Property investing for beginners is no more difficult than it is for long time investors; and the process can be both profitable and rather exciting!
To make it as stress free as possible, Catherine Goodwin, General Manager Goodwin Property Management, shares some things first timers may wish to keep in mind.
Have a team of experts handy
An experienced team of well-chosen experts by your side can make everything easier. Spend time with a trusted accountant or financial planner, have your solicitor ‘at the ready’, and seek out to understand the advantages (both emotional and financial) of appointing a professional property manager, as opposed to ‘self-management’ of your property portfolio.
Be aware that New Zealand’s Property Management Industry was deregulated in 2008. At the time of interviewing your property manager, ask: 1. Are they a Licensed Agency? 2. Do they operate a non-interest bearing Trust Account? 3. Is that trust account audited and how often? If they answer NO to any of these three questions, ask Why Not?
Put everything in writing
The essence of good management of a tenancy is the quality of paperwork at both the beginning and throughout the period of tenancy.
A comprehensive application form, which captures all pertinent detail of an applicant (previous addresses rented, current employment, or welfare arrangements, full detail of all persons to be residing in property, and the tenant’s agreement to conduct full financial credit checks, with photo ID, to name but a few) are critical to selecting the best tenant for your property.
Tenancy agreements must be in writing and held securely, and a detailed initial property inspection with photographs will serve the very best ‘evidence’ should any future damage occur, which is rightfully due for remedy by tenant.
Any future repair or maintenance requests should similarly be taken in writing to ensure a clear and concise record is retained. This will include authority for access.
Get a bond
Payment of a bond at the outset of any residential tenancy is imperative to providing a level of financial protection to the landlord.
Regardless of a tenant’s very best intentions, non-payment of rent or damage (be it accidental, negligent, or intentional) are an inherent risk of tenancy. The payment of a bond is an owner’s ‘first line of defence’ to manage this future risk.
Be aware that it is legally required within 23 working days after the payment is made, that the landlord then forwards the amount of bond paid to the nominated Ministry, together with a statement of particulars in the approved form signed by the landlord and the tenant.
Know your utilities
Building knowledge around the connection of utilities and understanding ‘who is responbile to pay for what’ will save owners immense hassle, and from the potential risk of a future claim for reimbursement by a tenant. The tenant is responsible for outgoings that are exclusively attributable to that tenant. This includes electricity, gas, phone and metered water.
However, many privately operating landlords seem still not to understand that a landlord remains responsible for outgoings which are incurred regardless of whether the premises are occupied or not. For example, the fixed service charge on Watercare Accounts in Auckland (which is charged regardless of whether the property is occupied or not) will, in most cases, be the responsibility of the landlord.
Be aware that landlords are responsible (by law) for ensuring there is an adequate supply of water available at their rental properties. Best practice to ensure this obligation is met is that the owner makes first payment to Watercare, for example, in Auckland, and the tenant is then immediately invoiced for reimbursement.
If a tenant fails to reimburse the water charges, the tenant may be in breach of their tenancy agreement and the landlord can issue the tenant with a 14 day notice to remedy the breach. Refusal to remedy a breach of a tenancy agreement can result in a Tenancy Tribunal application.
Understand your rights as a landlord
It is the primary role of a professional property manager to navigate the owner’s rights and responsibilities to ensure that an owner retains control over their investment. They are many!
Know your requirements
Landlords must understand and abide the basic requirements to:
- provide the premises in a reasonable state of cleanliness;
- provide and maintain the premises in a reasonable state of repair having regard to the age and character of the premises;
- comply with all requirements in respect of buildings, health, and safety.
Failure by the landlord to comply with these items is declared to be an unlawful act, and punishable by a monetary fine.
A landlord’s rights of entry to their rental property are outlined at s48 of the Residential Tenancies Act.
All too often, I have observed owners challenged to appreciate that once rented, they do not have ‘free reign’ to visit on the property when convenient to them, or just to ‘check-in’ on their tenant.
Entry upon the premises by a landlord other than as permitted is declared to be an unlawful act, and punishable by a monetary fine.
Understand the tenant's rights, and your obligations to them
The Residential Tenancies Act explicitly outlines a tenant’s responsibilities:
- To pay rent;
- Ensure that the premises are occupied principally for residential purposes;
- Keep the premises reasonably clean and reasonably tidy;
- To notify the landlord, as soon as possible after discovery, of any damage to the premises, or of the need for any repairs.
In practice, close monitoring of rental payments and periodic inspections (we recommend quarterly) will ensure that an owner can immediately act to remedy any breaches that may occur.
Similarly, ensuring that neighbours to your rental property have the name and contact detail of an owner’s agent, or their personal contact if choosing to self-manage, will circumvent any small disturbances escalating to larger problems.
It is enshrined in legislation that a tenant shall not cause or permit any interference with the reasonable peace, comfort, or privacy of any of the landlord's other tenants in the use of the premises occupied by those other tenants, or with the reasonable peace, comfort, or privacy of any other person residing in the neighbourhood.
Another common item unknown is an owner’s right to agree a maximum number of persons that may ordinarily reside in the premises during the tenancy. This is enforceable.
The process of marketing and advertising a rental property is critical to who will enquire. Where you advertise and how you advertise will bear down on the quality of applications you receive.
Financial Credit Checks are only the very first part of the subsequent analysis of that application. We recommend www.tinz.net.nz. Our agency will also telephone prior landlords, a prospective applicant’s employer, and/or character references provided.
Operating a consistent list of questions will ‘uncover’ if an applicant is being selective with the information provided in their application.
Managing from overseas
Be aware that if a landlord is out of New Zealand for longer than 21 consecutive days, they are legally required to appoint a New Zealand based agent.
This is a relatively new amendment to tenancy legislation and many owners are still unaware of this obligation.
Failure to do so is declared to be an unlawful act, and is punishable by a monetary fine.
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