While it may seem easy to ‘buy a property’ and watch it go up in value, as you have your own home and know how that works, and at some time you have probably rented a property, it isn’t always plain sailing.
Not all tenants are ‘dream tenants’ and there are a lot of potential issues relating to your rights as a landlord (not the least being the meth epidemic in New Zealand.)
Using a property manager
We recommend to our clients who invest in rental property that they investigate the value of getting a good quality property manager. These property managers vary in quality, so it would be best to get a referral to a good manager.
They don’t come cheap – generally the cost is around 8.50%+gst of the rent earned, but these are all the things that they will do for you:
- Select tenants – after a thorough vetting process
- Manage the bond and rental process
- Gather the rental income, and chase arrears
- Manage maintenance and other issues – finding people to fix the issues
- Giving notice to tenants and managing the exit if necessary
- Carrying out regular checks on tenants and the condition of the property.
If you don’t have a property manager doing this for you, I can assure you it is time consuming and can add additional stress, if you are doing this task yourself. It can also be more difficult if you don’t have the arms length relationship that a property manager can provide for you.
Other issues that you need to ensure that you are managing:
- Being aware of your rights and your tenants rights, and documenting everything. See our article on The challenges of investing in rental property
- Ensuring that you have a top quality tax accountant that you are working with. This doesn’t always mean an expensive one, we can refer you to an accountant that we highly recommend – they work virtually so it doesn’t matter where you are located. If you would like a referral, contact us by clicking here.
- You need to be very aware of the ‘meth’ issues in relation to your property.
- It is vital that you keep up to date with changes in legislation and the tax environment. At the time of writing there are several proposed changes to taxes relating to the taxation of rental properties that may affect your investment strategy.
- When you purchase a rental property, work out how you are ‘going to make money ‘from the investment and more importantly how you are ‘going to TAKE money’ from it.
The income less expenses on virtually all of the properties that we analyse for our clients, expressed as a percentage of the value of the property (when the mortgage is repaid) is generally less than you can get on a term deposit or a savings account, if you were to sell the house and put the money in the bank.
You can’t eat a house.
When you need to access your investments and live off them in retirement, generally you will need to sell the property and invest the funds in a well diversified portfolio, or, if you have enough assets, put the money in the bank.
For more information, here are other blog articles on this topic.
http://www.moneyworks.co.nz/challenges-investing-residential-rental-property/
http://www.moneyworks.co.nz/residential-investment-property-taxation-issues/
