If you’re starting out in property investment, it’s vital that you match your skills and personality type to an investment that you’re comfortable with. This, plus your investment goals, will have a big bearing on the type of investment that’s right for you.
What kinds of tenants can you handle?
With all types of property investment, the quality of the tenant is paramount. Whereas in commercial property investment you’d be dealing with businesses as tenants, in residential property investment you’re dealing with individuals.
However, not all residential tenants are created equal. And whilst this article contains some generalisations about tenants types and associated problems, these generalisations are true in many instances. It’s important that you’re aware of these, and don’t go into residential property investment with your rose-tinted spectacles in place.
Tenant markets vary from suburb to suburb. And the varying rental markets are underpinned by tenant income, which is linked to socioeconomic considerations. That means that in different suburbs, there will be different property values, different market rents, and different types of tenants.
At one end of the scale there are the types of tenants (and tenant issues) that are highlighted on the TV programme ‘Renters’. There are many issues relating to damage and tidiness in the programme.
How would you cope with managing those tenant challenges?
Remember how your investment approach needs to be based on your personality? Well, how would you cope with managing issues like the ones on ‘Renters’?
You may not know until you have been exposed to a few tenant problems, but you could be surprised to find that dealing with these situations is one of your strengths and you don’t lose any sleep at night.
The horror stories aren’t typical stories!
The good news is that the horror stories the media promotes aren’t typical of every tenant out there. Tenant quality issues, damage, wear and tear, and non-payment of rent are issues that are linked to socioeconomic considerations. This is a generalisation but also an accurate guide.
Some roads are easier to navigate than others…
A good analogy is two residential roads: one is recognised as the safest road in the country, whilst the other is the most dangerous road. If you don’t take care with crossing each road (i.e. looking both ways before you cross), then you are going to get hit irrespective of which road you are crossing.
The important issue here is that you have a much higher probability of getting hit on one of those roads.
Residential property investment is very similar: some roads are very easy to drive on, while others require a greater driving skill and higher degree of focus.
The roads that are poorly sealed and full of potholes will create a greater maintenance cost for your vehicle. Those roads will also be responsible for a higher rate of accidents.
Whichever road you choose, you need to enjoy the journey
The important consideration here is that you should be in property investment for the long-term.
Property investment will serve you well for achieving your goals, but you don’t want your journey to be de-railed because you are not enjoying the journey.
We have seen many people get out of property investment because they decided it was too hard and the tenants were beating up on them.
These people had amassed a good portfolio of properties but ended up selling up because they got sick of the tenants and all the associated problems.
It doesn’t have to be that way, as you have a number of roads to drive down. It is disappointing when investors get disenchanted because of a few tenant problems and end up selling up – but they never tried any other roads.
It’s not just about the tenants – your choice of property is important, too
Investors should not focus solely on the good tenant vs. bad tenant aspect.
A good property (i.e. one that’s clean and tidy) is going to attract a lot more ‘good’ tenants than a poorly maintained property.
The well-maintained property is going to attract a better quality of tenant without you doing anything, whereas the poorly maintained property is going to repel an A1 tenant without you doing anything to improve the property.
If filling jumbo bins with disposable nappies and other rubbish is not your thing then consider purchasing better quality properties with a poorer rate of return.
How to discover some property investment shortcuts – no matter which road you choose
If you’re starting out in property investment, you should get along to your local Property Investors’ Association. That way you’ll get access to some very experienced people who will share their knowledge at no cost. These experienced investors can relay their experiences, successes and failures accumulated over many decades. They will be able to discuss the positives and negatives of investing in the various suburbs of Auckland.
In short: you’ll learn some shortcuts, which can save you an immense amount of stress and money. You see, property investors are enthusiastic and passionate about investment, and they will gladly point you in the right direction so you don’t have to make the same mistakes they made.
After all, there are many considerations before you take your first steps in property investment, so the more you can learn before committing to a property or suburb, the better.
What you need to consider before you purchase an investment property
Some of the considerations you’ll need to consider before purchasing an investment property are:
- Your age.
- Your income – and whether that’s fixed (e.g. a salary or wage) or fluctuates (e.g. if you’re self-employed).
- Stage of life (e.g. married with children, or approaching retirement, etc.).
- Whether you want to hold the property long-term or short-term (each scenario has differing tax implications).
- Whether you’re purchasing your first property, or are adding to an existing property portfolio.
- Whether you want to self-manage or engage a Property Manager.
- How much time you have available for management and maintenance duties.
- Your personality, strengths and weaknesses, and how much you’re willing to go outside of your comfort zone.
All of these factors will have a bearing on your investment goals.
Popular property investment goals include:
- Building a larger property portfolio so you can retire from your day job.
- Obtain capital growth from a property to fund your children’s education.
- Create equity for purchasing a business, or overseas travel.
- To pay down the principle so you have an income in retirement
- The road you take in your property investment will be unique to you, your goals, your situation, and your personality.
- Because there are so many variables, it’s wise to spend some time doing your research first. That way you will get an idea of which direction your property investment will take – and which suburbs and tenant types will help you get there.
- You can discover some of the pitfalls, tips and shortcuts from seasoned property investors at your local Property Investors’ Association. Experienced investors will gladly share their experiences so you can avoid making expensive and stressful mistakes.
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