Much has been written and said about the plight of first home buyers who are struggling to compete in a rampant real estate market. Sure, we acknowledge that their position has become exceedingly difficult in a market that is seriously short of affordable buying options. But spare a thought also for the pool of property investors who make up a significant percentage of the buying public in today’s market. Property investors must surely be getting mixed messages from the media, from the policy makers and from the legislators who make and administer tenancy laws.
Historically, the pool of rental accommodation has been hugely dependent upon the contribution of the private sector, many of whom are ordinary ‘Mum and Dad’ investors who have purchased rental property to provide for their financial security in later life. Without private sector ownership the rental market would be even tighter, and the costs of renting would increase further. While the Government and local bodies do contribute to the rental pool, that pool would fall woefully short of meeting demand without the role of the private sector investors.
Over the years, Tommy’s can identify numerous clients who have successfully established themselves financially through property investment. Despite some changing of the tenancy rules, we do not see that situation changing in the future. Recent legislative changes have certainly made the property owner far more accountable but that is the scenario we live and work in and it is simply a case of adapting to the new regime. With the current monetary policies introduced and administered by the Reserve Bank, interest rates on term deposits are now less than 1% and this will continue to drive investment funds into rental accommodation and why wouldn’t it?
An article in the Dominion Post, Saturday 20th February, floated the idea of placing a temporary ban on investors buying residential property to cool the housing market. The article suggests, “a temporary emergency measure to cut all lending on investment properties to zero would give policymakers and owner-occupiers a chance to breathe and phase in a new suite of measures.” We urge policy makers to think hard before contemplating doing this and assess the impact this may have on a rental market that is already under pressure.
Eliminating investment buyers in any manner is penalising those who have the ambition and foresight to accrue funds that will sustain them during their later years. Tommy’s believe that investment buyers fulfil an important role in housing those in the rental pool. We continue to encourage residential rental investment and offer some basic rules for those new to this investment medium.
Buy for the medium to long term.
The real estate market has highs and lows. Looking for short term gains can be a gamble whilst investing for the medium to long term minimises risk.
Do your due diligence before committing to buy.
Before buying look for a property that will pass a rental Warrant of Fitness; one that complies with current legislation or that can be upgraded easily. Rental standards are quite rigid so do your research and take care that you are not inheriting someone else’s problems!
Align yourself with a good agent.
Before buying, align yourself with a good agent and acquire as much market information as you can. Your agent should have a sound knowledge of tenancy regulations or be able to refer you to someone within their organisation who can advise you.
Develop an investment strategy.
Treat your investment portfolio as a business and structure your purchasing entity to suit your circumstances, e.g. as a trust, a partnership or company. We recommend you seek advice from your accountant and solicitor in this regard. A correctly structured entity will also enable investors to maximise any taxation advantages.
Don’t buy on emotion.
Look at your potential purchase through the eyes of a tenant. Look for proximity to amenities that may be important to your target market, e.g. a family, students or a working couple. These might include access to transport, schools, parks, cafes, restaurants and convenience stores.
Potential to improve.
Look for the potential to improve. This may be superficial such as decorating or landscaping or more substantial such as a kitchen or bathroom upgrade.
Tommy’s believe that investment in residential real estate is a vital component in our housing mix. It is also a means of investment with minimal risk and possible high returns over a period of time. Give us a call. Our advice is free and without obligation.