Is Air Conditioning a Good Investment for a Rental Property?

Ever have those hot sticky nights where you feel you have no other choice but to run the air conditioner all night? Suffering in the QLD heat especially during the Summer months is not pleasant , and we can all agree, no one wants to wake up grumpy and stressed out from a hot sleepless night!

Regardless of whether you are a Tenant or Landlord, suffering in the QLD heat without air conditioning is something that you should consider.

Below, we will look at what your rights are as a Tenant of a QLD rental property? Conversely, what are the expectations of a Landlord in terms of air conditioning?

Installing air conditioning in a rental property

As expected, a large concern for anyone in installing air conditioning are the potential costs.

To determine whether air conditioning will be a sound investment, there are a number of other factors you may also need to consider including, the Queensland climate and that having air conditioning in a rental property is a more attractive fixture and can increase your chances of attracting both more and even better quality Tenants.

How long will it take to recoup this investment?

Typically, a reverse cycle air conditioner costs around $1500 – $3500 to have installed, and is considered quite reasonable for a split system that can both heat and cool the living areas of a small home or an apartment.

The installation of an air conditioner in your investment property could potentially achieve an extra $20 to $50 per week in rental income. This means that you can potentially pay off the installation of a single unit in approximately 3 years based on these considerations.

Other factors you should consider are that the cost of the installation as well as future repairs and maintenance on an air conditioning unit are potentially income tax deductible. including regular servicing.*

What if a Tenant requests an air conditioner?

Tenants are well within their rights to request an air conditioner be installed in a rental property, however the Landlord’s decision to approve this request generally depends on the current market, personal factors, investment strategy, and other mitigating circumstances. Tenants should also consider that this request may potentially lead to an increase in their current rental payments if their request is approved.

If the Landlord’s goal is to invest long term, it is favorable therefore to secure a good long term tenancy and maintain low vacancy rates. In our experience, installation of air conditioning in a rental property in QLD is an attractive feature to prospective Tenants and as discussed above, chances of attracting both more and better quality Tenants.

However, what if the goal of the Landlord is to maximise their capital investment solely in terms of financial return? In this circumstance, Landlords would need to take into account not just the costs of installation, but also the potential return on investment through potentially increasing rental income as well as depreciation and future rental tax deductions.*

Can you increase the rent if you install air conditioning?

Short answer, yes!

If your Tenant asks you to install an air conditioner, then depending on current market conditions and the status of your lease, you may be able to negotiate a rental increase to offset this property improvement.

It is also important that you think ahead to achieve longer term benefits when it comes to timing your property improvements to keep the value of your investment high in a sustainable way.

Warning! There is a difference between a reasonable increase for property improvements and an unreasonable one, so whilst a rental increase is more than likely acceptable, Landlords should consider the size of any rental increases so that a good long-term Tenant isn’t being lost over it causing the Landlord an unexpected vacancy.

Future Legislation Changes to Consider

With all the reforms occurring in the legislation surrounding rentals in QLD; there is a very good chance that we will see a requirement for air conditioning to be installed as a minimum standard within the next few years, much like the Smoke Alarm Legislation of 2022.

In NSW and VIC, these standards are already in place for the supply of adequate heating and cooling options and this is important for us as QLD has been following the other states lead with the recent rental reform.

Should a reform like this be announced in the future, prices of air conditioning units and installation will most likely increase significantly just like we experienced with the Smoke Alarm Legislation changes. It is much better to be at the forefront of changes then left scrambling at the end when prices have skyrocketed and availability is scarce.

*Disclosure: Any information above regarding potential tax implications are general in nature and you should discuss any income tax matters with your Accountant.