Wellington, May 17, 2019
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Property is the most common form of investment for Kiwis, whether they are living in their own homes or renting out property to others.
Like all investments though, it is not a sure thing.
If the drop in interest rates and softening housing market have got you thinking about investing in property, it is crucial to do as much research as possible.
Getting finances in order
If you are seriously considering buying an investment property, start by getting all your finances in order.
It can be more difficult to get a mortgage for a rental property and some lenders will set lower lending limits. Talk to lenders or mortgage brokers about your options and be realistic about how much you can spend.
Remember to factor in costs like maintaining the property and how much it might cost if you use a property management service to find tenants.
It is also wise to discuss your long-term plans with a financial advisor.
Don’t forget that you will also need to consider how attractive a potential investment property will be to prospective tenants.
It is a big mistake to think you can make a fortune by buying a dump that you wouldn’t dream of living in but would happily expect someone else to pay up for.
Market information
It is worth finding out what demand is like for rental properties in your preferred areas.
It might be helpful to talk to an experienced real estate agent who knows the market well to work out what will be a good medium to long-term option,” he says. “Property investment is not a get-rich-quick scheme for most people, despite occasional headline-grabbing sales.
New Legislation coming
Thanks to the Healthy Homes Legislation, rental properties have to meet improved standards for heating, ventilation and insulation by July 1, 2021.
The Ministry of Housing and Urban Development has detailed information on what these are and what private landlords need to do.
It is crucial to bear these standards in mind when you are looking at properties to buy.
Get a thorough check by an accredited property inspector to help you work out how much work may need to be done to make it warm, dry and pleasant to live in, and how much this is likely to cost.
Don’t forget that if the property needs serious improvements then you might not be able to rent it out while the work is being done.
Legal Advice
Legal advice is an essential part of any property transaction.
If you are looking at buying an apartment, I recommend getting your lawyer to check the body corporate rules to see if tenants are allowed.
If you are looking at buying a property that is already tenanted, be aware that the sitting tenants have certain rights and you, as the new owner, have certain responsibilities.
If the property has tenants but you are expecting it to be empty when you take ownership, make sure that this is clearly set out in the sale and purchase agreement.
It is the seller’s responsibility to give the tenant notice, as per the tenants’ legal rights.
Talk to your lawyer about your plans and ask them to check the sale and purchase agreement carefully before you sign.
For independent guidance and information on buying or selling, visit settled.govt.nz.
Kevin Lampen-Smith is Chief Executive of the Wellington-based Real Estate Authority.
