As I mentioned in an earlier article, there are certain development projects that do not necessarily benefit from architectural design. A ‘fix and flick’ development for example, where the goal is to purchase a property (or properties in the case of units/townhouses), do a quick renovation and then put it back on the market is a good example. It’s not so much the extra expense of having an architect create the design that’s the problem, as much as the extra time that it takes to have a great design created.
But what about those developments where the goal is not to immediately sell, but rather rent the properties out for ongoing income; does great design help or hinder these projects?
Now I should point out right up front that Dion Seminara Architecture does not only create up-market properties. We do work on investment properties as well. And not every property needs to be luxurious however all properties, regardless of the size of your budget, can benefit from great designs.
To understand how these types of developments can benefit from great designs we need first be completely clear on the fact that this is a business decision. So let’s look at it in a business minded way.
The business model
- You have a block of land
- You put dwellings on that block of land
- How many and what type of dwellings you can put on that land depends on the size of the block, building & council/local government regulations etc
- You then make income from charging rent
- From that income you need to cover expenses such as:
Rates
Maintenance/Upkeep
Mortgage Repayments
Insurances etc
Looking at the cold hard facts above we can see that there is a limit to the number of sales your ‘business’ can make each year. For example, if you have 10 townhouses, then your business can only make 10 sales in any year. Sure you might have 6 month leases and actually ‘sell’ the rental on your townhouses to more than one person/couple in a year, but you still effectively only have 10 ‘products’ to ‘sell’.
We can also see from the points above that like any business, your business has costs; some fixed, some variable. The amount of ‘profit’ you make then comes down to your rental return less your expenses. Pretty simple really, so how does this apply to architecture?
Increasing your profits
As we have just discussed, property investment is a business, but unlike a retail style of business you do have a limited number of sales you can make each year. Using the above example, if you have 10 townhouses you are limited to making 10 sales a year. Keeping that in mind, ask yourself this question:
If you owned a car dealership and could only sell 10 cars a year, would you rather be selling Holden Commodores or Ferraris?
Think about that for a moment. Sure the Ferraris may cost you more to purchase in the first place, but the profit you would make from the sale of each Ferrari would be significantly more than what you would make from selling a Commodore.
So now ask yourself this question: Would you rather your townhouses/units be the Ferraris or the Commodores of the rental market?
As with the car example above, architecturally designed investment properties may cost more initially, but your ongoing profit (weekly rental income – expenses) is greatly increased. Simply put, you will get higher rental returns from a beautifully designed investment property than you would on one that is not as well designed.
So if you can only make 2, 5, 10 sales per year ( depending on the number of investment properties you’re renting out), do you want to get the maximum return on each of these, or less than the maximum return?
Getting repeat business
Good business owners know that it’s easier to get past customers coming back than it is to get new customers through the door. This also has some relevance to the rental market.
Constantly having tenants move out at their end of their lease and new ones move in can be problematic for property investors. This is particularly true if your original tenant was a good one; there’s no guarantee that the next one will be.
In my own rental properties I have a very high tenant retention rate. Not only that, but I also have no problem increasing the rent at the end of each lease agreement whilst still retaining my tenants. How you might ask? By producing quality accommodation. I have created environments that I would happily live in myself. As a result of this I not only retain tenants, but I achieve the maximum rental returns on each of my properties.
It’s cheaper to pay for top quality
Ugly buildings that are poorly designed and constructed do property investors no favours. Not only does it mean that you will achieve less rent for each of your dwellings, but poor construction can lead to costly maintenance bills that can quickly eat into your annual profits.
Going back to the car example I used before, it’s a bit like selling a car and then having it constantly in your workshop getting warranty work done. Your profits can rapidly disappear.
By having well designed rental properties that are built to a high standard you are actually maximising your long term profits.
So if you want to make the most out of your property investment business, call my offices today and let me create rental accommodation that will achieve the highest possible rental returns and excellent tenant retention.
