It’s property investment 101. If you are renting out a property, particularly a residential rental property, then you have to increase rent. This may be annually, but most likely every 18 months to two years. Why? Well, there are a number of reasons this is considered to be a standard operating procedure in property investment. Firstly, small rent increases regularly are more likely to be absorbed by your tenants than a large increase when it is possibly too late. Secondly, you need to be keeping up with inflation and with the rental market. Your personal property investment rules probably involve getting the most out of your investment to support your overall investment plan. Why subsidise your tenants’ rent at the expense of your investment goals?

But is it always so black and white? Sometimes we get so caught up with the investment rules and numbers we forget the big picture. For example, what if a 5% rent increase takes a property’s rent over a key price threshold that causes the tenant to look elsewhere. If you can’t afford to lose a tenant then this could be a key consideration. An extra $500 a year probably won’t affect your bottom line, but an untenanted property probably will. Rent increases aren’t something to be afraid of, but just be sure to think of the big picture before blindly sending out your rent increase letter. Is the property worth the rent you are increasing it to? Is it really market rent? If your tenant leaves, will you be able to find a new tenant for the same rent?

Most likely regular rent increases will be one of the key tools for successful property investment in residential rental property. However, be sure to take a moment to think your actions through first.

You have decided your budget and now you’re looking to buy a rental property, your keen to get on the property investment ladder and the idea of being a landlord has you tingling all over. If this is you and you’re sure you are not having a stroke, then carry on reading for a few pointers on how to get the best price for your prospective property. We will use Residential Investment Property for the purpose of this article

1) Take an investment approach:
Chances are, you won’t go out and buy the first property you see. As this purchase is for an investment purpose you can remove yourself from the emotional ties that usually go with buying a home for you to live in. You can look at from a purely investment point of view and decide what will be good and what won’t. Yes a nice big garden with lots of lawn would be great for you, but will tenants see it that way, or as just a big chore to do each weekend? You may have always wanted to live in a turn of the century villa, but will it have the same appeal to tenants? By looking at each prospect as a potential tenant and not an owner, it will help you remove some of the extra luxuries that you don’t need to pay for.

2) Make sure the returns are realistic:
The first thing you need to be comfortable with is the amount of rent you will be getting from your investment. As you view properties in different areas and for different price ranges, you will get a feel for how much rent the property would command. Rental agencies will be able to give you rental appraisals (generally for free). If you encounter a property that has unusually high rent returns for its asking price, there will usually be a reason for this. A good rule of thumb is to get a couple of appraisals from different agencies and then take the average from what they tell you. If you want to be ultra conservative then you can take 10% off that average amount and then use that figure as your rent return for budgeting purposes. Its not uncommon for rental agencies to increase the rental amount they would expect to get, in order to win your business. They then lower your expectation, as tenants prove hard to locate.

3) Make sure the property is in acceptable condition:
You have found a great little house that would appear to be getting suitable returns in rent and would appear to be offered at the right price. Excellent! The next thing to do is to get the house thoroughly checked out. Building, electrical and plumbing inspections check all the building and local body permits are in place and get a solicitor to look over the title of the land to check everything is all tiptop. It will cost for these things, unless you have some great family or friends who owe you a favour, but it is a small price to pay for piece of mind. Without them you run the risk of things like, and electrical rewire being needed, replace the roof or the piles of the house or maybe there has been a slow water leak for the last 10 years that has rendered half the flooring unsafe. All these things can cost thousands to fix and all could have been prevented with a bit of due diligence before you purchased the home. If you get the necessary checks and something is found to be wrong, then this can be used to negotiate a lower price or you can simply walk away from the deal.

4) Haggle:
Many people do not like the idea of haggling or bartering to get a good deal. Some are happy to pay the asking price and walk away. The thing to remember with an investment property is, the less you pay, the better the return on your investment, and the less interest you have to pay the bank (if you take out a loan). In real estate, people expect to receive offers that are lower than the asking price, they expect to negotiate with the prospective purchaser and in many cases they put an inflated asking price for the property because they expect to be knocked down. You have nothing to lose except a few thousand from your home loan. If you have a maximum price that you are willing to pay, then do not go above this. There will be other deals out there, if this one does not suit, then simply move on to the next one.

5) Immerse yourself in the scene:
Information and knowledge is a powerful tool in this game. Read books, newspapers, investor magazines, websites, chat rooms, anything you can that is going to give you tips and advice. Talk to people, ask friends and workmates who you know are involved. From my personal experience, property investors are only too happy to talk to others about their experiences. Most areas have groups or clubs for investors to meet and talk, source these and give it a go. There is no such thing as too much information. It is also a great way to meet others who can help you with certain aspects of the investment game.

Everyone has at some stage of their lives heard the saying “You can’t go wrong with property”. Some would have taken property investment tips like this and invested everything they had the very next day. Most of us probably smiled and thought nothing more of it. Here is a list of some property investment tips as to why property investment is the way to go.

1) To Build Wealth:

Property is seen as a proven way to build wealth. Millionaires have been made exclusively through property, and most successful investors will have a significant chunk of their portfolio in property. As long as a long-term view is used, even the most conservative investor can reap the rewards. There is a common saying out there that house prices double every 7/9/10 years (depending on what publication you read). Whilst this has been proven over certain time frames, it is important to remember that there have also been periods of time where prices have stagnated or even reduced. Over a long enough period of time prices will generally increase, hence the need for a long-term view when investing with property.

2) It’s Easy To Manage Yourself:

Whether it’s a Residential Investment Property, a Commercial Property or even a Shareholding in a large Syndicated Investment, it is something that everyone can get to grips with. Sure you will more than likely need an accountant to sort out your tax obligations and a solicitor to set your investment up in the best way possible, but that goes without saying. Once you get your head around the terms associated with your investment you won’t look back. There are a number of clubs, associations and forums for people in exactly the same boat as you where you can get property investment tips, and where information can be exchanged freely.

3) There’s Something For Everyone:

Whether you’re someone that likes to see exactly what you own and have total control or someone who likes the idea but can’t really be bothered with all the details, there is something for you in property. You can purchase a small rental and manage it in your spare time; you can purchase several properties and manage them as a full time occupation. You can even just hand the control over to a third party, let them take care of all the day-to-day requirements and you can watch your investment appreciate over the years. There is something to suit all personality types.

4) Tax Benefits:

Depending on what type of investment property you purchase and the structure in how you set it up, you may be eligible for a number of benefits. For example in New Zealand by holding your property in a special company you can negatively gear an investment property and then claim a tax rebate from the losses achieved in your company thorough your personal tax. You are able to claim back costs that you have incurred in the process of managing your rental such as accountants fees, travel costs, phone and office expenses. Whilst the benefits are an added bonus, I don’t know of any investors that got into property purely for the tax benefits that may be achieved. For a comprehensive summary on what you may be entitled to, a chat to your accountant and solicitor is recommended.

5) Retire Early And Enjoy Life:

By investing in property and building a successful portfolio the possibility of retiring early and enjoying your twilight years could become a reality. A smart and prudent investor could build a sizable portfolio from minimal investment. Having someone else paying off your mortgage or loan lets you:

a) Build wealth faster than you would have originally thought

b) Achieve financial goals and milestones a lot sooner

Once you have achieved your goals, you then have the option to reassess those goals and maybe continue to let it grow or else sell up and live out your days in comfort. You may be in a position to give your children a “kick start” on the property ladder and allow them to build a portfolio of their own.

There are many reasons to get yourself on the property ladder, be it for financial reasons or for the challenge of doing something you haven’t done before. There is a range of different property options with enough variety to suit most people.

You’ve made up your mind; the next step in your path to wealth is to purchase rental property. The research is done and you are ready to become a landlord. Fantastic! The question is: which residential rental properties do you buy?

In the rental investment world, and for this example we will look at residential investments, there are a number of options. Do you buy a new home, an older home, an apartment, a townhouse or a unit in a multi-unit dwelling? All have very different characteristics, market appeal and pricing levels. I will examine each one individually to break down the pros and cons of each.

1) A Newer Home
Who wouldn’t want to own a new home? And it is not uncommon in today’s market for people to purchase a new house with the sole intention of renting it out. The biggest benefit of this is that it will be free from the hassle of repairs and maintenance for the first 5-10 years or so (you would hope). Because it is a new home you can ask for a premium on the rent, which in turn one would expect a higher quality tenant (employed, settled etc). The downside to this is of course the cost! A new home does not come cheap so this would instantly put a lot of potential investors off.

2) An Older Home
Why buy new when you could purchase rental property that is older, that is just as good, for only two thirds of the price? As mentioned above, a new home should be free from any form of maintenance and repairs for a few years at least; the same cannot be said for an older home. Ongoing costs can sometimes be substantial and can put a downer on your newfound investment passion. However, with a little bit of due diligence before you buy (builders, engineers, electrical report) can save you a lot of work later on down the track. Generally speaking, the returns on an older house are actually higher than on a new house (when compared purely on the purchase price). You may pay 30% more for a newer home compared to an older house, but this does necessarily mean that the rent returns will be 30% higher on the new home.

3) An Apartment
In some locations the apartment market is very lucrative, in others the appeal of apartments do not hold the same strength. Apartments work best in major metropolitan areas, where the hassle of commuting and parking are just too tedious to bear. In smaller urban areas, where travelling to the central city and finding parking does not cause you to pull your hair out, then the appeal of inner city apartments lose some of their shine. On the positive side, apartments are generally cheaper to purchase than housing in the same area but can command relatively high rents, meaning the return on your investment is greater. Issues such as Body Corporate Fees can occasionally hit the headlines with enormous fee hikes on a year-to-year basis. Another issue with apartments, and I will be honest and say this is a personal issue, is you have little to hang your hat on in terms of tangible security. You own a box in a building made up of many boxes. With a house, you have a building and the land it sits on (generally), you have something you can see and feel. An apartment you own a very small chunk of that security and have little control over what happens with the other units. I guess that is what I don’t like about it, the lack of control you have over your investment. However, in saying that, many people swear by them and make a very successful living from investing in apartments.

 4) A Townhouse
For those that are unsure of what I am talking about here, I am referring to blocks of houses on a single section. They are very popular at the moment as some older sections with older homes are big enough to fit between 3-6 townhouses on them. Developers will buy the section and clear the old house off it and build as many single standing homes, as the local body council will allow. These are generally side-by-side homes with either a double garage on the ground floor and most of the living space up above or single level homes with minimal space between homes. Tenants share a common driveway and usually have a small partitioned area out back for their own personal use. These are similar to apartments in some cases as a Body Corporate can be responsible for the local area maintenance. They can command reasonable rents and prices will vary depending on the quality of the construction, some can incorporate some very high quality fittings and chattels. The drawback of them is you are very limited to what you can do with them and have neighbours so close that it will only take one or two “undesirables” to bring the neighbourhood down. Townhouses are normally situated close to central city or close to common amenities such as universities to appeal to wider groups. They can have the appeal of an apartment with the flexibility of a house (to a degree).

5) Multi-Unit Dwellings
Multi-Unit dwellings are similar to apartments but on a smaller scale. They can range anywhere from 5 to 20 units in a single complex. Typically they are 1-2 bedrooms and (in New Zealand) are constructed out of the old concrete cinder blocks that used to be so common. In New Zealand many of these are former State Housing Flats. These units can be sold as a whole complex or individually. These have the same drawbacks to apartments but are generally much cheaper. Rents are usually toward the lower end of the spectrum, depending on the quality of the complex. Whilst they appeal to a large market (low income), the quality of tenant is usually questionable and repairs, maintenance and general upkeep may be higher than normal. The return on investment of these types of investments can be very good and some people are able to buy several (or all) units and transform them into respectable accommodation options.

This is just a small array options you have for residential rental properites you have. Each has benefits and drawbacks that may or may not suit you.

When it comes to the day-to-day management of your rental property there are a few options open to you. You can take on the responsibility yourself or you can outsource it to a Property Management Company. There are pro’s and con’s for each and depending on your situation, one option may suit you better.

a) Managing the Property Yourself

Managing a rental property involves sourcing tenants and conducting the relevant background checks, doing a pre-inspection of the property before tenants move in to note any damage/faults that are already in place. Once tenants move in you have the responsibility of checking that rent is paid on a regular basis and conducting scheduled inspections to ensure that the tenants are looking after the property sufficiently (some insurance companies state that this must be done at set intervals for their cover to be effective). You will also be the first point of call should anything go wrong with the house, i.e. if a water cylinder bursts in the night! All this can be very easy provided you have good tenants, but should you encounter difficulties then the stress involved can put a lot of people off having rentals in the future. As a result many people choose to outsource the above tasks to a third party.

b) Property Management Company

If you want the benefits of having a rental investment, but are not the type of person that handles confrontation well, then going with a Property Management Company may be for you. These companies take care of everything outlined above from finding tenants, to doing inspections and collecting rent. They can also take care of any maintenance that needs doing without bothering you at all hours of the night. All these services cost money though. Standard rates vary from between 7.5%- 8.5% of rent collected each week. They generally take the first weeks rent from your tenant as a finder’s fee, whether they charge this to you as the owner or to the new tenant depends on the company. 7.5% is a reasonable amount on a weekly basis and as such will eat into the budget you would have prepared as detailed in Point 1) above.

c) Other Options

In some countries, it is possible to rent you home to a State housing Agency who will then guarantee you rent for a set period of time. Ten-year leases are not uncommon. They source the tenant and cover basic maintenance costs; you do not need to have any involvement what so ever. The drawback to this is of course the standard of tenant in your property will be outside of your control. This may have an impact on the value of your home and area going forward. The guarantee of income for a set period of time is a big incentive. Most organisations like this have strict location and housing conditions so it is best to talk to your local organisation before purchasing a home if this is an avenue you wish to pursue.

Whilst there are many other factors to consider when purchasing your first investment property, the points mentioned here give you a place to start. We will endeavor to provide more information for first time investors into the future. If you have any specific questions, drop us a line and we will be more than happy to source an answer for you.