Fully understanding the physical condition of a property before you buy it is critical, whether it’s for your own home or as an investment.
Belinda Moffat is the executive director of the Real Estate Authority. She answers home buying and selling questions from her.
Q: My partner and I are talking about buying our first investment property.
We have had previous experience buying and selling property when purchasing a new home for our family, but a rental would be a first for us.
What do we need to know about buying an investment property that might differ from buying a home for ourselves?
A: As you have bought and sold properties before, you should have a good level of understanding of how the real estate transaction process works.
From the outset, it is important to understand all the financial implications of moving into real estate investing. This includes balancing income and overhead, understanding tax implications, and managing your financial flexibility and resilience to changes in the economy or your personal circumstances.
Since this is not a financial advice column, I will focus on what to consider when looking to buy an investment property. I encourage you to speak with a specialized financial planner and/or your accountant and attorney before making a financial commitment like this.
Once you’re sure how much you can afford, it’s time to start researching. Search for rental properties in your preferred location; What types of properties are most in demand for rental? What type of tenants do you hope to attract?
Students, for example, will likely want to be close to where they study, while young families will appreciate things like fenced-in backyards and nearby schools. Are you willing to accept pets?
In addition to considering its attractiveness to potential tenants, it’s a good idea to consider ongoing maintenance requirements. For example, a detached property with a garden may need care and maintenance of the exterior surfaces, while for an apartment, while you won’t have to do the landscaping, the exterior maintenance will likely be covered by the fees you’ll pay to the corporation. (Note that some corporate entities do not allow landlords to have tenants, so be sure to check all relevant conditions.)
What should landlords do when renting a house?
Fully understanding the physical condition of a property before you buy it is critical, whether it’s for your own home or as an investment. Some people may be less rigorous about it if they don’t intend to live there, but this is still essential due diligence. Not only will you have a responsibility to be transparent with tenants about issues, but you’ll also want to avoid unforeseen repair costs down the road, especially if they mean the property is not habitable (and therefore not generating income) while it’s being refurbished. classify.
Remember that sellers and licensed real estate professionals are required to disclose significant problems with the condition of a property they are selling, but it may also be a good idea to proactively seek more information, such as a report from a property inspector. accredited properties.
An inspector should also be able to advise you on how much work may be needed to ensure the property meets the Healthy Homes Standard. If the house you are looking to buy is already for rent, the seller may have this compliance fully worked out, but it will be essential to check. If the property was owner-occupied and you are looking to rent it, meeting the Healthy Homes Standard will be a key consideration before renting.
Another important consideration is whether the property is already rented. If so, you may want to simply continue with the existing lease. If you prefer the property to be vacant when you take possession (for example, for major repairs or redecoration), this must be stated in the purchase agreement. It is up to the seller to notify existing tenants (and this must be done in accordance with the legal rights of tenants).
As you get closer to finding an investment property, you can start thinking about how you will manage the property. If you prefer, you can hire a professional property manager to act on your behalf and deal directly with tenants. They should also have a good understanding of tenants’ rights and other requirements, which will help you become a great landlord.
Ultimately, doing as much research as possible and being clear about the type of investment property you want to buy and why is key. Gaining a thorough understanding of a property’s condition prior to purchase is critical.
Examining the purchase agreement with the help of an attorney will help enable a smooth sale, and knowing your obligations as a landlord will set you off on the right foot. Good luck for your future as an owner.
To learn more about the process of buying or selling property, and what to expect when working with a real estate professional, visit settled.govt.nz. Have a question for Belinda? Please email [email protected].