Propertyscouts Monthly Landlord Newsletter - October 2022
Google reviews
If you are a business owner then you will understand how important those Google reviews have become for attracting new customers. The co-owner of Propertyscouts Dunedin, Bex Harris, recently found out that you have to be extremely careful when trying to encourage positive Google reviews. Bex offered landlords and tenants the opportunity to go in the draw for a $500 Prezzie card if they posted a Google review about Propertyscouts Dunedin. In her email to landlords and tenants she said that she was interested in all feedback, good and bad but that she would appreciate any negative feedback to be emailed to her first. Most people would find this acceptable however one tenant took exception and claimed that the promotion was ‘buying’ good Google reviews. The Otago University student magazine ‘Critic’ picked up on the promotion and wrote an article about it. In the article they seemed to have a ‘foot in both camps’ and indicated that for anyone struggling to pay their winter power account a $500 Prezzy card would be pretty welcome. In her reply to ‘Critic’, Bex pointed out that legal advice she received was that the promotion didn’t breach any laws or regulations, but that for transparency reasons she had decided to withdraw the promotion. In the meantime, the 50 or so great reviews the business received were taken down by Google.
What you need to know about Google reviews
If your business doesn’t have good Google reviews then don’t expect to find it featured in the first pages of a google search. When was the last time you kept searching beyond the 3rd page for a business on a Google search? Google reviews are becoming more reliable and more important. And Google reviews are now accepted by people as much as they would a recommendation from a friend! Great Google reviews help with your organic ranking. Organic ranking is where you appear on a Google search if you are not paying Google to promote your business. More and more customers are doing a Google review search of a business before dealing with the business and will often contact the business directly from the Google listing instead of going to the business’s website. Customers who have a bad experience with a business are 2 to 3 times more likely to leave a bad review than a customer who’s had a good experience. And on the basis of that last comment, we’d like to encourage you to write a Google review on the Propertyscouts office you deal with. We hope that it will be positive feedback, but we’re not offering any prizes this time.
Heatpumps
Yip, we’re still using them down in the South Island and it’s certainly not for cooling. Did you know that setting your heatpump to a higher temperature won’t heat the room quicker? And for you North Islanders, the same applies for cooling. You won’t cool a room quicker by setting it to a lower temperature. In both cases, all you’ll do is use more power. Set the thermostat for a comfortable temperature and let the heatpump do its thing.
Media hype up investors' need for capital gains
Is it just us or are you heartily sick of the NZ media and their simplistic and negative views on property investors? Firstly, they often confuse property investors for developers. Something the present government has been guilty of as well. Let’s be clear property investors are in it for the long haul, developers aren’t. Can we put it any simpler than that?
We read a recent online article with the following heading; Property investors are banking on capital gains to justify their investment, tax data shows. The article went on to say that most profits are small compared to the sums landlords have poured into buying rentals, and that many investors rely on capital gains to make their investments worthwhile.
About a third of owners lost money on their rentals in recent years, and those that were profitable brought in about $10,000 a year on average, according to the information released under the Official Information Act. Tax consultant Terry Baucher said the figures reinforced an assumption many had – that investors relied on large tax-free capital gains to make their investment worthwhile. “The model is built around ever-increasing house prices, which have increasingly pushed the prices out of reach for everyday Kiwis,” he said.
Well, we aren’t going to argue with Boucher’s claim, but we’d prefer he didn’t make comments on our behalf because he has a point about the capital gain, but it’s not the full story.
How about this for an explanation for why a lot of people get into property investment? As well as the possibility of your investment property increasing in value over the years that you own it (tax-free capital gain), the landlord provides a home for a tenant (who for whatever reason won’t or can’t buy a home of their own) AND the tenant pays all or some of the landlord’s mortgage payments during the time that he/she is a tenant in the property. This is the point that people seem to miss. As a very simplistic example Peter the landlord buys a $500,000 property with a $100,000 deposit he’s saved. Penny and Steve (the perfect tenants) move into the property and pay rent of $600 per week which meets Peter's mortgage repayments and other outgoings (insurance, rates, maintenance etc.). Penny and Steve have no interest in owning a property of their own and stay in Peters's property for 15 years at which time Peters's mortgage is paid off. Now in this example let’s say that property prices have remained stagnant for the last 15 years (zero capital gain!) as have rents. Peter is still in the position where he owns a debt-free property valued at $500,000 but he’s only had to put $100,000 into it and now (thanks to Penny and Steve) he has a property providing him with an income of circa $600 per year (before outgoings). And that right there folks is why a lot of people become property investors.
Capital gains are the icing on the cake and not the be-all and end-all the media make it out to be.
We aren’t afraid to admit that we plagiarise every now and then
Let’s face it nowadays with the likes of Google it’s not too hard to find information on pretty much any topic you like and it’s also not uncommon for information to be shared. Often when we find an online article, we think will be of interest to our landlords we take the best of it and include it in our newsletters. That’s all well and good provided the information we are ‘copying’ is correct. Unfortunately, last month we dropped the ball and made the cardinal sin of giving you information that wasn’t correct! We told you that the Government’s interest deductibility rules for property investors were about to kick in from the 1st of October 2022, when in fact they commenced in 2021. So, let’s clear up any ambiguity that we might have caused. From the 1st of October 2021, any funds borrowed to acquire a property purchased before 27 March 2021, the interest (which would normally have been deductible) will be phased out between 1 October 2021 and 31 March 2025. The phasing out of interest deductibility looks like this:
- 1 April 2020 to 31 March 2021 100%
- 1 April 2021 to 30 September 2021 100%
- 1 October 2021 to 31 March 2022 75%
- 1 April 2022 to 31 March 2023 75%
- 1 April 2023 to 31 March 2024 50%
- 1 April 2024 to 31 March 2025 25%
- 1 April 2025 onwards 0%
We are sorry for any confusion caused. But on a positive note, not everything we said in last month’s article on this matter was wrong. As we pointed out last month, National have said they will reverse the interest deductibility rules if they become the next government.
Question and answer with a Propertyscouts franchise owner
We reached out to Mercedes Regis-Brannigan the owner of Propertyscouts Auckland Bays and ran a few questions past her about life as a franchise owner and property manager.
Q. What got you interested in Property Management, and why did you choose Propertyscouts?
Honestly, when trying to find a rental property after moving over from the UK with a dog I just found the whole system unnecessarily difficult plus you’re being presented with poorly maintained properties managed by people who really didn’t seem to care. I like a challenge and thought “I could do that a lot better” and here I am. A desire to do things differently with a bit more care and attention than we experienced when first moving here. I chose Propertyscouts since it didn’t seem to be a major player in Auckland and I like an underdog.
Q. What did you do before you became a Propertyscouts franchise owner?
I’m a chartered accountant and previously worked as a commercial analyst and finance business partner in various industries.
Q. Do you employ any staff and if so how many?
Not yet, but sometime in the future I hope to. I do use the services of a contractor from time to time.
Q. There is a lot of talk in the industry about the Government’s stated intention to regulate property management. What are your thoughts on that and why?
It’s a great idea, it should be regulated. You are managing what may be someone’s largest asset plus at the heart of it, it is very much a people business, and there should be relevant controls in place to ensure that it works effectively, and this includes self-managing landlords, to ensure the industry operates appropriately.
Q. In your experience how many properties should one property manager look after?
This depends on the person, systems & processes. I decided early on I didn’t want a huge portfolio to manage because I like to be hands on and provide a quality service to my clients without having to work around the clock since I have a young family. I would say for most people that number would sit around 100, depending on the support they have in place. I do think anything that creeps over the 100 mark is too much unless there is an appropriate support system to avoid the property manager becoming overwhelmed and leading to turnover (which seems to happen in this industry quite often)
Q. How do you decide on the rent that you will advertise a new rental property at?
I look at what is currently advertised on the likes of Trade Me (including the time advertised) also what has been rented in the previous months in the area. I then take into consideration the property’s features and benefits and compare this with my research to determine a range. I also take into account the market, time of year and how long properties are taking to rent in general. This is summarized to the owner, explaining the impact of vacancy for example, how listing at certain price points can drive more enquiries. Overall, the owner must be comfortable with the price and that’s not always at the top end of the range.
Q. What do you like most about being a Propertyscouts franchise owner?
The fact we are truly owner operators and given some freedom to build our businesses how we want.
Q. What do you like about property management? And what do you dislike?
The variety, I get bored very quickly so luckily no two days are the same! When people don’t respect your time and book in for viewings, confirm but don’t turn up – can be very frustrating!
Q. What’s your worst property management story?
Hmm, dealing with a problematic tenant during covid lockdowns and you feel that your hands are tied. We’ll just leave it at that.
Christchurch City Council says no to the Government's intensification direction
In what could be described as a bold (but sensible) move, the Christchurch City Council have opposed the housing and development intensification, voting against the change in planning rules to comply with government direction. In a move aimed at showing the government that Christchurch does not want intensification forced upon it, the Council has decided not to formally notify and invite submissions on the proposed Housing and Business Choice Plan Change that would bring the District Plan in line with recently passed legislation. New Medium Density Residential Standards (MDRS) would have come into effect when the Plan Change was notified, allowing up to three homes, up to 12 metres high (generally three storeys), to be built on a section in most residential areas of the city (except for in specified areas where there were 'Qualifying Matters'), without resource consent. Mayor Lianne Dalziel said that in deciding not to notify the Plan Change, the Council was responding to residents’ concerns. “None of us believes a one-size fits all approach to housing intensification is in the best interests of our city and today’s vote was clearly to signal that to the government – despite the fact they may notify the plan change anyway,'' the mayor said. And we said …. hallelujah!
The squeaky wheel gets the oil
We read with interest recently about a Kāinga Ora tenant reported by the media to be suffering from ill health as a result of a kitchen tap leaking in her rental property which had resulted in mould. Repeated calls to Kainga Ora resulted in her being told to be patient as the entire kitchen was to be replaced in October. The tenant Safiya Abdi, who has polio disease said that she noticed her children becoming sick. She was refused short-term accommodation and said that as a result her and her children now chose to eat outside on mats. She said having to stay in the house in its current state for almost two months had left her feeling “isolated and like I don’t belong here”. Pictures in the article show empty kitchen shelves with what appears to be mould on the shelves. Kāinga Ora central and east Auckland regional director John Tubberty said: “I’m very concerned to hear Safiya’s complaints about the state of her kitchen. I have asked our team to investigate this as soon as possible and take whatever temporary or permanent steps are necessary to make sure Safiya and her family have a safe and healthy home.” Now, normally this would be our opportunity to point a finger at the government’s rental agency and say tut tut but come on. The tap leaked and it resulted in a bit of mould on the kitchen shelf. Whatever happened to wiping away water and mould. The kitchen by all accounts is to be fully replaced this month. Maybe we missed something in the article but perhaps a better response would have been to ensure the tap was no longer leaking and advise the tenant on using a bit of bleach on a cloth to wipe away mould.
Tenants complaining of neighbours making too much noise
We saw this issue raised as a question and answer in a recent article and it reminded us of just how often we have to deal with noise complaints. Tenants complaining about noise from neighbouring tenants mainly, but also neighbours complaining about noise our tenants are making. So, just what are your rights in this regard, and what’s the best way to deal with noise complaints?
It can be quite complex but also simple and it really depends on the type of noise, the frequency of the noise being an issue and the approach you take to the person creating the noise. In the case of tenants creating regular noise issues for neighbours this is covered by section 40(2)(c) of the Residential Tenancies Act which states - the tenant shall not cause or permit any interference with the reasonable peace, comfort, or privacy of any of the landlord’s other tenants in the use of the premises occupied by those other tenants, or with the reasonable peace, comfort, or privacy of any other person residing in the neighbourhood. So that’s pretty simple, where you have a tenant causing noise issues with the neighbours, have a quiet word to them and if necessary, point this section of the Act out. If the problems persist, then you may like to consider issuing a 14-day notice.
Where it becomes problematic is when the tenant who is supposedly making the noise denies it or claims that the noise is reasonable. In this case it might be unfair to issue a 14-day notice because the tenant may in fact be right – the noise being created is reasonable. It can lead to a tricky situation and take all of the skills of a good property manager to prevent it from escalating. In the past where we have an impasse of this nature, we have often told the aggrieved party (the one complaining of the excessive noise) to contact the council noise control officer. That way you can base further action on evidence from the council. If they have been called to the property and found the noise excessive and issued a desist notice you can use that as evidence to show the tenant that the noise they are making is sufficient to disturb.
Ask An Expert
Q. I’m considering adding a minor dwelling to my investment property to increase my income (to offset the rising mortgage costs). The existing dwelling on the property has long term tenants in it, they’re good tenants and I don’t want to lose them. Their tenancy would be affected by the addition of a minor dwelling not just in terms of the disturbance from the construction but also the driveway will become shared, and they will have a smaller backyard. But I expect they will choose to stay on because they don’t get any use out of the area where the minor dwelling will go. If the tenants want to stay, how do I go about altering their tenancy agreement to reflect that the site/property will change (get smaller) and their rent will reduce?
A. If you are able to add a minor dwelling to your existing property, then this is a great strategy to increase the property’s income potential. You haven’t said what type of tenancy agreement the present tenants are on, other than the fact that they have been good long-term tenants. Adding a minor dwelling to the section will have a substantial impact on the tenants. Not only will they have less access and less use of the section, but you can also expect substantial disruption to the tenants during the time it takes to construct the minor dwelling. Don’t forget, as well, the disruption and mess caused by adding services, drains, underground power, driveways etc. Unless you are prepared to wait for the tenancy to end or negotiate an end to the tenancy with the existing tenants you are going to need their agreement to add the minor dwelling. Once you know exactly what sort of dwelling you want to construct and the impact it will have on the existing site, approach the tenants, and discuss your plans with them. Make sure that you have ‘all your ducks in a row’ so that you can honestly answer any questions they ask. Be realistic with time expectations to complete the project and the impact it will probably have on them during the construction and then once the minor dwelling is completed and tenanted. Be prepared to discuss what you will do for them to mitigate the negative impact on their tenancy. Once you have their agreement, we would suggest you sign a new tenancy agreement with the tenants shortly before work begins as this is when their tenancy is about to be altered and lose possession of part of the property. To avoid any problems, it is a good idea to attach your architect’s design to the tenancy agreement this will show precisely how their site will be affected/reduced. You should undertake an appraisal of the property based upon having a smaller site and set the rent in the tenancy agreement at that level. Extra tip: if the builders are using power from the tenant’s dwelling, make sure you attach a power metering socket ($10) so you can reimburse the tenant for the electricity used by the builders.
I also suggest you add a clause to their tenancy agreement along the following lines:
"The Tenant acknowledges that the Landlord has informed the Tenant that a minor dwelling is intended to be constructed on the Tenancy Property and the tenant agrees to this taking place during the term of the lease. The Landlord acknowledges that this may be an inconvenience to the tenant while the building work is completed. The Landlord agrees to compensate the Tenant during this period. The compensation will be paid by way of rent reduction and the rent will be reduced and recorded by way of separate email or other written communication starting from the date of commencement of construction and ending on the date that the Landlord gives the Tenant notice of the completion of construction and the rent will return to the original rent figure, on the next rent payment one week after the Tenant's receipt of the notice" (this clause is copyright IP from the Tenancy Practice Service Limited).
Bond centre upgrade
Did you know that tenancy services holds in excess of $750 million in bond money? The bond centre is aiming to replace the present system with one which is more user-friendly and fit for purpose which will allow landlords and tenants better service. Not before time, we say. The present system is well and truly out of date and often offers frustratingly slow and inadequate service. One would assume that a total makeover of the bond centre and services it provides will cost millions. Here’s hoping they get it right and that it doesn’t turn out to be the Tenancy Services White Elephant Bond Centre.
Shares, residential investment, or commercial investment?
We’ve talked before about the benefits and disadvantages of commercial and residential investments. And while we aren’t financial advisors the idea of having some shares scattered across your investment portfolio makes sound financial advice, although as we go to print, world share markets are taking a bit of a hammering. In a recent Property Investor article Core Logic’s Kelvin Davidson talked about the pluses and minuses of residential and commercial investments. We find that although both are property-related investments i.e., bricks and mortar, there is very little crossover. Investors tend to be into either commercial or residential, and never the twain shall meet. In summary, Davidson said that both residential and commercial had historically provided good long-term returns when compared to other asset classes. He went on to say that property prices don’t move in cycles by magic, there are good underlying fundamentals to them, and that although residential property had done well over the last 15 years that might not be the case for the next two to three years. When comparing commercial returns with residential he said that generally residential offered higher capital gains and that the last 3 years had seen spectacular capital gains in the residential sector. Residential demand he said was usually aligned with population growth whereas commercial investment property prices are often a reflection of the existing business environment. Davidson said that he wouldn’t be surprised to see residential returns drop below those of commercial property for a short while so investors need to be more prepared than in the past and concentrate on rental yields rather than capital gains. The days of massive capital gains in the residential sector are over he said.
Consumer not the force it used to be?
We read a consumer article recently about property managers and their adherence to the Office of the Privacy Commissioner’s (OPC) “Privacy Act guidance for landlords and property managers” (OPC’s landlord’s guidance). And we couldn’t help thinking it was a story about nothing! Firstly, the article has been written by a freelance writer. Maybe Consumer don’t have any of their own investigative journalists and now have to rely on freelancers out there looking for a buck?
In any case Emily Hamilton (the freelance journalist) told readers that they had ‘mystery shopped, posing as potential renters and made 71 calls to 32 property agencies across five regions (Auckland, Wellington, Palmerston North, Nelson and Dunedin)’. During their conversations with these property managers, they asked what sort of information is collected from renters, how long it is stored and whether it is shared with any third parties. And here’s some of what they found - Our investigation into property managers and privacy regulations found that the agents showed a good knowledge of the revised Privacy Act (2020) and OPC’s guidance documents, with 18% explicitly referring to the new rules. However, 10% of agents encouraged the mystery shopper to voluntarily provide extra information by way of a cover letter and a ‘rental CV’, which might include “information such as age bracket, gender, relationship status, etcetera”. This is because, as one property manager put it, “the more information you give, the better your chances [of securing a rental property]”
Property Investor Insights care of Tony Alexander and Crockers
Key points from this month’s investor insights are:
- Investor interest in purchasing property has strengthened.
- The downward trend in plans for undertaking one’s own property development has re-established itself.
- Interest in buying an existing property remains stronger than interest in buying new properties, despite the loss of interest deductibility on existing properties.
- Investors are slightly more concerned about interest rates rising.
For a full copy of this month’s report click on the following link: 09-crockers-tony-alexander-investor-insight-september-2022.pdf
Ponder this
Real estate cannot be lost or stolen. Nor can it be carried away. Purchased with common sense paid for in full and managed with reasonable care it is about the safest investment in the world. Franklin D Roosevelt.
Are you thinking or selling your investment property – or buying another?
If so, please get in touch with your local Propertyscouts office as it’s possible we will know of someone looking for a new investment property or know of one for sale. And remember, with Propertyscouts offices throughout NZ you no longer have to buy local. Chances are wherever you buy we’ll have an office and ‘star performing’ property manager to look after your investment as if it was their own. Here are some details of a great Dunedin investment property:
City Fringe Dunedin. Very well presently permanent material 4/5-bedroom property. Fully renovated in 2016. Very sought after by senior students or young professionals. Present tenants paying $925 p/w with appraisal for 2023 $975 - $1050 p/w. All the moneys already been spent on this property. Sit back and reap the returns! Contact Bex Harris at Propertyscouts Dunedin on 0272580885.
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.
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