Property Investment
6 min read
Author: Derry Brown
Financial Adviser in industry since 2007. Investor in Auckland & Christchurch. Previous COO of Global Brand
Reviewed by: Laine Moger
Journalist and Property Educator, holds a Bachelor of Communication (Honours) from Massey University.
Many investors worry about tenants.
After all, most investors can’t afford to pay the mortgage on their own home … and the investment mortgage.
You need a tenant. And you need them to pay.
So what happens if the tenant does a runner and stops paying rent?
What happens if they trash the place?
Or, what if they just don’t look after your investment?
These are good questions and important ones, too.
Over the years, I’ve helped hundreds of Kiwis invest in property. And many first-time property investors have felt these fears.
That’s why, in this article, you’ll learn the top 6 fears investors have about tenants and how to protect yourself.
A common fear is, “What if my tenants pack up and do a midnight runner? And stop paying rent?”
The first way to protect yourself is by taking the maximum bond at the start of the tenancy.
As a landlord, you can take up to 4 weeks' rent as a bond.
Then, if the tenant does a runner, you can recover some of those arrears from the bond.
You can also take out landlord’s insurance if you want extra protection. This can cover up to 12 weeks of lost rent if your tenant vanishes without notice.
The exact number of weeks depends on the insurance company. But, together this can help cover any losses while you look for a new tenant.
More from Opes:
The second fear is similar to the first. Your tenant stops paying rent (but stays in the property).
Not only does this disrupt your cash flow, but it can take time to evict a tenant.
The best way to guard against this is to use a property manager. They will find the right tenant. They’ll vet the tenant, check the tenant's credit, and check if the tenant can afford the property.
Of course, good people can run into bad circumstances. A tenant who used to pay on time might lose their job or go through a messy break-up. They can run into messy financial situations. And that can require some understanding.
So, you need a process that tells you what to do if that happens. If your tenant stops paying the rent, your property manager will issue a 14-day breach notice.
But they’ll also get in contact with them to find out what’s going on. They’ll find out if there is a way to get the tenant back on track.
But, if they don't pay their rent within 21 days, it’s time to go to the Tenancy Tribunal. You’ll apply to end the tenancy and look for new tenants.
The bond is still there to cover any rent arrears.
In our experience, this situation doesn’t happen that often.
Our Christchurch property management team has had 11 cases go to the Tenancy Tribunal. That’s over the last 2 years. And specifically, cases where the tenant was behind on their rent.
That’s out of a total of 600 tenancies. That’s about a 1.8% rate. That means over 98% of our tenancies have not had to go to the Tribunal for rent arrears.
Of those that went to the Tribunal, there was only 1 case where the bond wasn’t enough to cover what the tenant owed.
Many investors worry that the tenants might intentionally cause damage. In other words, “smash the place up.”
One way to protect yourself is through landlord’s insurance. For example, Vero offers an optional landlord extension of up to $30,000 for malicious damage.
Tenants smashing up your place doesn't happen often … but it does happen.
You can:
It comes down to your risk tolerance. The tenant’s bond also provides extra security for anything beyond fair wear and tear.
Similar (but less extreme) is the fear of: “What happens if the tenant doesn't look after the place?”
The truth is that your tenant probably won’t look after the property in the same way you would.
For them, it’s a temporary home. For you, it’s a major (and expensive) investment.
That’s why I recommend that investors buy properties that don’t have expensive materials. That way, if you need to replace anything … it doesn’t cost you too much.
If the tenant causes damage beyond fair wear and tear, you can recoup the costs from the bond. For a property that rents for $600 a week, the bond is usually $2,400. That offers you a fair buffer.
A property manager should help, too. They’ll conduct regular inspections (every 3 months) to make sure the property is looked after.
One of the biggest worries is: “What if I can’t get a tenant and my property isn’t getting any rent?”
The average tenant stays in a property for over 2 years. But, some investors ask: “What if I'm not average and I get lots of vacancies?”
One first-time investor I worked with had this fear. She asked: “What if I can't find a tenant?”
The answer is: “You lower the rent”.
You will always be able to get a tenant if your rent is right. If you need to get a tenant fast, lower the rent, and you’ll get tenants flocking.
Then, when the rental market is doing better, you can gradually increase the rent. That way, you can still get back to the market rate.
The next big fear is what if my tenants get up to illegal activities in the property?
In October 2024, a landlord was shocked to find his tenant of 6 months was part of a large cannabis growing operation.
So, this can sometimes happen.
The best way to protect yourself is by using a property manager. A vigilant property manager will visit every 3 months. They can often detect unusual signs and report any suspicious behaviour.
Property managers are very good at noticing things. They’ll look for extra toothbrushes to see if tenants have more people in the property than allowed.
Or, a property manager might spot a hidden bag of dog food in the cupboard. That could suggest the tenants have a pet when they’re not allowed one on the tenancy agreement.
So, a property manager will certainly notice a large cannabis plantation in the garage.
You can always add landlords insurance cover for illegal activities for extra protection.
Some policies, like AA’s extended policy, will pay out up to $30,000. That pays for decontamination and repair if illegal drugs are found.
This article isn’t here to scare you off property investment.
Instead, it’s meant to provide a realistic view of potential risks – and how to manage them.
Your biggest lines of defence are:
At the end of the day, property investment has risks. And you need to take these risks to get the rewards of property investment.
The question is how you manage them so you can still sleep at night. And have the confidence to invest.
Financial Adviser in industry since 2007. Investor in Auckland & Christchurch. Previous COO of Global Brand
Derry has been in finance and property since 2007 and was at the coal face through the Global Financial Crisis. I have helped Opes clients invest in over 140 Million Dollar’s worth of residential property. In investing my passion is for data and demographics.
This article is for your general information. It’s not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isn’t telling you what to do with your own money.
We’ve made every effort to make sure the information is accurate. But we occasionally get the odd fact wrong. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
You might like to use us or another financial adviser
