Property investing can be a risky business – Make sure you avoid these common mistakes.
Not Doing The Calculations
Don't seal the deal without fully understanding the financial situation of the rental property.
Take the time to consider what the cash-flow will be, how the property will help your financial position, and what initial maintenance may need to be done to attract good tenants at a higher rental value. Analyse the gross yield and net yield of the property, then calculate what you will earn after all the costs are taken into account. You may even find the property isn’t as profitable as you first assumed.
Buying In The Wrong Location
You see a good deal, you buy the property, then suddenly you realise the struggle of finding tenants to fill the property. All too commonly people forget to thoroughly investigate the suburb before purchase, only later discovering the low tenant demand for the area.
Analyse rental listing websites like Trade Me to find out what suburbs are popular and what the average rent value is for the area and property type. Usually suburbs with increasing numbers in rental property listings show high vacancy levels, suggesting the suburb is unpopular amongst tenants, where as areas with decreasing rental property listings show high tenant demand, suggesting tenants are entering and staying in their properties for longer periods.
Only Being Interested When The Market Is Pumping
Buying before the market surges in value is a far better way to create a more successful investment than buying in an area that is currently running hot. Look for areas with a local village that are starting to increase in popularity, is accessible to at least one local transport system, and is near economic centers and local amenities.
Not Understanding The Risks
The best way to minimise risks is to fully understand what they are. People often assume their property will always be tenanted, but long vacancy periods can occur at certain times of the year, or in certain suburbs that have become unpopular among tenants. We recommend fixed term leases to mitigate this risk.
There is also the risk of interest rates increasing, as this can reduce the net income from the investment. Consider discussing financing options with a mortgage broker and how interest rate risk can be reduced.
Not Managing The Property Well
There are several elements to managing a property, creating plenty of opportunities for avoidable mistakes. A common mistake is not keeping accurate records of rent payments and expenses when it happens. Without keeping good records, you can easily sip into negative cash-flow and large rent arrears without realising for some time.
It's also a good idea to set money aside to cover maintenance costs. Putting off repairs leaves time for more damage to occur (and so increasing the cost to repair) and also tends to make tenants want to leave, causing you to lose more money and time as you try to fill this vacancy.
Another tip is to ensure the property is clean and well-presented at the beginning of the tenancy, and that the property's condition is photographed and recorded both at the tenancy beginning and end. Photographic records are important in case tenants challenge you for using their bond to repair damage caused by them during the tenancy, or because the property wasn't cleaned to the reasonable standard that was set for them at the start of the tenancy.
How We Can Help You
Before investing, we can provide you a free, no obligation rental appraisal, so you'll know what rent the property can achieve in the current market. We can also provide advice on how small, cost-efficient alterations can increase your return, and what type of tenants will likely be interested in the property/suburb.
If you've already invested. A rental appraisal from a Wellington Property Manager can still be very helpful, especially with the summer market approaching. Knowing what rent your property is now worth and how you can create better returns will help you create a more successful investment with better return.