Monthly Landlord Newsletters

Are you a landlord who’s thinking of selling?

If your answer to that is “yes”, then you are not alone. There’s a lot of pessimism amongst landlords at the moment. From the 1st of October the Government’s interest tax deductibility started to kick in. Investors with bank lending will pay more tax as a result. And this all comes on the back of changes to the CCCFA (Credit Contracts and Consumer Finance Act) which is making it harder to borrow, and on top of all that there’s the financial impact on landlords with Healthy Homes compliance requirements. Add to that the strain that Covid is putting on us all, and well you can almost be excused for feeling like it’s all a bit too hard. But as the old saying goes – ‘when the going gets tough, the tough gets going’.

This is a time for cool heads. Just like we knew that house prices couldn’t keep rising at the rate they were last year, the negative influences in the residential investment market we are feeling at the moment won’t last forever. If you are considering selling your investment property, please speak to us first. Especially before you speak to a Real Estate agent because the agent may neglect to point out that your property may not sell for the price you want – and in the meantime you have either given your tenant notice so that you can market the property empty (meaning no rental income) or your tenant has become annoyed with the uncertainty of whether they will still have a rental in the coming weeks.

It’s common for us to know of investors looking for a new residential investment and often when we become aware of properties for sale, we are able to put sellers and buyers together resulting in a win/win for both parties. There are some very good reasons for not selling currently and here are just a few:

• In the last 12 months rents have increased across NZ by around 7%. 28% in the last 5 years!
• Rent increases have matched inflation. Compare that with money invested in the bank!
• The rental market is strong and will remain so for the foreseeable future
• Other fees relating to your property investment are still tax deductible – property management fees, maintenance etc.
• Extraordinary capital growth in property prices over the last 18 months to 2 years.
• National have advised that if they are able to form the next Government, they will reinstate the tax deductibility.

Are you claiming everything you are entitled to?

Sometimes your worst enemy is you! You need to treat every one of your rental properties as a business, so good record keeping is essential. It’s been said that there are three key areas to be aware of when it comes to investment property and tax:

1. Ensure that you claim for everything that you are entitled to.
2. Track and record all expenses.
3. Structure your affairs to ensure that your income is taxed at the lowest possible rate.

Expenses you can claim for include:

• Repairs and maintenance (but not renovations that substantially improve the value of the property)
• Professional services fees, like accountants, lawyers or property managers rates and insurance
• Mortgage repayment insurance
• Vehicle and travel expenses when traveling to inspect your property or do repairs
• Depreciation on capital expenses, like whiteware, appliances or heat pumps
• Legal fees involved in buying a rental property, if the expense is $10,000 or less.

Have you ever considered becoming a Propertyscouts franchisee?

Or maybe you know of someone who might be interested? The benefits are huge! Unlimited holidays, low stress, enormous annual salary and paid overseas holidays. Oops sorry that’s the job description for Government Ministers. Being a Propertyscouts franchisee is a little different. It can be demanding at times and stressful and sometimes it feels that you don’t get paid enough and the overseas holiday was actually 3 days on the Gold Coast attending a property management seminar, but nothing beats working for yourself in an industry you’re interested in. We’re not feeling like we’re selling it to you at this stage so here are some bullet point pluses to owning a Propertyscouts franchise:

1. Great systems: resulting in a high (100% to date) success rate amongst our franchisees.
2. Turnkey business: Buying a franchise gives you a turnkey business with a successful business model and established processes.
3. Established brand: Propertyscouts is a well-known and trusted property management business throughout NZ.
4. Unparalleled training, support, and guidance: Propertyscouts franchisees undergo comprehensive training and have extensive operations manuals, and expert ongoing support to ensure success.
5. Affordable start-up options: Starting a franchise from scratch in a new location can be an affordable way to get into business.
6. Work for yourself, but not by yourself: Even though there are certain established systems and processes you must adhere to when buying a franchise, you still remain independent and in control of your business.

Learn more about becoming a Propertyscouts business owner here.

The six most common mistakes made by property investors

According to Lucia Xiao the founder of Finax NZ (www.finax.co.nz)

Emotional purchase: We probably all know someone who’s made an emotional real estate purchase. Led astray by the awesome property staging or dragged into the hype of the auction. Investors can’t afford ‘emotional purchases’. It’s a numbers game, and if the numbers don’t stack up then you should walk away no matter the situation. As the saying goes – “fall in love with the numbers, not the property”.

Doing it yourself: The DIY Kiwi culture coming to the fore! Experienced investors know that it’s a team game and utelise the experience and expertise of others. Knowing when to delegate to others will put you ahead of the game.

Being a landlord, not an investor: You don’t need to know how to be a landlord to be an investor. That’s where the likes of Propertyscouts can help you by taking away the stress, the responsibility and knowhow of being a landlord. For the sake of a few thousand dollars a year (which are tax deductible) it’s a no-brainer. Save your energy and concentrate on what really matters – growing your portfolio. Leave the landlord part to Propertyscouts and don’t miss out on opportunities by chasing the ‘small money’.

The number one regret – selling out of fear: Once you are on the property ladder be prepared to weather the storm that is the property market. Tell yourself this ‘if it was great all the time then everyone would be doing it’. Keep in mind that properties tend to double in value every 10 years but during that cycle there are bound to be downturns. By selling too early you may miss the following cycle and growth period. Almost all sellers will end up regretting it.

Trying to pick the best time to buy: Some investors try for short term gains through speculation. Trying to pick the top and bottom of the property market invariably doesn’t work. The best investors purchase for the long term and acknowledge that even if they buy towards the bottom of the cycle by holding long-term, they will ‘ride it out’ and see it through.

Focusing on quantity over quality: Concentrating on the number of properties in your portfolio is not always the best idea. When quantity outweighs quality in your portfolio you will invariably fall into the trap of buying the wrong properties. Cheaper properties, properties in the wrong locations, and substandard properties don’t always make good investments. Undertake the necessary research to ensure that every purchase you make will provide you with the best returns over the long haul. Don’t purchase just to add to your portfolio. Rather that focusing on increasing the quantity the right thing to do is to take time to review what can be done to get back on the right direction.

Thanks again to Lucia from Finax for the content of the above article. Lucia has 15 years banking experience and helps Kiwi investors reach their financial potential.

Update on emergency or social housing as an option for private landlords?

In last month’s newsletter we discussed the ability of private landlords to rent their properties for emergency or social housing. The upside was the landlord’s ability to still claim interest tax deductibility. One of the down sides was the potential impact on the landlord’s insurance. In an article we found on this subject, a private landlord renting 18 properties to a social housing provider was shocked to find that almost all the insurers he approached refused to offer cover and the one that did, almost doubled the premium and offered an excess of $10,000! It seems that all that glitters isn’t gold. Here's a link to read the full article.

NZ rental market update 

Trade Me advise that the advertised median rent has hit a record $580 a week, up 7% on 2021. Taranaki led the annual rent price growth and new listings are down slightly, but demand is dropping too, which may stall future increases. “April was the second month in a row where we have seen rents jump by 7% year-on-year and means tenants are now paying $40 a week more than they were this time last year.” said Trade Me Property sales director Gavin Lloyd. The main centres saw, by far, the largest supply jumps last month, with the number of rentals available in the Wellington region skyrocketing by 26% year-on-year, followed by rentals in the Auckland region increasing by 5%. Looking at demand around the country, Lloyd said in the Marlborough region, the number of inquiries on rentals jumped by 21% year-on-year. “Canterbury was not far behind with a 19% increase.” Compared to the month before, the number of rentals listed dropped 5% nationwide while demand dropped 19%. Auckland’s median rent was $600 a week, up 2% compared to 2021 but slightly down on March.

Ask an expert

Q: My landlord lives in the house next door to the house I rent and seems to think she can call in any time she likes. She’s nice most of the time but I’m getting sick of her coming to the house. It’s hard for me to talk to her about this because she thinks that she is helping me. Recently I came home to find that she had taken my clothes off the line used her key to leave them in the kitchen for me. What are the rules about her coming into the house when I am not home?

A: A lot of private landlords don’t understand the strict requirements they must comply with in terms of entering a tenanted property. As the old saying goes ‘your home is your castle’ and in this case I’m referring to the ‘home’ being your castle – not the landlords! Section 38 of the Residential Tenancies Act (RTA) deals with a tenants right to ‘quiet enjoyment’ of the property during the term of the tenancy. This section of the act obligates the landlord not to cause or permit any interference with the tenant’s reasonable peace, comfort, or privacy. Section 48 of the RTA deals with the landlord’s rights of entry. It’s quite detailed and would take too much for me to outline everything here but every landlord should have a very good working knowledge of this section of the RT In summary the landlord can enter the premises at any time provided the tenant has given their consent freely. Otherwise, the landlord must give notice of their intention to enter the property as follows:

1. An emergency - they can enter any time as necessary.
2. Inspecting the premises - by giving 48 hours’ notice provided they haven’t carried out an inspection within the last 28 days. Note in most cases where prior notice is necessary the premises can only be entered between 8am and 7pm.
3. Testing the premises for contamination - by giving 48 hours’ notice but not more than 14 days before the intended entry .
4. For the purpose of complying with smoke alarm requirements - 24 hours’ notice.
5. For the propose of complying with Healthy Homes Standards - 24 hours’ notice.
6. For carrying out necessary repairs or maintenance – 24 hours’ notice.
7. If the rent is in arrears of at least 14 days and the landlord believes the tenant has abandoned the premises.
8. With the prior consent of the tenant the landlord may enter the premises at any reasonable time to show the property to prospective tenants, or to show it to prospective purchasers or for a registered valuer engaged in the preparation of a report on the premises or a real estate agent engaged in appraising, evaluating, or selling or otherwise disposing of the premises or to an expert engaged in appraising or evaluating the premises or to a person who is authorised to inspect the premises under any enactment. In these situations, the tenant may not withhold their permission unreasonably but may make the consent subject to any reasonable conditions.

As you can see from the above your landlord is in breach of both your quiet enjoyment and section 48 of the RTA. I would suggest that you have a ‘quiet’ word to her to educate or remind her of her obligations and if that doesn’t work then consider serving her with a 14-day notice requiring her to stop entering the premises without the required notice.

Property Investor Insights care of Tony Alexander and Crockers

Key points from this month’s investor insights are:

• There continues to be a decline in the proportion of investors looking for a new property who will undertake the development themselves.
• The ease with which investors can find good tenants is slowly falling away.
• Bank willingness to lend is becoming “less worse”.
• Interest in purchasing existing townhouses remains low, but demand for new ones is strong.
• Despite rising interest rates there is no hastening move towards reducing debt levels.
• However, an increasing proportion of investors are reporting they have no mortgage.

Find the full report here: https://www.crockers.co.nz/media/d2rfoy1w/05-crockers-tony-alexander-investor-insight-may-2022.pdf

Building industry perfect storm 

If you are planning alterations to your rental at any time this year chances are they are going to cost a lot more that they would have a year ago. And if your alterations include gib board you better hope that you builder has ordered well ahead of time. Standard gib board which normally would have been available through trade suppliers is now scarer than hens’ teeth. You can always try Trade Me however but expect to pay up to ten times the normal price! Winstone Wallboards, the country’s biggest supplier of Gib, is now rationing supplies and will not take any advance orders. The company says the Covid lockdown created a backlog and now record building has resulted in them being unable to keep up with demand. But it will only be short-term, right? Ah probably no! From July the supply of Gib board and other associated products will only be available on an ‘allocation model’.

If you do have alterations planned at a rental property over the next few months, then maybe you could consider using ply board as a wall lining alternative. Ply is still readily available and depending on where and how its used can offer a suitable and cost effect alternative to gib.

Last but not least 

OK we’ll play the ‘silly game’. The property markets doomed! The median house price of $875,000 is down $50,000 from its peak in November. ASB is expecting a 9% decline in national house prices over 2022 with falls continuing into the early part of 2023. All told it’s about a 12% peak-to-trough decline, says Mike Jones, ASB’s senior economist. For all you ‘Chicken Littles’ out there let’s put that decline into context. That takes house prices back to about where they were in early 2021 and still about 27% higher than they were at the start of the pandemic. For some this will be unacceptable, and they will look to sell to mitigate their risk. For others they will see the opportunity. "Be fearful when others are greedy and greedy when others are fearful" – Warren Buffett.

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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