Things to Consider When Buying a Rental Property

Investing in property has been popular with Kiwis over the years but buying a rental is a business decision so don’t fall into the trap of using the same criteria you would for your own home.

We’ve put together a list of the key things you should take into account if you are thinking about becoming a landlord.

Budget and Ongoing Costs

Have a good understanding of your budget and not just for the initial purchase but also factor in the ongoing costs. Make sure you budget enough for insurance, rates, body corporate fees, repairs and general maintenance and for two to three weeks in the year when you may be ‘in between’ tenants.

Think about whether you want to be negatively or positively geared. If the rent you could ask for the property won’t cover your repayments it will be negatively geared. This scenario can have tax advantages but may also cause financial stress. Know what debt levels you’re comfortable with.

Price and Potential

Buy well. Try to buy below market value and compare prices across suburbs. Do your research and buy in suburbs you think will appreciate at a greater rate than others. Keep in mind that a rental property only has to be clean and functional. Don’t get sucked into something purely because it has a pretty garden or stylish interior.

Things to Consider When Buying a Rental

Yield is another way of measuring a property’s income potential. It’s a useful starting point for filtering out the better rental properties and avoiding the common mistake of over capitalising.

To work out yield, take the rental you think you could charge for the property over a year and divide it by the purchase price. The yield is represented as a percentage so a house that cost $300,000 and achieves a rental of $375 per week or $19,500 a year, has a yield of 6.5%.

Traditionally, houses have better capital growth and apartments have higher yields.


Location, location, location. It is usually one of the biggest driving factors influencing the price of a property and the returns you might expect from it so buy with your head not your heart.

Don’t just look at areas that you would like to live in or you will risk excluding some possibly great potential properties. Instead, do your research on which areas or suburbs have a strong demand for rental accommodation and those that have more potential for growth depending on whether you’re buying for yield or capital growth.

If you’re focused on future growth, look for areas due for redevelopment, transport infrastructure improvements or increases in demand due to changing lifestyles and demographics. If you’re looking firstly for good yield, search in areas with good existing local amenities.

Good Local Amenities

Proximity to good services and facilities for your tenant will affect the rent you can ask for and how easily you find good tenants. Buying a property close to public transport, schools, parks or good cafés or shops will always make it more attractive to future tenants.

Target Tenant

Look for an area with few rental vacancies and look for features in the property that will appeal to tenants. Does the apartment come with a balcony? Is there plenty of off-street parking or a double garage?

You may want to decide on the specific sort of tenants you would like to attract and buy the property accordingly. Are you looking for young professional families? In which case you should search for homes with gardens, close to good schools and parks. University students and young professional singles will also be attracted to different types of rentals in different locations.

Property Management

Once you’ve bought your investment property you must decide whether to choose professionals to manage your investment for you or manage it yourself.

Using a property management company such as Rental Managers Wellington will simplify the main stresses associated with owning a rental – finding good tenants and collecting the rent on time.

How to rent your property out in winter?

Does the market slow down in winter? Every winter we notice a slowdown in applications from prospective tenants looking for properties to rent. The obvious reason is that it’s winter, it’s colder, it gets dark earlier, and therefore tenants are less likely to move. In summer however, when it’s warmer and lighter for longer, and people are generally feeling happier, you will get much more movement in the rental market.

One way to combat the winter period is if you are fixing tenants, do not fix them to end over the periods of June through to August. By doing this, you can cut out the worst months and look to have you property go vacant over warmer periods and therefore you’ll have an easier time finding a prospective tenant to rent it. If you have a periodic tenancy, it is not as easy because a tenant needs to only give 21 days notice.

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Process after a natural disaster

If there ever is a natural disaster you want to look to take action if required. If you have a few properties, this isn’t such an issue because it’s simple for you to get in touch with each of your tenants and go around and see if there’s any damage to the property.

As you know, Wellington was recently struck by an earthquake of 6.5 magnitude and this resulted in a lot of damage around the region. It’s important that you do look to approach the tenants within a time frame of four to six weeks so that you can get them to have a look around to see if there is any damage. The tenant can’t do a detailed inspection, but what they can do is have a look to see if there is anything out of the ordinary that they did not notice previously.

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Use reliable tradesmen

When looking to get work done, don’t always shop on price.  Quite often you can look to get the cheapest tradesmen possible but the work you’re getting carried out reflects that.  You want to be using tradesmen that you can trust, that are going to do a great job, that are going to look after the rental when they’re going inside it, that the tenants can feel comfortable putting inside when they’re there or not there.  This is why you need to weigh up more factors than just price.

What we do at Rental Managers is we believe in offering a good service at a fair price for our clients.  What we do is utilise tradesmen that will offer a fair price but more importantly that we know we can give the job to and they’re going to give a great service. We know that we can leave them to get the job and report issues back to us if they’re more serious or to send us the invoice so we can pay it on behalf of the owner.

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Will your property go vacant if you put the rent up?

It’s a catch-22.  As a landlord, often you want to get the highest possible rent, but at the same time, being at the upper end of the market for where your property sits, you take the risk that once a tenant finds another property that is being rented at a lower price, they leave.

When you’re working out what you should rent your property for, you need to be realistic so that you’re not going to have a short term tenant who’s paying the rent you ask for now, but is always on the look out for another property.

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House insurance cover is changing

By now you should have heard that insurance cover for housing, including your rental property(s) is changing.

Before, most people were covered for a sqm market value or replacement value amount. Since the earthquakes in Christchurch, most, if not all insurance companies have changed their cover, and now you need to insure your property for a ‘sum value’.

To explain the changes, I have Chris Jecks from AJIB give some further details:

The Sum Insured Changeover – are you prepared

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Follow up in writing

Make sure that when you are managing your own property that you do follow everything up in writing. It is important that if any issues do occur, you have a timeline of events that you can provide should you have to go to mediation or the tribunal. Depending on the issue will determine how you follow up but essentially, you need to keep a log of phone calls that you have, you need to save text messages that you may receive and if there’s any sort of breach, you need to put it in writing and keep a copy of it.

Too often, private landlords will go to the tribunal and lose based on the fact that they don’t have the required information to prove that either any warning was given or that the correct processes were followed or even what dates these events did occur.

Here is our five step plan to ensuring that you keep adequate records and follow up accordingly:

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Breaching the Residential Tenancies Act

A tenancy can be terminated based on Section 56 of the Residential Tenancies Act, if the tenant has not paid rent or for other breaches according to the signed tenancy agreement. It is important that, if a tenant is breaching the tenancy agreement that they have signed with you, that you are following up with a letter stating that the tenancy can be ended if these breaches are not rectified.

Generally you will give 14 days for the tenant to remedy the situation. By giving them adequate time, you’re enabling them to tidy up, or sort out the issues for the breach that has occurred. Ensure, if you are using a property management company, that they have good processes and systems in place (i.e. they are proactive and not reactive to sorting out breaches such as missed rent).

Rent is possibly the most common breach of a tenancy agreement and you need to ensure that you are following up in a timely manner, rather than taking the tenants word that they will get their rent back on track. By following up you will be able to apply to the tenancy tribunal if the arrears are not repaid within the given time frame.

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Being Great at What you Do

What do I mean is this, when I’m talking to a property owner who possibly manages their own properties. What I mean is you want to be good at what you do. Don’t just go through the motions of being a property manager for your own properties ticking the boxes and getting by. Be great at what you do. Learn the Residential Tenancies Act so that you can be well informed at all times when making decisions on how your property is to be managed. You want to know exactly what the rules and regulations are when it comes to accessing the property, organising maintenance, issuing notices, collecting rent, applying to the tribunal, plus much more. There’s many different facets involved when it comes to managing a property, so you want to be good at what you do.

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Carrying out essential maintenance in a timely manner

If a tenant calls you to complain about a fault or something that needs addressing, you need to ensure that as a landlord, you are taking action to rectify the issue reported. If you do not do it within a reasonable time period, the tenant can issue you a 14-day notice and then apply to the Tribunal if you still have not done it.

One word of warning is that if the tenant is reasonable in the request that they’re asking and you do take a long time to get it sorted, the Tribunal does come down much harder on landlords than they do on tenants. We’ve heard stories about landlords that have been fined or tenants awarded compensation because maintenance has taken too long to be carried out.

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