Rental property investment: is it still worth it?

Owning a rental property is a popular investment option. With their earning potential, rental properties have in the past yielded great returns for investors, but is this still the case in Waikato’s rental market?

In our latest blog we explore the big questions on buying a rental property.

It is usually harder to borrow for a rental property than an owner-occupied home. If you’ve been in an owner-occupied property, you may be able to use the equity in your existing property to invest in a rental property.

Your lender will look at what you can afford, to make sure you aren’t placing yourself at risk. As a home is not considered a liquid asset, you cannot withdraw the money quickly from the investment, so if you’re unable to repay your mortgage you run the risk of losing one or all your properties.

From the outside looking in, owning a rental property appears to be one of the few occasions you can gain income with little work. A good rental yield is subject to each individual buyer; however, in the Waikato market 4 – 6% is the average rental yield you can expect to make on a property.

Even if your yield isn’t high at the initial set-out, consider your long-term investment options. For example, are rental incomes in your location on a positive trajectory? Or, are houses increasing in their market value in your area, so you can consider the equity, or capital gain potential for the future.

There are legal obligations that come with owning investment properties and these laws are designed to protect both tenants and landlords.

In July, Healthy Home Standards (HHS) were introduced, setting minimum requirements for heating, insulation, ventilation, draught stopping, moisture ingress and drainage in rental properties.

Investing in property means your investment property must meet these minimum standards for your tenants. These standards have some positives for investors:

1. You have the ability claim any repairs you make on your property in your annual tax return
2. Renovating your investment property is an opportunity to invest in your home, to capitalise on your rental yield and maximise your return on investment
3. You could increase the market value of your house, which in turn can give you more equity for further investment, or the potential to benefit from capital gain when you sell.

Another piece of property legislation a prospective investor should take note of is Ring-Fencing.

Ring-Fencing limits property investors and how they offset their losses against the income they earn from their property portfolio. The introduction of the bill means investors will no longer be able to offset tax losses from their residential properties, against their other income to reduce their tax liability.

Location, condition, amenities, bedrooms, and who your ideal tenant is, all play into what make a good rental. However, these factors can vary from person to person.

Here are five words you should always look for when hunting for a good investment: Cash flow and growth potential. Presenting in many different forms in property investment, cash flow can be created from the yield you receive from your rental property; effectively your ROI per week, or in the form of an increase in market value and the capital gain you’re able to obtain  when you choose to sell.

Property managers are the people on the ground, who care and operate a property on behalf of an investor. Hiring a property manager has many benefits – from saving you time to making sure you’re getting the best return on your investment. A property management company can look after your rental lifecycle; from finding the right tenants, completing all the necessary paperwork, collecting rent, facilitating inspections and completing maintenance requests. And the best part, property management fees can be offset at tax time.

If you’re looking to start your residential investment portfolio, contact the team at Lugtons to discuss the properties we have on our listings today. Our experienced real estate salespeople can help you work through the lifecycle of your investment, including property management.

What are you waiting for? Invest today!