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Property is one of the few investments that lets you have complete control over management. For some, this is what makes it such an attractive asset class. But others want a more hands-off approach.
Whether you choose to do it yourself or use a professional manager, consider the following points to maximise your returns.
Your first decision on purchasing an investment property usually concerns how you will manage it. While many New Zealanders manage their investment property directly, there is a growing trend towards employing professional managers or agents.
If you ‘Do It Yourself’, remember you are responsible for advertising, preparing tenancy agreements, handling arrears, placement of the bond with the Tenancy Tribunal, inspections, maintenance and taxation.
A professional manager takes over many of these tasks. If you opt for a professional, choose one who manages his or her role as a business – not a sideline.
As most owners negatively gear their investment property, proper record-keeping is essential. Without it, you may not be able to claim running expenses, repairs and improvements. All accounts and information regarding your rental property should be documented for your accountant and the Inland Revenue Department (IRD).
Owning a rental property is currently classified by the IRD as owning a business, so the same tax deductions apply. Claimable costs may include the interest portion of mortgage payments on the rental property, insurance, property management, repairs and maintenance, land and water rates, advertising and legal costs and home office expenses. You will need to seek independent tax advice from your accountant.
It is advisable to set up a separate bank account for transactions involving your property investment, to keep them clearly detached from personal, non-tax deductible expenses.
Keep track of costs and expenditure as these are subject to change. For example, changes in interest rates can reduce your return or even make it unprofitable.
There are several computer programs available to help streamline record keeping and finances. Try PC Property Manager v2 by Estatement or Personal Professional by Property Investment Analysis (PIA).
As with other investments, it pays to keep abreast of developments within the rental market. Changes in your neighbourhood, demographic trends and price movements can all affect your investment.
Ask departing tenants why they are leaving to get a better idea of tenant needs and dislikes. Talk to other landlords in your neighbourhood, monitor rental vacancy rates and keep track of prices in your area. Joining your local Property Investors Association will provide good networking opportunities and a chance to find out this sort of information.
As the market changes, review your rental but keep in mind that as the law currently stands tenants must be notified of price increases in writing at least 60 days prior and that increases can be no more frequent than once every 180 days. Additionally, a tenant has the right to challenge rental price if it is significantly above prevailing market price.
Smart landlords aim for low tenant turnover. This means balancing tenant needs with management costs and upkeep.
If you are managing the property yourself, establish a professional yet understanding relationship with your tenants. Do not try to be friends but do maintain the premises in good order and address problems quickly.
The rental agreement should clearly express the rights and responsibilities of both tenant and landlord. Do not be overly lenient. Missed rent payments should be addressed quickly with a 10-day notice to prevent continued lateness.
Conducting regular inspections identifies damage and mistreatment. But remember you must give at least 48 hours' notice. Discuss any damage with your tenants and give them the opportunity to fix it. Taking photos of the premises can prove useful later to prove damage in a dispute.
As a landlord, you should familiarise yourself with the Residential Tenancies Act 1986, which, among other things, ensures tenants’ rights to private, comfortable use of clean and safe premises.
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