Monthly Landlord Newsletters

Achoo! 

Yes, today heralds the first day of Spring and along with it the start of the hay fever season. If you are one of the many sufferers here are some handy tips that might help:

• Try putting Vaseline around your nostrils to trap pollen.
• When you are outside wear wraparound sunglasses to stop pollen getting into your eyes.
• Shower and change your clothes after you have been outside to wash pollen off.
• If you dry your clothes on an outside line run them through your dryer for a short time before putting them away.
• Keep windows and doors shut as much as possible.
• Vacuum regularly and dust with a damp cloth.

Are you a goal setter? 

According to Martin Hawes, a retired financial advisor the people who do best with money are the ones who have goals.  He said that having a goal such as “I want to be rich someday” is no goal at all and really nothing more than wishful thinking.  You need to define your goals he says and for that, there is a well-worn path in the form of SMARTI goals.  The acronym stands for:

Specific – you know exactly what your goal is

Measurable – you will know whether you achieve it or not

Achievable – you have a means of achieving it.  It can’t be pie in the sky

Relevant – it’s something important to you and your life

Time bound – you are able to give a time for when it will be achieved

In writing – you have it written down so that you can’t fudge it. 

Hawes says that in his experience people who have goals like this often stick to them and achieve them.  Being a property investor is a great industry for goal setting.  Most investors we deal with are working towards some form of financial independence.  Hawes describes this as your ‘freedom figure’.  The trick he says is to think about your future lifestyle and how you want to resource it.  To find your freedom figure you have to decide what you want your future to look like.  Things like where you want to live, what do you want to do, what do you want to have and what if any work do you want to do. 

So, if you haven’t already done it, get a pad and pen out and write down your SMARTI goals and one last tip care of Hawes – the younger you are the more ambitious you should be with your goals.

There’s ‘trouble in mill’ 

It’s becoming increasingly hard to stay positive with all the doom and gloom in the world at the moment.  World share markets have gone from Bull to Bear, Covid’s still around and now we have Monkey Pox and we’ve gone from FOMO (fear of missing out) to FOOP (fear of overpaying).  We got to thinking that maybe a glimpse back in history might help with what we might expect in the future.  As the old saying goes – history is often a good indication of the future. 

We decided to go back to the time of the dinosaurs, and we’ve found one dinosaur property investor who recently turned 65 who’s agreed to be interviewed.

Propertyscouts:  Tell us about the first house you purchased?

Dinosaur:  It was in 1980, a 3-bedroom brick and roughcast house in a pretty good location in Invercargill.  We paid $38,000 for it.  My wife and I were both public servants.  Interest rates were as high as 20% (yes you heard right).  We had a $15,000 deposit and had to borrow from two banks – a first mortgage with one and a second mortgage (interest rate of 23%) with the other.

Propertyscouts:  Wow interest rates of 20% and higher!  Did you think about not buying because of the cost of your borrowing?

Dinosaur:  We didn’t really know any better.  The interest rates were what they were.    

Propertyscouts:  How long did you hold that first house?

Dinosaur:  We only had it for about 18 months.  This was pre-kids so what we weren’t spending on mortgage repayments we spent on doing the house up.  We sold it for $58,000.  We had probably only spent about $3000 on it so that was a good capital gain in those days.  Our next house pushed us to our limits.  We used the profit we had made from the first place and paid $98,000 for it!  That was a hell of a lot at the time.  We sold our car and ate mince or sausages for months because that’s all we could afford.  Mince was cheaper then!

Propertyscouts:  I guess you’re not a big mince fan now then?  Did you have any sort of property strategy at this stage?

Dinosaur:  My wife and I both had public service careers and kids had come along so really, we were living week to week.  After we had bought and sold a few houses (and always made money) we started to realise that our salaries paid the bills but in reality, we weren’t achieving what we really wanted which ultimately was to be financially independent in the future and we saw that property could help us achieve that. 

Propertyscouts:  How did you decide on property investing as a way of achieving your financial independence?

Dinosaur:  It really was a no brainer.  We had come to know property by buying and selling our own homes.  We could buy a rental property with a minimum deposit and set the mortgage repayments based on the rental income and over time the tenants paid the property off.  We always tried to maximise the mortgage repayments and where we could we made lump sum payments.  We’ve sold some investment properties over the years but generally our long-term strategy was to hold properties.  When we sold a rental property, it was normally to replace it with bigger and better.

Propertyscouts:  So, no regrets about becoming a property investor?

Dinosaur:  Absolutely none.  When I compare my situation with friends who remained relying on their salaries and wages, I’m way better off.

Propertyscouts:  Bearing in mind that things didn’t work out so well for the dinosaurs what are your thoughts on property as an investment for the future and how do you see it as being different from your experience?

Dinosaur: People are always going to need somewhere to live.  I think the days of the Kiwi quarter acre are over so there are going to be a lot more townhouses and apartments.  The reality is that they are often easier to own as an investment property as there is less maintenance.  Home ownership won’t be the dream that it once was for everyone.  More people will be prepared to be lifetime renters, so they are going to need rental properties which means that there is always going to be a need for landlords and rental properties.

Would you buy a house near a river or on a clifftop? 

After the winter we’ve had you could be excused for taking a risk adverse approach to buying near rivers or large bodies of water and that clifftop house might have a great view but what if it ends up at the bottom of the cliff in a landslide?  It’s estimated that 11% of New Zealand’s residential property value currently exposed to river flood risk will increase to 17% by 2050.

Munich Re, a German multinational insurance company, has a grim outlook for New Zealand with Australia managing director Scott Hawkins saying New Zealand will see an increase in both the frequency and severity of weather events due to climate change and communities and people need to manage their exposure to climate risks.  “Weather-related disasters might in sum become as destructive to New Zealand as earthquakes.” It’s all a matter of risk versus reward. Nelson is an area that’s seen terrible flooding and land slips this winter.  The reality is that the hill areas in Nelson most affected were and probably still are the most sought-after places to live. 

Will that continue to be the case, especially if we continue to have severe weather events like we have experienced this winter?  Only time will tell.  Whether you are a global warming convert or see it as a big con, the reality is that while climate risk isn't having a noticeable effect on some ‘riskier’ property values so far, that's only a matter of time. 

Housing confidence takes a tumble

General confidence in the housing market has dropped to a 13 year low.  31% of Kiwis now expect house prices to drop in the next 12 months.  That’s the lowest percentage in 13 years!  Adding to that, lending to investors has plunged by about 41% annually.  That all sounds pretty negative but we’re going to go out on a limb here, albeit it's a pretty narrow limb, and say that it’s not as bad as it looks on paper.  Firstly, the last two years has seen an unprecedented increase in property values, and we all knew that just couldn’t be sustained.  We did know that didn’t we?!  So, in line with the large increase in values we’ve seen we are now seeing a corresponding decrease in values.  And secondly, it’s taken us house loving kiwis a while to catch up with reality and as the old saying goes – when reality bites it bites hard. 

From the precarious security of our narrow limb, our view is that we are seeing a particularly hard and fast correction, but with any sort of luck, the speed and severity of the correction will slow and settle.  Fingers crossed.   

We aren’t anti Government

But, Matthew Gilligan - Managing Director at Gilligan Rowe + Associates might just be based on his recent opinion piece.  He says that it’s been disappointing to watch the plethora of contradictory policies coming out of the Ardern government and the Reserve Bank (RB) over the past five years and that there is zero accountability for the blunders that seem to be arriving thick and fast – just PR spin and denial that anything is wrong. 

Gilligan’s opinion piece is a hard hitting, no holds barred piece which will resound with the majority of property investors.  He refers to the Governments ‘vilification’ of property investors for house price inflation and accusations that they caused the wealth gap, peddled with a divisive dose of envy-based politics. The narrative was New Zealanders were transfixed with property as an asset class, which was driven by greedy landlords (erroneously labelled “speculators”) and were called tax cheats after a ‘free ride’.  The article really is worth a read, if only to see how many of the points Gilligan makes you agree with. 

Our bet would be that you will conclude that Gilligan and most property investors have similar views – but don’t let us influence you.  Here’s a link to the whole article.

Propertyscouts ‘Ask an Expert’ column in an upcoming edition of the Property Investors Magazine

Q:  I have just received the very bad news from the mother of my tenant that my tenant has died in an accident.  This is very sad news for all concerned but what happens to the tenancy which was not due to end until the end of the year?

A:  That is sad news.  I assume that there is only the one tenant named on the tenancy agreement and that is the tenant who has died.  It makes no difference whether the tenancy is a fixed term or periodic tenancy.  The tenancy ends on one of the following dates (whichever is earliest):

1. 21 days after the tenant’s personal representative (probably the tenant’s mother in this case) or other next of kin gives the landlord written notice of the tenant's death.
2. 21 days after the landlord gives the tenant’s personal representative (mother) or other next of kin written notice to leave the premises.
3. a date agreed in writing by both the landlord and the tenant’s personal representative or next of kin.
4. a date given by the Tenancy Tribunal on an application made by the landlord (this can be made without notice).

Point 4 above should really only be used in exceptional circumstances.  It will no doubt be a very difficult time for the deceased tenant's next of kin so understanding and working with them to end the tenancy and have the tenant’s personal effects removed from the property will be necessary.    

Property Investor Insights, Care of Tony Alexander and Crockers

Key points from this month’s investor insights are: 

• The proportion of investors looking to increase their rents in the next 12 months continues to decline as does the average rent rise sought.
• Consistent with data from other sources, bank willingness to lend is seen by investors to be improving.
• Net plans for purchasing more investment property have fallen away this month.
• Of those planning a purchase, interest in a new build has declined, driven perhaps by concerns about developer ability to deliver amidst many resourcing problems.
• Investor concerns about rising interest rates are abating.

Thanks again Tony Alexander and Crockers.  Full results can be found here.
 

Property management regulation  

We have previously said that we are strong advocates for regulation of the property management sector. Around 59% of the country’s residential rental properties are managed by property managers.  The rest are managed by private landlords and while we accept that there are some problem property managers out there you don’t have to dig too deep to find some shocking private landlord stories.  Wouldn’t it make sense to regulate private landlords as well as property managers? 

Well, David Pearse, the Residential Property Managers Association president thinks so.  He says that the days of DIY landlords are over.  Something we have pointed out time and again.  As it presently stands the Governments proposal is for property managers to comply with a code of conduct, and a complaints process.  Tenants and landlords would be able to complain about the actions of property managers. Individual property managers could face fines of up to $40,000 – and property management companies could face a fine of up to $100,000.

The tenants’ rights group, Renters United, has apparently welcomed the move but points out it still doesn’t cover properties managed privately by the owner, and we agree.  They said, “whether the service is being provided by a property manager that doesn't own the property, or a property owner, they should both be expected to operate in the same way.”

Our view is clear.  Regulation of the industry is needed and should aim to improve the experience for all concerned.  But it shouldn’t be introduced in a half-cocked manner.  Do it once and do it right!  Include private landlords in any reforms, maybe not to the same extent as property managers but make them more accountable than what they are at present. 

Median rents decline for the second month in a row

Interest.co.nz has reported that for the second month in a row, rents have declined.  Signs, they say, that the housing supply may be catching up with demand.  However, a drop in rents at this time of the year is not surprising as it’s normally a quiet time in the yearly rental cycle.  Rents usually peak over the summer months when demand for rental properties is greatest and then ease back slightly over the winter months.  The national median rent in June was still $35 a week higher than it was in June last year.  The fact that rents continued their normal winter decline while the number of properties tenanted dropped to a new low suggests the rental market may be easing, with supply starting to catch up with demand.

Ponder this 

Don’t wait to buy real estate.  Buy real estate and wait. 

Disclaimer  

Given the opinions expressed in parts of the email it’s important that we make it clear that the contents are opinions and observations and made in good faith.  We suggest that in all cases independent legal and financial advice is sought.  

If you want to receive these direct to your inbox - sign up to our mailing list here: https://mailchi.mp/a2ede027d1c3/sign-up