A rental home can be an excellent way to make money. It requires careful planning and research. Here are some considerations.
Location, Location, Location
Location is and has always been the most crucial factor in real estate. People favour living near where they work and play. Location determines the desirability and demand for your rental property.
There are three fundamental factors for an ideal rental property location:
- Population growth: It’s simple. A growing population means increased demand for housing. When the need for housing outstrips the supply, prices rise, and rents go up. Savvy real estate investors look for areas where population growth forecasts are strong, but housing is still reasonably priced. Why? Because they know that if the market continues to grow, they’ll make money in the long term.
- Rental demand: Look for an area with a solid rental market. What’s a strong rental market? Approximately a third of Kiwis rent their own homes. Therefore look for properties in suburbs where renters occupy more than a third of properties.
- Economic growth: A healthy economy provides jobs and stability to its residents. It’ll also attract people who move within the region, helping to increase population numbers. That means your property can continue to appreciate.
Evaluate the Property’s Rental Income
Assess whether the rent will cover the mortgage and upkeep. You should also use a reasonable occupancy rate (e.g. 80%) to cover gaps between tenants.
According to Investopedia, a quick way to access a property’s potential rental income is to determine if it passes the one percent rule. It’s a sharp real estate trick that helps determine whether a property is priced appropriately for the area’s rental market. To qualify, the monthly rent you can charge must be equal to order more than one percent of the purchase price.
For example, a four-bedroom, two-bathroom, single-family home is in a great location and priced at $700,000. Using the one percent rule, you should be able to charge at least $7,000 per month for rent.
Securing Finance
- Bank loan: A conventional loan or mortgage typically requires a 20% down payment; however, most banks require a 40% down payment for investment properties. Your credit score and history will be essential in determining how much you can borrow and the interest rates. You’ll also need proof of income to verify that you have sufficient funds to cover potential losses.
- Crowdfunding: Crowdfunding is a new method of fundraising where individuals can contribute tiny amounts to passion projects. We use crowdfunding and fractional ownership to allow anyone to invest in real estate without the hassle. So, no real estate agents, banks, or a mortgage. Plus, you don’t have to deal with upkeep or finding tenants. Learn more about how Realties works.
Getting tenants
An empty rental property generates no income for a landlord. And a property leased without a written contract may pose risks for landlords. Here’s how to protect yourself and your investment.
- Know your target market. The golden rule of business is “know your customer.” In real estate, it’s “know your tenants.” For example, you may rent a house near a university you’ll want to focus on students. Likewise, a home in the suburbs where average family incomes are $250,000 per year should target potential buyers who earn similar amounts.
- List your property. The main sites in New Zealand are Trade Me and Realestate.co.nz
- Make it legal. Ensure that you get a Tenancy Agreement signed. The Agreement should contain everything that needs to be covered. For example, it may state how much rent you charge per month and also when the tenant should pay it. It should also cover the property’s condition, who is responsible for maintenance and repairs, and what happens if either party breaches the Agreement. Check out the Tenancy Agreement Builder Tool.
General management
Effective property management helps to protect your investment and retain tenants.
While collecting rent will ideally be automated in the form of a direct debit, it’s essential to have procedures in place should your tenants pay late or default.
You can choose to handle maintenance or engage a property management company to take it for them.
Feeling Overwhelmed?
Let us help! We are committed to providing an unrivalled experience for Kiwis wanting to invest in property. We’ve created a radical new approach to buying property. Investors can purchase shares in tenanted properties, earning rental income without dealing with real estate agents, banks, tenants, or property managers. That’s right! For as little as $50, you can enjoy all the benefits of real property investment without hassle. View listings and start investing today.