Terry’s Tips on Property Investment

If you own your own home, especially outright, you should have an investment of some sort. Supposing you are considering a property investment, talk to a broker to see what the costs to run an investment property are.

As an investor it is important that you consider the rate of return that a property will provide by taking into account the purchase price and rental income that can be achieved. Real estate agents can prepare a rental appraisal for a potential investment property to give you an idea of the rate of return which can be achieved.

We use a simple formula which you can use to calculate the rate of return for your rental property. This will guide you in determining long-term strategy and profitability, but keep in mind that this does not account for the total costs involved when owning a property. It is important that you make allowances for maintenance costs, rates, insurance and 'body' corporate fees the property may have.

Our simplified formula to calculate rates of return:

Expected rent x 52 = Annual rental income
รท Property value
x 100
= Gross return

In action:
A $530,000 property in Hamilton, expecting $520 weekly rent would bring in $27,000 gross annual rent, meaning approximately a 5.1% annual gross return.

Depending on property location and industry influences, an annual gross return between 4% and 5% would be considered a good return.

What else should I consider?
When looking to invest in a property you must consider location and tenant appeal. From an owner's perspective, smaller properties are cheaper and fewer tenants means less chance of damage. But don't always base an investment decision on a cheaper rental price. A higher priced rental property will usually attract a higher quality tenant who will be more likely to pay their rent on time and take care of the property. A common mistake property investors tend to make is failing to keep up with maintenance and repairs. Good upkeep of your property will encourage better, permanent tenants.

When is the right time to invest?
The market is unpredictable, so the right time to invest is when you feel it is right for you. Do your research, ask people who know, give us a call! The rental market is hot right now so if you have good equity in your own home or any other property investment, now is the time.

Whether you are looking to invest, or simply want to find out more about your area's potential for rental properties, give us a call.


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