Property investors come in many different flavours. Most own one or two rental properties, although some buy dozens. There are investors who buy and sell on for a profit (trade) and others find niches such as letting to students.
Some investors/landlords focus on building up a property portfolio and hand the day-to-day management to a professional property manager. For others one or two is sufficient to build a nest egg and the landlord may handle the day-to-day management and maintenance themselves.
Buy and hold:
Buy and hold investors find a property that is easy to let and quite literally hold on to them - sometimes for decades. Your typical mum and dad investor with a couple of rentals fits into this category. Longer term landlords often buy properties for “yield”, which is the rent minus expenses such as mortgage, rates, insurance and maintenance expressed as a percentage. That yield needs to cover the mortgage and expenses. If their properties were to make a loss year in year out and the mortgage needed topping up it’s sometimes difficult to hold onto it. In the short term some can afford to top up mortgages in the early years until rents rise and the mortgage is slowly paid down.* Tax breaks help. New investors often buy for the capital gain but may find if the yield is too low it drains money from their budget. The advantage of buying to hold a property is that the investors/landlords aren’t in most cases subject to income tax on their capital gains.
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Renovators and traders:
You’ve seen the on The Block and heard of Kiwis who buy a rundown home, renovate and sell it for a profit. Closely related are traders who buy under-priced property with the intention of a quick flick at a profit. Sometimes they don’t even renovate. Renovating and trading isn’t as easy as it looks on TV and can result in significant holding costs if the budget or time frame is exceeded. Those investors who are successful as traders and renovators typically seek out homes where simple renovations such as adding bedrooms without changing the layout can be done. Other strategies include garages converted to living space, or larger sections subdivided into two. Extensions and high-end renovations rarely pay for themselves in rent.
Niche investors:
Within each group there are investors who specialise. A niche for some buy and hold landlords and investors is boarding houses. The New Zealand Property Investor Association’s most recent Landlord of the Year Kerry Beveridge runs such a boarding house in Timaru. He lets 15 rooms in the former hotel to mainly workers and students and employs a manager on site.
The 2016 Landlord of the Year Kathryn Seque specialises in student flats in Dunedin, a good market for many investors. Others buy apartments for their high yields.
*It’s common for investors and landlords to take out interest only loans, which don’t require the capital to be paid down. This reduces the monthly payments. They still build capital as the market value of the home increases.
