How to get many happy rental returns
Finding a good rental involves a solid strategy of balancing rental returns with the upfront cost of the property and also finding a place that will always be popular with tenants.
Have you always dreamed of buying a family home and then moving on to secure a nice and tidy rental with good returns? You’re not alone. Many New Zealanders still (rightly or wrongly) view property investment as the best way to ‘‘get ahead’’ and prepare for retirement.
CoreLogic data shows that rental returns are improving and since the start of last year, rents have risen at almost double the rate of house prices across the country.
But being a good landlord isn’t easy and there are many pitfalls to watch out for.
Knowing your legal obligations under the Residential Tenancies Act and the Building Act are a must. As is securing the right type of property to rent out and having a long-term maintenance plan in place.
The type of investment property you buy is the first hurdle and taking time with this step will save a lot of headaches in the future.
Finding a good rental involves a solid strategy of balancing rental returns with the upfront cost of the property and also finding a place that will always be popular with tenants.
Clean, tidy and well-maintained properties would attract the best tenants, Cowdy Real Estate director of property management Janice Cowdy said.
When house-hunting for an investment property that would be sought after, Cowdy recommended looking for sun, privacy and good outdoor living spaces.
A house or apartment with reliable heating options, insulation in the ceilings and underfloor to meet the Residential Tenancy Act requirements would be key, she said.
Features often popular with tenants would also be a secure garage that could fit a car, as well as sports equipment, good-quality locks on the doors and internal access from the garage to the house for added personal security, Cowdy said.
An easily maintained garden and lawn would
‘‘If I was running lower-quality rentals then I’d use a property manager as I wouldn’t want the hassle.’’
John Bolton
always be popular, as would modern kitchens and bathrooms, she said.
Investors usually approach their purchasing decisions with one of two aims: either buying a place where rent will more than cover the mortgage, and give an ongoing stream of income, or picking somewhere where they expect capital gains.
Generally, more expensive houses have yielded better capital gains but poorer rental returns.
Once the perfect property had been found, the next question would be whether to manage it independently or hire a professional property management company.
Cowdy said the complexity of compliance issues meant it was prudent for owners to have their property managed by a professional property management company.
‘‘Property investment unlocks all kinds of possibilities but it all comes down to how well it is managed,’’ she said.
Founder of mortgage broking firm Squirrel, John Bolton, owns a number of investment properties and has always managed them himself.
Bolton said those starting out as landlords needed to take their time to get good tenants and be prepared to lose rent while that process was under way.
‘‘Run credit checks and always do your inspections. Treat them well, like a customer, so they stay long term,’’ he said.
Where landlords went wrong was not doing inspections or by letting things slip, Bolton said.
‘‘I’ve always managed my own and had good tenants. We have tended to focus on in-demand properties making it easy to get good tenants and keep them.
‘‘I think if I was running lower-quality rentals then I’d use a property manager as I wouldn’t want the hassle,’’ he said.
To keep tenant turnover low, Bolton recommended being professional and respecting them and investing the effort upfront to get good tenants.
‘‘A good tenant on a slightly lower yield is far better than one who causes problems and needs managing,’’ he said.
One issue Bolton had encountered was losing track of tenants if occupiers turned over and new flatmates replaced leaving flatmates.
He also advised people to be careful about compliance and the legality of multi-dwelling sites. ‘‘Is the property a legal two-income property? The risk only ever shows up if something goes wrong, like a fire.’’
If deciding to go with a property management company, Cowdy recommended vetting them for experience, professionalism, and whether they had a robust system in place to find the best tenant.
She said the company would need to carry out and report on regular inspections, provide good advice and be on call for tenants’ queries.
Cowdy also said a trust account to protect both owner and tenant money was essential, as was an indemnity insurance policy.