There’s a common saying; ‘don’t wait to buy real estate, buy real estate and wait’. And while this may seem sound advice, especially in today’s market, it is only relevant if the investment stacks up on paper. Understanding whether your investment property is worth its weight in gold comes down to many defining factors, the most important, knowing how much return it will generate both short-term and long-term.
There’s a common psychological condition that humans have developed over time which makes effective valuations, especially in owned property, particularly fraught with challenges. Behavioural experts commonly highlight a psychological phenomenon called the endowment effect as the root cause of the problem. The endowment effect describes our tendency to value things more highly when we own them and is a common phenomenon which has been widely documented in psychological studies.
This effect can skew a property owner’s ability to effectively measure the market’s appetite for their property, especially when paired with the desire to achieve a personal financial outcome in the form of a rental return.
Rental income cash flow is very important. Not only is it something you count on as an investment, but it’s also important to your bank, especially if you are planning to purchase a rental investment and need financial help. Every lender has their own requirements when it comes to how much they will lend, but as a general rule, lenders will take 80% of the gross rental income into consideration when completing your lending application. The reason for this is because they may assume 20% of the rent you receive will be used to pay for management fees, council rates, repairs and the time that the property will be vacant due to gaps in tenants moving in and out of the property.
So why is having a professional rental appraisal done on your property important? Below, we outline what a rental appraisal is and why they are beneficial for all landlords.
What is a rental property appraisal?
A rental property appraisal details the level of rental income an investment property might generate given current market conditions and the state of the property. Completed by an experienced rental property manager, a rental appraisal provides the landlord with a report into the earning potential of their investment property as determined by current market trends. Typically rental appraisals are provided to the property owner free of charge, which makes them a risk-free option that every property investor should be utilising.
Do you need to own a property to have a rental appraisal?
The short answer is no. Rental appraisals aren’t just for those that already own an investment property. If you’re thinking about becoming a property investor or adding a new property to your portfolio, you can have a rental appraisal done to help understand your return on a potential investment. The appraisal could also help you assess your purchase when seeking a loan from the bank. Knowing your potential rental income can help you understand the affordability of your repayments.
When can I get a rental property appraisal done?
Anytime! Your property does not need to be empty to have a rental appraisal completed. You also don’t need to own the property; many people get a rental appraisal done on a future property investment. Investors are also able to get an estimated property appraisal done from plans. This is handy for those investors investigating the potential of building either a second dwelling or a new build home as a rental investment.
How often should a rental property appraisal be conducted?
Regular rental reviews should be carried out so that you can be confident that you are achieving maximum returns from your investment property. With the latest Residential Tenancies Amendment Act 2020, rent increases are now limited to once every 12 months so it’s important to be aware of the market rate and ensure the rent reflects current demand.
Benefits of a professional rental property appraisal
An experienced property manager is not only able to identify the current market rate for a property such as yours, but can also arrange an assessment to ensure the home is Healthy Homes compliant and that certain features are reflected in the weekly rental cost. If you’re already using a property management company then obtaining a second opinion can give you peace of mind that you’re achieving the best possible return or give you insight into what you’re missing out on. Some property management companies can achieve more premium rental returns due to their larger database of tenants looking to upgrade or change their home.
At McDonald Real Estate, experienced property managers understand how to navigate the many complications involved in managing a rental property and assessing its value to potential tenants. Their services include comprehensive tenant screening to reduce the likelihood of problem tenants, managing issues or maintenance, and staying ahead of the number of constantly changing legal requirements. Engaging with a property manager at McDonald Real Estate means that your investment is in good hands.
Due to the number of properties managed, which is currently sitting at around 760+ Taranaki-wide, the team have an excellent knowledge of the weekly rental value a property can achieve. At different times the market may be stronger than others and this can also vary between different property types and locations. It’s the team’s whole-region expertise that means you get the best insight when making your property investment decisions.
When you request a rental appraisal from a rental property professional, you'll put yourself in the best position for property investment success. To organise a free rental appraisal on your property contact our team today by clicking on the image below.