Are you considering purchasing a residential property to be a rental investment?
There are so many things to think about – tax, due diligence, structuring, bank financing, insurance and finally renting the property out.
Without summarising the whole of the Residential Tenancies Act, here are some of the things we think you need to consider:
- Decide on the type of tenancy you want. The two most common types of tenancy are:
- Fixed Term Tenancy – where the tenancy will run for the period of time set out in the Tenancy Agreement. Neither party may end the tenancy before the term is up.
- Periodic Tenancy – this is where the tenancy continues until either the landlord or tenant gives notice to end it. There are specific rules ie, if you wish to end the tenancy you need to give the tenant 90 days notice (or 42 days if you wish to sell the property or you, or a family member, wish to move in). Notice must be in writing.
- Rent. You can ask for up to two week's rent in advance but only one week if rent is to be paid weekly. A tenant is entitled to a receipt only if they pay cash. Rent increases cannot be less than six months apart and you must give at least 60 days notice of a rent increase. Rent must not be increased within 6 months of the start of the tenancy, either.
- Bond. You can ask for up to four weeks' rent as bond and you must lodge the bond with the Ministry of Business, Innovation and Employment within 23 working days of receiving it. You should always get a bond from the tenant.
- Rights of entry
- You are entitled to inspect the property in certain circumstances, i.e. in an emergency, for repairs and maintenance, to check the tenant has done work they said they would do, etc.
- Except in an emergency, you must give 24 hours' notice before an inspection, or if you are doing repairs. Inspections and work done by you must be between the hours of 8am and 7pm.
- You must advise the tenant in writing if you decide to put the property on the market. You need to obtain the tenant's consent before showing the property to prospective purchasers or the agent.
- You should make sure all the locks work and the property is reasonably secure.
- You also need to maintain the property and do any necessary repairs.
- You must pay the tenant back for any urgent work the tenant has paid for (as long as the tenant can prove they tried to tell you about the problem before getting the problem fixed and the tenant didn't cause it on purpose or by being careless).
- You cannot discriminate against a prospective tenant on the basis they are pregnant, or a particular sex, ethnic background, national origin, religion, marital status, age, are unemployed or have children.
- Do make sure you sign a Tenancy Agreement and give the tenant a copy. A standard tenancy agreement (together with a lot of other useful information) is available from the Ministry of Business, Innovation and Employment website.
Please call our friendly property team if you are considering buying a residential property for investment. There are a wide range of things we can assist you with and we pride ourselves on delivering uncomplicated, relevant advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.