How do I choose a property?
There are many factors to consider, including who your tenants will be. For example, if you purchase near a university your tenants may be students. The sort of place you buy, the location and the amount of the rent will all go towards determining who your tenants will be, so consider this carefully when choosing a property.
Things to ask the real estate agent
Ask as many questions as possible to get the full picture of the property, as the agent is required to give you a truthful answer that is not misleading.
Here is a list of questions you may want to consider:
Tenants
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Is the property rented and how much is the rent?
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How long have the tenants been there or how long has the property been vacant?
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If there are current tenants, would they want to stay?
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What are average rents for the area?
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When was the last rent increase?
The surrounding area
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Who are the neighbours, are they renting or do they own the properties?
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Are there schools nearby, what other facilities are nearby?
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Are there any development plans for the area?
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What have similar properties in the area been selling for?
Property costs
Property details
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What type of title does the property have?
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What chattels are included with the property?
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Has it recently been re-piled, re-plumbed or rewired and when?
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Have any alterations been made, do these have consents?
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Where are the boundaries?
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Does the property require any urgent repairs?
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What heating and insulation does it have?
General
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Has there been anyone else interested?
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Have there been any other offers?
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Why are the owners selling?
Calculating yield
One way to compare multiple investment properties is to look at the yield; it can help you decide which property is the better investment. The yield is the return, as a percentage that you will get on the cost of the property after expenses but before tax. Don’t include the loan as the amount may differ depending on the property you buy. Any tax advantage, capital gain or loss or loan costs and interest would be additional to the yield and make up your total return.
Here’s an example:
| Price of property |
$240,000 |
| Gross annual rent ($270 x 52) |
$14,040 |
| Annual expenses |
|
| Management fees |
$500 |
| Rates |
$1,000 |
| Insurance |
$300 |
| Maintenance |
$250 |
| Body corporate fees |
$750 |
| 3 weeks vacancy |
$810 |
|
|
| Total |
$3,610 |
| Annual rent after expenses |
$10,430 |
Divide rent by the price of the property and multiply by 100.
($10,430 / $240,000 = 0.0435 x 100 = 4.35%
How do I choose tenants?
Draw on your life skills when you are a landlord, as it can be tricky. It requires time and a range of skills to manage the property and to deal with tenants.
You may never have a problem with your tenants but you should think carefully about what you would do if problems did arise. There is the possibility that they will damage your property, fall behind with payments, and it can be difficult getting a problem tenant to move out. There are rules around when you can visit the property and how much notice each party must give when it’s time to move.
You should have a bond of up to 4 weeks to cover these circumstances, but this is held by The Department of Building and Housing.
Another option is to use the services of a property management company who can handle everything for you from selecting tenants to collecting the rent or any part of the process you require. Some real estate agents also offer this service. The fee could be a standard amount or a percentage of the rental income. Use around 5-10% of the rental income as a guide and ask around before you make a choice.
Laws change regularly but you can visit dbh.govt.nz
for up to date information about the rights and responsibilities of
landlords and tenants.
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