Did your search for ‘passive income NZ’ and ‘passive income ideas NZ’ lead you here? You have come to the right place! Real estate, i.e. buying property to rent, is one of the most reliable ways of making passive income. It guarantees a steady profit. If you are wondering how to get into it by buying houses for rent in Auckland, keep reading. We will tell you:
- how to create passive income by buying-to-rent
- where to find cheap houses for rent in Auckland
Many people perceive living from passive income as something very desirable because it does not take up one’s time. Normally, you earn money as an exchange for your time working. Passive income means you do not have to do anything beyond an initial investment to make a living. It has come to be seen as “the dream”. It allows you to make money while you sleep. Let’s see how you can achieve it!
1. Be ready for a difficult start
The first five things you will have to do in order to ensure you can make money from your rental property are:
- research the rental market in different neighbourhoods (start simply by Googling terms such as ‘houses to rent Wellington’, ‘houses for rent South Auckland’, ‘houses to rent in Auckland’);
- calculate your property rental expenses;
- choose your pricing correctly;
- be prepared to do or arrange for required maintenance work on the property;
- know your rights and what is demanded legally from you in this process.
While these initial preparations can turn out to be pretty time-and-money-consuming, rest assured that they are worth it. It is important to remember that the difficulties you will encounter in the beginning of the process are only temporary, whereas the result can help you earn a smart passive income.
2. Analyse Auckland’s rental market
Here are three things that you need to know about the rental market before embarking on your buy-to-rent journey:
- how much similar houses to rent in similar areas are going for;
- the fact that different types of properties can be attractive to tenants for different reasons (e.g. flats close to amenities are desirable for young professionals, while larger houses in the suburbs are preferred by families);
- only New Zealand, Australian and Singaporean citizens, as well as permanent residents, are currently eligible to buy houses and flats in the country.
Knowing these things will undoubtedly be an asset for you in building your passive income strategy because it will teach you how to identify and go for good opportunities in real estate, while also helping you keep realistic goals in mind when it comes to your returns.
3. Learn from other people’s mistakes
Analysing the experience of other people who have bought property to rent is one of the most constructive things you can do when learning how to make passive income. Seeing where they went wrong and asking them what they would have done differently can teach you a lot about what to expect and what to avoid.
3 popular NZ blogs often discussing the topic of passive income are:
You can also discuss topics that are on your mind with other landlords on these 3 popular NZ landlord forums:
4. Think twice before taking a loan
While taking a loan can seem like a great idea as a starter landlord, it should only ever be used as a last resort. Take a loan in two cases:
- if you have savings that will make up a significant down payment;
- if the expected tenancy charge can cover the monthly payment.
You should refrain from taking a loan for rental property that will be too hard to pay off.
5. Buy a cheap house and renovate it
Buying a cheap house and renovating it can be a particularly rewarding scheme. There are numerous examples of successful businessmen who started from scratch by buying old property and investing in its renovation, making a fortune along the way.
Within 10 km of Auckland’s CBD, the cheapest district is Avondale, with a median property price of $800,000. Next is Northcote, with a median price of $921,000 and Glen Eden at $698,000.
6. Environment matters
Five factors that make a district popular with tenants are:
- transport infrastructure,
- amenities within the location (vicinity to grocery stores etc.),
- safety and security,
- availability of parks and outdoor spaces,
- easy parking.
On the other hand, five factors that can make a district unpopular with tenants are:
- unhygienic dirty areas,
- unrealistically priced areas,
- dangerous neighbourhoods,
- areas with no public transport,
- lack of schools and other major services.
Some of the most popular districts with houses for rent in Auckland are reported to be Northcote, New Lynn, Glen Innes, Wynyard Quarter, Manukau, Onehunga, Albany, Mt Roskill, and Waterview.
7. Rental property in your neighbourhood
If it is an option for you, it is a great idea to buy a rental property in your neighbourhood, near your home. The main reason for this is that it will cost you less to manage a property that is close to your base. The proximity means you will be able to meet and screen tenants personally, and it will allow you to be more involved in the rental process in general.
8. Decide on the tenancy period
When it comes to the tenancy period of your buy-to-rent property, you have various options as a landlord. Some of the advantages of renting property on a periodic or fixed tenancy are as follows:
- you develop a familiarity with your tenants, which builds a mutual understanding of expectations;
- there is less turnover of tenants, which means less risk of having an undesirable one;
- long-term tenants are more likely to take care of their property.
- However, renting property on a daily basis (for one or several days) can also have benefits. Landlords who choose to do that:
- can charge more than they would for a long-term rental;
- will likely not have to deal with many property issues during a tenant’s stay;
- face a reduced possibility for conflict with tenants.
Ultimately, whether a landlord chooses a long or short-term rental depends on what they are looking to get out of their property and how involved they want to be in managing it. A landlord who values reliability and familiar relationships with tenants should opt for a long-term rental. Someone who enjoys the social aspect of meeting new tenants and creating a welcoming holiday experience for them may prefer to choose short-term tenancies.
9. Get insured
Many landlords do not want to pay for insurance because they think it is expensive and a lot of hassle. Usually, this is because they have had a bad experience in the past or because they have never had a reason to rely on insurance.
However, the truth is that an insurance policy will give you peace of mind in case of an emergency. As a landlord, you will find that there are many pros to getting insured, like for example:
- you will be covered for damage to your property;
- you will be reimbursed for rent in events where the tenant does not pay;
- you will be covered for any legal fees which you could incur if either you or your tenants decide to take legal action over property issues.
Some of the most reliable insurance companies in Auckland include Tower, AA Insurance, and Initio. For tips on how to save on insurance, check out our blog on this topic.
10. Charge wisely
When deciding what you should charge for rent, take into account all of your landlord expenses. These normally include:
- water fixed charges
- utilities (if these are included in the rent)
- body corporate fees
- property rates
- mortgage payments
- accounting fees
- pest control and treatment
- property management fees
- outdoor maintenance (landscaping, pool cleaning etc.)
Should you be willing to read the extensive list of landlord expenses, we’ve already covered it in one of our previous articles.
11. Choose responsible tenants
A responsible tenant is an individual who pays rent, utility, and other bills related to the property on time, while also keeping the interior and exterior of the rental property in good shape during their tenancy, always adhering to the terms of your tenancy agreement.
To ensure you choose a responsible tenant for your rental property, you need to carefully screen your prospective tenants. To assess a person’s reliability as a tenant, take into consideration factors such as their credit background, income, relevant criminal background, and rental history.
12. Rent to a company
A great option for people looking for ways to make passive income from buying property to rent is to rent to a company rather than individuals.
Oftentimes, multinational companies and modern start-ups prefer to rent flats and houses rather than offices. Corporate housing is appealing to people who travel to a specific location for work regularly, being away on business for weeks or months at a time. Corporate housing most commonly comes furnished and with utilities and services included, so it is a way to make employees feel “at home away from home”.
In some cases, it can be better to deal with a company rather than with individual tenants. This is because companies have a stable income, meaning they will always be able to pay you on time, and you get to professionally discuss all needs and requirements with one person only (usually an HR employee) rather than multiple tenants.
To find NZ companies looking for houses for rent, you should try listing your property on an online portal such as Corporate Keys.
13. Sign a tenancy agreement (if doing a normal tenancy)
A tenancy agreement is arguably the most important aspect of a tenancy. As a legally binding document that sets out the requirements and obligations for both landlord and tenant, it is necessary when it comes to settling possible disputes.
14. Take care of your tenants
It is important to maintain good relations with your tenants, as in this case they are more likely to want to stay longer in your house.
‘Maintaining good relations with your tenants’ implies:
- communicating with them on a regular basis to see if there are any issues with the tenancy;
- resolving maintenance problems quickly;
- going out of your way occasionally with kind acts, such as a welcoming gift.
It is always important to keep in mind that if you take care of your tenant, they will in turn take care of you and your home.