Top 10 things to consider when investing in a rental property
If you’re investing in a rental property, then you want to use research and market data to assess the demand and maximise your operating income. To ensure your rental property brings in as much money as possible, you should read and carefully consider the following 10 items to maximise your rental’s desirability and profitability.
1. The neighbourhood
Familiarising yourself with the city in that you’re buying is the first step in choosing a rental property. You’ll want to make sure you’re choosing a property in an area that’s desirable. If you can’t afford an apartment or home in the area’s most popular neighbourhood, figure out which ones are up-and-coming and look there — you’ll likely make a more significant return on your investment by choosing a zone that’ll be at its peak desirability in a few years’ time. You should also investigate the vacancy rate of other rentals. If they’re all full, you have a good chance of leasing yours, quickly.
2. Know your budget
You can’t buy a rental property without first figuring out your budget. Speak to a trusted mortgage broker. Start by crunching the numbers and getting pre-approval is highly recommended before you start visiting open homes. In that way, you can figure out how much money is left over from month to month — you’ll want to have some working capital (i.e. extra cash on hand) to cover any unforeseen expenses such as emergency maintenance or extended vacancy. Once you know how much you can afford, then begin your search. You don’t want to buy something outside of your set parameters — even if the rent coming in is right, you don’t want to put yourself in a tight spot should you be unable to find the right person, immediately.
3. Kitchens and bathrooms
You won’t be living in your rental property, but someone will. And there are some features that will help sell the place to potential renters. Today’s real estate market is all about kitchens and bathrooms, so focus your updates here. Updating the kitchen appliances, painting the cabinets, and swapping out the countertops will completely revamp the property’s culinary centre. Fresh tile, updated hardware, or a new showerhead will make even the smallest bathroom look more modern.
The good news is that any renovation of these spaces will only add value to the property you’ve purchased. If you decide to sell your rental down the line, then you’ve set yourself up to profit from your purchase by sprucing up the bathrooms and kitchen.
4. Schools
If your rental property is a family home, get in the mindset of parents who might consider renting. Their first concern will probably be the quality of schools in the area. So, be sure to examine the potential school districts in which you can buy. Either choose a home in a good area so parents will be pleased or select a smaller property for couples or young professionals who won’t be as concerned about public schools.
5. Nearby amenities
Finally, get into the mind of your renter and figure out what nearby amenities will entice them to settle. If you’re purchasing an apartment, the building’s features will be of the utmost importance. Popular features include security systems, common rooms, and a fitness centre. If you’re renting a home, the amenities there will come with the neighbourhood. Along with schools, see how far the place is from supermarkets, public transport, parks, beaches, bars & cafes.
6. Health Homes Standards
Recent changes to the Residential Tenancy Act has added a heap of compliance required to rent your home. The list is long but some basic things to check out:
that the home has insulation in the floor & ceiling and an installation statement to prove it.
there is an range hood in the kitchen and an extractor fan in the bathroom
that there is a moisture barrier under the house (if accessible)
that there is a good heating source (e.g. a heat pump) in the main living area
that there is a Health Homes Statement provided.
7. Average market rent
In a perfect world, the rent will more than cover your mortgage, so that you can make money from your property without lifting a finger. Of course, this is a luxury that most landlords don’t have. In New Zealand, the majority of rental property are negatively geared. To do you numbers you need to know the potential rental value of the home. You can do that yourself by looking on trademe at similar homes or by getting a professional property management company to provide a rental appraisal.
8. Property development
If you’re buying in an established area where it seems as though there’s no space to develop anything more, you should still find out about any planned developments. The locals will know and/or the council. If you are placed in the middle of a long term development then it makes it less attractive for tenants. On the other hand, it can also provide a source of tenants from the builders who are working on the site. For example, the hospital rebuild is expected to attract between 350 and 700 extra labours into town.
9. Insurance
You’re going to need homeowner’s insurance for your new property but you should still be mindful of important additional insurances, e.g. Landlord Protection. This can be very valuable if for some reason you stop receiving rent.
10. Other expenses
We recommend landlords speaking with an Accountant who specilises in rental properties. Fortunately in New Zealand there are heaps. Your rental income may cover your mortgage but there are others expenses to consider. Your mortgage repayments on average only account for 75% of the overall expenses for running your property. You’ll need to spreadsheet including your rates, insurance, accountant fees, property management fees, and maintenance. One way to reduce your expenses and improve cash flow is to set your mortgage to interest only. Most banks will be happy to do this.
If budget allows – give thought to adding amenities that will increase value
Renters prefer anything that makes life easier through technology. Property managers and renters alike can benefit from making upgrades in these areas.
Fibre internet connections
Kitchen fit-out: dishwashers, gas , other integrated appliances.
Interested parties are encouraged to get a rental appraisal from Dunedin Property Management.