by Paul McBeth
While buying a rental property may once have seemed a sure-fire way to make money, recent market conditions are highlighting the need for people to get more professional.
The Auckland Property Investors Association is running seminars over the next couple of weeks (see the diary for details) to help people take a more businesslike approach to residential property investment. The Association says that, while its membership has gone up in recent years, there appears to have been a general decline in the number of property investors.
It says that's because some investors are taking their losses by selling down their property portfolio when faced with tenancy difficulties, high vacancy rates, lower rental returns and negative capital growth.
Residential property investment has certainly been falling recently in people's estimation as the investment thought to deliver the best return. ASB Bank's latest survey of investor confidence, released this morning, showed that the number of people who put residential rental property as providing the best investment returns dropped sharply from 21 per cent in the December quarter to 16 per cent in the March quarter. ASB Bank put that down to modest population growth, a static property market and rising mortgage rates.
As Good Returns reported last week (click here to read the full story), Massey University researchers have concluded that the vast majority of property investors don't make detailed calculations of their investment returns. They also found in many cases that people had strong underlying social and psychological reasons for investing in property.
Real Estate Institute President Institute President Max Oliver also says that people who want to get involved in residential rental property should make sure they make businesslike choices.
Oliver says that both rentals and house prices have stayed relatively stable, so that investors can confidently predict the value and income from a property. However, as mortgage rates are still on the rise, he says it's imperative that investors don't base their decision to buy on current mortgage rates only to find that the rental for the property can't sustain the rates in six months.
"Investors in residential rental properties range from those who approach the acquisition and management of their properties as a full-time business, to those who seek a second home as part of a long-term savings plan that will provide an income for their retirement.
"Regardless of what group you fall into, the approach to selecting and buying a property to rent remains the same. The investment has to provide a sufficient rate of return to be self-sustaining, which at present means those entering the market should carefully consider the impact of the rising mortgage rate environment."
Oliver says that the three key factors in choosing an investment rental property are location, access to transport and the level of maintenance required.
"Is the location always going to attract people to rent your house? Can these same people travel easily and conveniently to and from work? Are you going to have to spend most of your weekends cutting grass or painting weather-boards - or, even worse, paying someone else to do it for you?"
Oliver says that people should anticipate and allow for as many financial and lifestyle options as possible as a rental property is a very long-term investment.