplex/Triplex/Quadplex
These types of rental property have multiple tenancy agreements for more than tenant on the same land. They often have tenants sharing walls, parking, driveways and in some cases, buildings. The tenants in the building live in separate living areas.
More income, security and flexibility
These types of rental property can offer the landlord a larger source of income compared to other options, with multiple tenancy agreements allowing for multiple rental income streams. It also provides more sustainable income, with multiple tenants meaning that all rental income isn’t lost in the transition period when a tenant moves out. Another benefit is the flexibility and value of adding to the property. Value-adding renovations such as repaving the driveway, air-conditioning and landscaping increase the value of multiple rental incomes, making it a more valuable approach to upgrading a property
Expensive, and more difficult to manage
It is a larger financial barrier to entry when deciding to invest in a duplex/triplex/quadplex, as it requires larger land sizes and buildings. Having multiple tenants also makes managing the property more difficult, as disputes need to be settled, more needs require to be catered for, and more streams of income require to be processed.
Check out more information on duplex/triplex/quadplex’s here
Type of Rental Property 3: Granny Flat
A granny flat is a small detached property, usually, in an existing property’s backyard, that is generally occupied by 1-2 people under a tenancy agreement. These can be built onto a landlord’s existing home of residence, or onto an investment property.
Cheap to build, moderate returns and adds value to existing property
Granny flats are an easy option to begin investing in property, as they are relatively cheap to build and maintain. A well built and liveable granny flat can cost as little as $100,000, with some great examples shown on Backyard Grannys. They also provide ample returns, at roughly 10-20% of your initial investment. Another pro of a granny flat is its addition to the value of the property it is being added to. A well-built granny flat can add value for a prospective buyer or renter depending on their family situation.
Privacy concerns, demand for land, and the approval process
As granny flats are being constructed on an existing property, there is concern regarding the privacy and relationship between both the occupants of the property and the granny flat. Additional money may need to be spent on ensuring privacy for both tenants and reducing conflict with parking and noise. It is also necessary that the property that the granny flat is being constructed on has enough land to compensate for the additional building. Current legislation is also reducing the immediate accessibility of constructing a granny flat, with many councils having tight regulation regarding the building and renting of a granny flat.
Type of Rental Property 4: Holiday Home
A holiday home is a type of rental property that can be rented out over certain periods of the year but can also be an asset to be utilised by the property owner. They are generally rented out in locations outside of major CBD’s, usually on the coast or in serene environments.
Flexible and inexpensive
Holiday houses can be utilised by the property owner as a getaway option whenever it suits. This is because occupants aren’t locked in a tenancy agreement like other properties, instead, a third-party booking platform or agency can rent out the property to the owners’ specifications. As these homes aren’t generally located in expensive areas, they are also significantly cheaper than other property options. This frees up capital which can be used to upgrade the home and increase rental income
Inconsistent income and usually increased maintenance costs
The popularity of holiday home occupancy is inconsistent over the course of the year dependant on its location. This means that continuous rental income that is received through tenancy agreements with other properties is sacrificed for larger, yet more sporadic booking costs. Another con is the larger maintenance costs usually attributed to occupants within holiday homes. As occupants are using the property for the purposes of unwinding and celebrating, less priority is given by the tenants on the upkeep and state of the property following their stay. This can mean that costs of any damages or poor upkeep by the occupants can be put on the owner instead of the tenant.
Check out more information on holiday homes here.
There are many different types of rental property available for prospective landlords to look for when considering an investment. It is imperative that price, management and upkeep of the property are factored into the purchase alongside other factors such as location, economic development, etc. Vision Property and Finance is offering prospective investors a free consultation to help make your investment goals a reality. Be sure to book here, or check out our other resources below.