Monthly Landlord Newsletters

Worried about the housing market collapsing? 

Don’t.  It’s probably never going to happen, if it does it will never be as bad as the ‘Chicken Littles’ of this World would have you believe, and, if it does drop back, in time it will recover and continue to perform well – the way it always has.  According to Peter Thompson, Managing Director of Barfoot & Thompson, their sales data shows that for the last 60 plus years on the rare occasions prices have retreated, within a few years they have recovered.  If you are not compelled to sell during any down period, your capital should not be eroded. 

There are a few things that you can do to protect yourself from a ‘correction’ in the property market.  They may seem basic, but they are good principles to follow whenever you can:    

1. Try to buy when the market is down, and when investors are pessimistic.  As Warren Buffet said – “be fearful when others are greedy and greedy when others are fearful”.
2. Use experts for the areas that you’re not expert in.  Accountants and financial advisors for structuring your investments, builders and contractors for advice on improvements and maintenance and of course good property managers (that last point goes without saying).
3. Don’t confine yourself to one location.  You don’t have to buy an investment property just because you live in a particular area.  Look at areas that are growing and showing good returns.
4. Buy cheap and improve straight away before you tenant the property.  By doing this you can capitalise the cost of improvements, increase the rental yield from day one and protect yourself from any downturn in the property market.    
5. When buying try to get longer settlement dates with access to the property to show potential tenants or carry out minor maintenance.  
6. Diversify.  Spread your risk across different types of properties. 

Government announces their intention to regulate Property Managers

About time we say!  This is a no brainer and while the Government will probably take the kudos for coming up with the idea there has been a lot of advocacy for this from within the industry over a long period of time so good on them for finally getting the ball rolling.

There are very good reasons for regulating Property Managers;

At present property managers aren’t held to any standards and are able to operate without any sort of qualification.  It’s not hard to find examples of both landlords and tenants who have suffered at the hands of incompetent or dishonest property managers.    

1. Real Estate agents are regulated so why aren’t property managers? Since 2008 Real Estate agents have been regulated and had to operate to a Code of Conduct set out by the REAA.  Agents can suffer hefty fines and sanctions for breaching the Code of Conduct.  The same should apply to property managers who carry immense responsibility in terms of dealing with tenants and landlords.
2. Property managers hold positions of ‘power’ and ‘influence’.  They have the ability to choose whether or not a tenant will be offered a rental property and once a property is tenanted are responsible for collecting and dealing with the rent for that property.  Depending on the number of properties a property manager (or property management company) looks after they will be responsible for many thousands (in some cases millions) of dollars.  As well as the rents they collect they are also responsible for the management and care of the investment property.  With the national average house price being around $1,000,000 should you trust an unqualified and unregistered person?  Let’s put it this way – you own two new Ferraris.  Do you take them to the backyard mechanic down the road for maintenance and repairs or the Ferrari dealer?  Hopefully you said the Ferrari dealer. 
3. Lack of regulation negatively impacts good property managers.  There are a lot of good property managers out there but the lack of regulation and the ease with which any ‘Jonny come lately’ can become a pseudo property manager means that the good ones suffer when the preverbal hits the fan.  One bad experience with a property manager can result in landlords being overly pessimistic towards other property managers.  It pays to remember (if you’re old enough!) the Osmonds 2015 hit song – One bad apple don’t spoil the whole bunch girl.  https://www.youtube.com/watch?v=L4CcgblWC8k (if you’re brave enough for that trip down memory lane)    
4. Private landlords aren’t included in the regulation process at this stage but there have been plenty of calls for them to be more accountable.  There are a lot of very good private landlords but the days of DIY landlords who ‘guess’ their way through the renting process are at an end.  These landlords tend to have very limited knowledge of their requirements to comply with the RTA and other legislation and often ‘come unstuck’ when they end up in the Tenancy Tribunal.  Perhaps, at the very least private landlords need to undergo some form of industry specific training in order to obtain some sort of certification to prove that they are capable of correctly interpreting and adhering to the likes of the RTA and other relevant legislation? 

The Government has announced that there will be a consultation process around the regulation of property managers.  Most landlords should have a view on how this regulation should look, and perhaps even some form of regulation or licensing of private landlords.  If you feel so inclined, then here is a link to the consultation process:  http://bit.ly/3t42jpo.

Choosing the right property manager 

In light of what we’ve written above about the regulation of property managers we thought it appropriate to give you some insight on what we think you should look out for when choosing a property manager for your investment property.  Firstly though, if you happen to be a landlord managing your own property or properties to save yourself money you need to consider what your time (and sanity) are worth.  Propertyscouts managers are fully trained and work to very defined (proven) processes.  They have systems set up to ensure as few problems as possible and that after hours issues are dealt with effectively and efficiently.  And almost certainly their costs to you are tax deductible.  The time you put into looking after a rental property yourself can’t be claimed from the IRD, AND if you end up at the Tenancy Tribunal you can’t even claim for the time involved in preparing for the hearing. 

1. Choose an experienced property manager who deals with similar properties to yours. 
2. Check what other properties they have listed for rent on the likes of Trade Me or their own website.
3. Check them out – their website, online references and ask them for references from other landlords.
4. Ask about their processes for the likes of tenant applications, rent arrears and dealing with tenancy issues.  If they tell you, they have a ‘zero tolerance to rent arrears’ that’s nonsense.  No property manager ever wants rent arrears, but the reality is that sometimes tenants fail to pay their rent for all manner of reasons.  Ask them what their process is when a tenant doesn’t pay their rent on time. 
5. Do they back themselves like Propertyscouts do with a rental guarantee?  
6. How many staff do they have and how many properties do they manage (some may not like to tell you exactly how many properties they manage)?
7. Discuss with them your level of involvement.  Do you want to be completely hands off or maintain some continuing level of involvement like final approval of tenants etc.   
8. Are they part of any recognised organisation?  Propertyscouts property managers are members of RPMA (Residential Property Managers Association) which as well as having a code of ethics and complaints process focuses on developing professional residential property managers by providing ongoing education.     

Property Investor Insights care of Tony Alexander and Crockers  

Key points from this month’s investor insights are: 

• No upward trend in existing investors quitting the property sector is underway
• A strong focus on holding for the long-term remains.
• Investor interest in undertaking their own property development is slowly waning.
• Borrowers are increasingly favouring a two-year term for fixing their interest rate.
• Slightly more investors are showing concerns about house prices falling.
• Selling in order to purchase alternative investment assets is becoming more important to those investors who are selling.
• Those thinking of a purchase show greater inclination to undertake a development themselves outside of Auckland than in our biggest city.

What the hell does CCCFA stand for? 

A good question we hear you ask.  You may have heard it being touted quite a bit recently, especially in terms of borrowing for home loans.  CCCFA stands for the Credit Contracts and Consumer Finance Act.  We talked about this in last month’s newsletter but decided that it may be needed further clarification.  Major changes to the CCCFA made in December last year are having a huge detrimental effect on house borrowers.  Lenders (banks and the like) are now required to test whether the loan is suitable for the borrower and whether they can afford the repayments now and into the future.  Lenders are now required to trawl through bank statements analysing, in fine detail, the spending habits of loan applicants – where they shop, what they buy, how much they spend on coffee and KFC.  Short form top ups for the new deck or bathroom are no longer available, instead a full loan application is required.  Lenders have always been required to complete a certain amount of due diligence on a borrower's application but tolerance levels are now significantly reduced meaning more compliance, more delays and less loans being approved.  The changes have come about because of concerns around ‘loan shark’ behaviour, however the changes made to the CCCFA in December have gone much further than necessary according to industry experts and have impacted the whole credit sector. 

Tradie SOS 

If you're having trouble getting a tradie to answer the phone, believe us you are not alone.  Pressure on the trades is at an all time high and this has resulted in a corresponding shortage of building materials right across God's own.  Builders are having to stockpile the likes of timber and gib board months in advance to ensure they have sufficient materials. 

So, if you’re looking at any housing projects in the next year or so here are some top hints:

• Connect early with the trades people you will need for the project.
• Be organised. The earlier you can engage with trades people and suppliers the better.
• Be honest and upfront with tradies.  Yes, get quotes but getting multiple quotes from tradies and suppliers for small jobs in order to save just a few bucks will be seen for what it is.
• Try to get a contract that protects you from cost and time overruns
• If you are going to renovate with tenants in place, ensure that your timing suits the tenants and that they agree to the ‘quiet enjoyment of their rental property’ being compromised during the renovation.  Tip (consider negotiating lower rent during the period of the renovation and get the tenants to ‘sign off on whatever you agree on) 
• Wherever possible purchase the materials ahead of time to prevent shortages and time wasted during the project.
• Given the market conditions look at projects that add value to your property and aren’t impacted by a shortage in materials.   

Is the system of taking a bond from a tenant outdated

We read recently of a property commentator who was suggesting that the system of taking a bond from an incoming tenant was outdated and ‘difficult’ for the tenant each time the tenant shifted premises.  Instead, they were promoting the idea of an insurance system of say $200 (not sure where that amount came from) a year to cover any damage.  Every property manager we know can draw on examples of tenants wanting a lease on a property but being unable to afford to pay the required bond.  Perhaps the requirement for a bond, which after all, is specific to a particular property because it aligns with the weekly rent, is an indicator of the tenant’s ability to afford the rent?  But the real problem we have with this suggestion is the ‘inference’ that a tenant forks out a new bond every time they rent a property.  The reality is that a tenant is entitled to a full refund of their bond at the end of their tenancy – provided there are no outstanding issues with the tenancy such as rent arrears or damage.  Good tenants could be negatively affected by the insurance proposal because the yearly insurance cost is not refunded.  We can also see issues arising in having to deal with insurance companies when making a claim.  Perhaps dealing with a claim through the Tenancy Tribunal wouldn’t be so bad after all?               

Ask an Expert

Q:  "Can I rent out my property if it doesn’t have building consent and no Code of Compliance for some work which has been carried out to it?"

A:  The simple answer to this is no you can’t.  If you rent the property without the necessary consents, it’s possible that the tenant may be able to apply to the Tenancy Tribunal for all of the rent paid to be refunded.  The relationship between tenants and landlords is governed by the Residential Tenancies Act 1986 (RTA).  The RTA requires landlords to comply with all legislation when tenanting a property.  Failure to obtain the necessary building consents and code of compliance is a breach of the law which means that the property can not be lawfully tenanted.  Failure to have the required compliance certificates may also impact on the property insurance so this should be disclosed to your insurance company so that they can tailor the policy to only cover parts of the property not missing the required Code of Compliance Certificate or not cover the property at all.     

Thinking of selling your investment property? 

We hope not, but if you are please get in touch as we may know of an investor who would be keen.  If you do decide to sell, then there are a couple of things to bear in mind.  If the property is tenanted on a fixed term tenancy, then the property must be sold with the fixed term tenancy in place – unless you can negotiate an early end to the fixed term tenancy with the tenant.  If the tenancy is a periodic tenancy, then you need to decide whether the property should be marketed with the tenant in place or vacant.  Often this decision will come down to how good the tenant is at looking after the property.  Regardless, the tenant will need to be given written notice of your intention to sell.  If you decide to sell the house while it’s tenanted and the new buyer wants the tenant to leave, you’ll need to give the tenant at least 90 days’ notice.  Consider this when you agree with the buyer on the settlement date. If the new buyer wants to retain the tenant, then the tenancy details will need to be included in the sale and purchase agreement.

Rent controls? 

You have to be joking: Last year we wrote about rent controls and how they had been trailed overseas with little or no success.  We took the stance that the Government would be … well just plain dumb to implement any form of rent controls.  We shouldn’t have been so sure of ourselves.  The Associate Housing Minister Poto Williams has advised during a TV interview that she has asked her officials to look at rent controls and rent indexing as a way to help struggling renters to deal with the cost of accommodation.  Rent indexing relates to the rental price relevant to household income. Williams advised that “nothing is off the table as far as controls on rents is concerned”.  She acknowledged in the interview that proposals around rent controls and the like overseas had shown that while it sometimes alleviated issues in one area, it sometimes caused problems in another. In responding to the interview with Williams, Property Investors Federation chief executive Sharon Cullwick said she “believed plans are basically in place for the Government to implement some form of rent control and that it will be a case of no consultation with anyone and having to swallow yet more Government legislation belting landlords”.  She went on to say that the Government’s implementation of various pieces of legislation over the past couple of years to limit house price increases and in turn rents were to little avail.  “The Healthy Homes Standards were introduced when there was a housing crisis and this reduced private rental stock as some landlords across the country baulked at the cost of bringing their houses up to the standards and sold properties, many to first home buyers, taking them out of the rental pool”.  As well she mentioned the combined negative effects of landlords losing the 90 day no cause termination meaning they are unwilling to rent to marginal tenants, the Tenancy Tribunal now being able to suppress tenants’ names, changes to the CCCFA (you know what that stands for) and LVR requirements.  And on top of all this she said Landlords will realise the enormity of the Governments phasing out mortgage interest tax deductibility when they complete their tax returns in April.  We couldn’t put it any better ourselves Ms Cullwick, only that if rent controls are introduced, and it seems that’s more likely than not they will be – they won’t work.          

Let's finish on a high (kind of)

According to a recent article in Landlords.co.nz, landlords still hold the upper hand – just!  Landlords, it said are struggling to pay the higher costs of owning residential rental property, rents are absorbing 22% of gross average household income.  For the full article click on the following link; www.landlords.co.nz/article/976519931/landlords-still-hold-the-upper-hand-just?utm_source=LL&utm_medium=email&utm_campaign=Landlords+Daily+News+for+19+Feb+2022

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.