3 things to consider before you invest in a rental property

Have you been considering a residential property investment? Rental properties can provide significant benefits given the right circumstances.

A perfect example of the 'right circumstances' at the moment would be investment property in Auckland, as Head of Trade‚Äč Me Property Nigel Jeffries reveals rental yields have grown substantially.

"Auckland's rocketing rents have seen median asking rents up more than 8 per cent on a year ago. You're now looking at $499 per week for a typical property, taking annual rent costs close to $26,000 – about $2,000 more than a year ago," he said.

"Rental properties can provide significant benefits given the right circumstances"

And that is not to mention the ample growth in value that homes in Auckland have experienced over the last 12 months.

Despite all the positives, like a second income, capital growth and the various tax benefits, the capacity for vacancies, depreciation and other unforeseen instances means it isn't foolproof.

Before you make any financial commitments, here are a few things to keep in mind.

Do you know your limit?

Before you commence your great hunt for a property investment, it's a good idea to find out your borrowing capacity from your lender. Statistics from the Reserve Bank of New Zealand show that over August 2015, property investors took out nearly $2 billion of finance. 

Knowing your exact limit will not only allow you to create a price filter for your search, but it can also prevent you from spending over your limit.

Spending more money than you actually have is a mistake that can be easily avoided with research.Spending more money than you actually have is a mistake that can be easily avoided with research.

Are you aware of the hidden costs?

When it comes to buying, managing and maintaining a home, there are a number of hidden costs that it pays to be wary of.

Some of the expenses you're likely to encounter can include:

  • Insurance
  • Council rates
  • Maintenance and repairs
  • Tenancy vacancies
  • Bank fees

The Commission for Financial Capability (CFA) recommends getting a ballpark figure of these charges, before adding them to the purchase price of the rental. The last thing you'd want to do is use your entire property investment loan on the initial price tag, only to find yourself without the required funds for costs down the line.

Are you after capital gains or rental yield?

When you're looking at a residential investment property, it's important that you determine whether you want short-term gains, long-term gains or a mixture of both. Once you've got this sorted, you can do your due diligence to figure out where you should focus your search.

For example, the Westpac Property Investment Report showed that of all the suburbs in Auckland over the year to September 2014, Mangere Bridge experienced the best capital gains returns – however, didn't even make the top 10 in terms of rental yield.

Get property investment advice

If you would like to know more about the market and making an effective property investment, an authorised financial adviser can help you achieve your goals.

Here's to your financial independence!

Daniel Carney
Authorised Financial Adviser / Investment Property Expert

Contact us now!

0508 GOODLIFE
info@goodlifeadvice.co.nz