Property Investors’ Federation vice-president Andrew King says tenants are becoming harder to find, and estate agents say rents are coming under pressure.

Mr King has noted big rises in the number of North Island city houses for rent in the past fortnight.

“If you are seeking a new tenant for a rental property in Auckland or Wellington then promote it as widely as possible because competition could be strong,” he said.

“While listings of property for sale were expected to increase in the lead up to summer, there has been an unexpected rise in the number of rental properties being promoted to let in the past few weeks.”

Mr King found big increases in vacancy numbers in Auckland, Tauranga, Hamilton and Wellington.

People who might have become tenants were instead buying houses, aided by low interest rates, he said.

“The bright light on the scene is the number of people moving to New Zealand. Often they rent a property, at least initially, so will, hopefully, provide more demand for the increasing number of available rental properties.

“Further good news for rental property owners is that rental prices have not been affected by lower-than-expected demand for rental property.”

Crockers Property Services’ latest research showed Auckland rents dropping and house sale figures rising.

“While sales figures start threatening to deliver new market highs, the rental market remains challenging with average rentals in both the two and three-bedroom markets in Auckland continuing to deliver below the long-term trend line,” the company’s report said.

Average levels fell by a few dollars on the previous month to $332 a week for a two-bedroom property and $434 for a three-bedroom one, said Crockers.

EMPTY NESTS

Rental listing increases:

• Auckland Central 18.6%
• Waitakere 17.7%
• Hamilton 14.5%
• Tauranga 14.6%
• Manukau 10.9%
• Franklin 9.8%
• Porirua 19.9%
• Upper Hutt 16.5%
• Wellington Central 10.7%

Source: Andrew King Property Management, data for last fortnight

1 January 2009

Property expert Andrew King believes he may have created an entirely new financial industry: property management broking.

King, former president of the Auckland Property Investors Association, is yet to fully launch the business, Andrew King Property Management Broking, on to the world.

But he believes that, just as mortgage brokers aim to find the best home loan for clients, there’s a place for professionals to introduce residential property investors to the best property managers.

And as with mortgage brokers, the service is free.

Users of the service will pay no fees, but the property managers to which King refers clients will pay a commission in exactly the same way mortgage brokers pocket commissions from the likes of the banks and non-bank lenders. King is coy on the level of commission, but says it won’t add anything.

Commissions will be level from all property managers so there will be no bias in his recommendations, he says.

King says there’s a place for the service because so many property managers aren’t doing a good job, and that is costing landlords money.

Property managers are subjected to a 60-question grilling which takes about two hours, says King. He then interviews a random sample of 10-15 of the property manager’s clients.

Additional benefits will be that King will monitor the continuing service provided by the managers he recommends , and will act as a mediator should the client have complaints about the way their property is being handled.

He hopes the service, should it catch on, will play a part in raising standards by helping people ditch their old shonky managers. “There are quite a lot of cowboys out there,” King says. “If I can make it easier for people to move to a good property manager, it could have a positive effect on the industry.”

King intends to publicise his business in the new year. An online service he is developing will allow investors anywhere to plug in the details of their rental properties to get an estimate of whether they are getting enough rent.

“I don’t think many investors charge high enough rents.”

Bay of Plenty Times

Martin Tiffany

Maggots in the kitchen, rubbish overflowing out of the garden shed, and graffiti on the outside wall are just a few of the things that  greeted a Tauranga property owner when she returned to inspect her house.

Former Tauranga woman Donna Bullock, who now lives in Wellington, said she was shocked to find her Welcome Bay rental property in such a terrible state, especially as she had engaged a property manager to look after it.

She said the tenant had moved out on Wednesday and they had come up at the weekend to get the house ready to rent again. They have been left with a repair and cleaning bill that is going to run into thousands of dollars and a house that can’t be rented until the work is done.

A skip load of rubbish left by the previous tenants was cleared out of the house on Friday. This included furniture and personal belongings – including toothbrushes and clothes – that have been left behind.
The catalogue of rubbish and damage included rubbish bags and cartons of beers bottles lining the side of the house and filling a shed, holes in the walls, damage to the walls patched but painted a different colour, damaged blinds and curtains that had to be thrown away, and stained and burnt carpets.

Bags of food scraps left in the kitchen were infested with maggots and ants covered the benches.

The tenants also removed a security system by cutting its wires and leaving it in a cupboard, and the laundry floor has buckled after being flooded. It has to be replaced.

The  oven door had also been damaged and can’t shut so the appliance  has to be replaced. Slats from the deck railing have also been removed.

Mrs Bullock said when she bought the house in March 2007 it had been in immaculate condition. The first tenant had not looked after the house and been asked to leave.

She said the Tauranga property management company had been given a second chance as they promised the situation wouldn’t arise again. “Obviously the property manager wasn’t doing their job. The amount of rubbish in the shed alone shows it has been there for a long time.”

Mrs Bullock said she wanted to warn other landlords not to be complacent just because they had a property manager.

She said she was alerting the Real Estate Institute of New Zealand about the property manager and wanted the management fees they had paid for the past two years reimbursed.

Mrs Bullock said she didn’t really have the finances to do the repairs and cleaning and was going to struggle to get it all done. To make matters worse she said the tenant left without paying over $700 in rent and all she was left with from the bond was $100.

A spokeswoman for the Real Estate Institute of New Zealand  confirmed that the property management company and the  manager were REINZ members. She said while there was a REINZ Property Managers Code of Practice there were no specific guidelines as there were too many possibilities and it was  treated on a case-by-case basis.

She said they could  take disciplinary action against the firm but  liability had to be pursued through civil channels.

King, who with Lisa Dudson, has co-written the new edition of Create Wealth: The Complete Guide to Residential Property Investment in New Zealand , says the slumping property market has created thousands of new landlords, and whether they sink or swim will depend on how quickly they learn the skills.

Early this year there was a huge influx of new sales listings on TradeMe, King says, as people tried to quit a slowing market when prices were at their peak, but recent months have shown a spike in new rental listings.

“My take on that is a lot of people have tried to sell their properties but have failed to get the price they expected, and so have decided to rent their place out until the market improves,” says King.

These accidental landlords may have bought another place in a bid to move up the property ladder, or were shifting to another city, or for school zones.

The problem is that many will find the rents they can collect do not come close to paying the expenses of owning a renter, at least a heavily geared one.

That means cash flow will be tight, particularly with interest rates so high, so they need strategies to maximise their cash flow.

Many will not stay the course and will sell out, King said, when hanging on could mean the difference between selling at a profit or a loss.

He picks the market comes back to life in 2011-12, coinciding with the time young KiwiSavers will be able to claim government subsidies on their first homes.

King advises:

• Know the true market rental price for your property and ensure that is what you are receiving. You can do that by keeping an eye on adverts in the papers, testing the market by posing as a tenant, and using the online statistics provided by the Department of Building and Housing. Don’t be afraid to review your rents when the market moves.
• Know the tax deductions you can make, ensure you have the right documentation and follow through the claim. Deductions can include depreciation and expenses like the petrol used in carrying out property inspections, the cost of insurance, repairs and maintenance, land and water rates, and the legal costs in obtaining finance.
• If receiving a wage or salary, and your property is making a tax loss, you can apply for an alternative tax code (Inland Revenue form IR23) to receive tax deductions each pay day rather than waiting till the end of the year.
• Make interest-only repayments on your mortgage. If your rental property is making a loss, this is a way of keeping the short-term costs down.
• Find out if there are extra features your tenants want that you can provide for an increased rental return.
• Establish good management systems so you are as efficient as possible, and keep your property maintained. When you are managing a negatively geared property, every dollar saved is a dollar closer to holding on to your renter.
• Understand your legal duties as a landlord under the Residential Tenancies Act, and study up on what to do in a crisis (such as problem tenants), before a crisis strikes.
• Use a revolving credit account to get through cash-flow shortfalls. Take care and be disciplined, however. These can be a trap for the unwary.
• Mortgage interest costs are your biggest expense, so ensure your loans are structured so the mortgage interest is tax deductible.
• Don’t try to go it alone. There’s strength in numbers, and accidental landlords can find support, information and experience by joining their local property investors’ association. The annual fees can be claimed as a deductible expense.

If Housing NZ had conducted thorough and regular inspections of their property the damage would have been more limited. Although they have won the right to seek damages from non tenant perpertrators, there is still the problem of actually getting the money from them.

A private rental property owner in the same position would risk not getting insurance, the expense of a District Court hearing and the potential of teh offenders not having the funds to cover their loss. You are far better to conduct thorough property inspections and discover the situation early, mitigating your potential losses and gaining a better chance of getting the money back.

If you do not conduct property inspections, click here for an easy solution and piece of mind.

P house tenants must pay

Source: Stuff

Several people have been found liable for the $185,035 damage caused by the destruction of a state house used as a methamphetamine factory.

Forensic scientist Nicholas Powell told Napier District Court that the house in Tamatea, Napier, was the most contaminated of 150 drug- production houses he had seen.

Police raided the house in July 2004 and found a P lab in operation 18 hours a day, five days a week. The house was uninhabitable, so Housing New Zealand chose to demolish it.

Judge Geoff Rea found Housing NZ’s $185,035 claim for the loss and demolition to be completely proved.

Ten people were involved in the production of P but Housing NZ brought a case against only six because two had been declared bankrupt and the two tenants had already been found liable for the damage.

Richard John Samuel Te Rure, Donna Marise Wilson and Joanna Te Rure were found liable for $180,035. The three others, also found liable, have taken collateral proceedings against Te Rure and Wilson for costs they might be found liable for.

A decision on spreading the cost among the defendants was reserved till further evidence from defence counsels.

The national landlord membership and lobby group, the Property Investors Federation, has released a guide which it wants members to show to tenants.

Federation vice-president Andrew King said most members were already following the code.

“There’s nothing to stop members breaking it. We don’t have any powers over them – that’s the job of the Tenancy Tribunal and the courts. If we are aware of them not getting things right, then by keeping them as members we have a better chance of stopping them from getting into trouble.

“The code isn’t to regulate them, it’s to inspire professional and profitable behaviour and keep out of trouble.”

Helen Gatonyi, manager of the Tenants Protection Association in Christchurch, praised the code and said all landlords should adopt it.

“Anything that helps the relationship between landlord and tenant or educates both parties has to be a good thing.”

The rules demand that landlords treat tenants with respect, in a businesslike manner.

“A rental property should be treated as the tenant’s home and regard will be given for the tenant’s peace, comfort and privacy,” the code says.

“Members should be aware of what government assistance may be available to their tenants in relation to their tenancy, and assist them if requested. Dishonesty, deception or misrepresentation shall not be used in any activities involving members’ property business activities.

“When asked to supply a reference for a tenant, members will supply true and accurate information in order to assist the tenant and fellow rental property providers.

“Members will provide the premises in a high state of cleanliness at the start of each tenancy and act promptly to investigate and remedy any reasonable request by a tenant, maintaining the premises in a comfortably liveable standard consistent with the age and character of the premises.

“Members will monitor the rental market and take a responsible approach to setting rental prices by considering market rent levels and any other specific or unique conditions of the property.

The code also bans any discrimination.

“In advertising and tenant selection, members will choose the most appropriate applicant and will not discriminate against anyone on the basis of gender, marital status, religious belief, ethnicity, disability -physical or psychiatric- illness, age, political opinion, employment status, family status, or sexual orientation.”

A tenant’s right to privacy is demanded.

“Credit histories will not be obtained without the prospective tenant’s written authority,” the new rules say.

The code demands community responsibility. “Members shall have regard to the neighbours of their rental properties and will take all reasonable steps available to them to protect neighbours’ peace, comfort and privacy from the member’s tenants.”

FLAT FACTS

• More than 1 million Kiwis rent.
• They are in 464,000 rental properties.
• Auckland weekly rents average $384.

Property Investors Federation vice-president Andrew King says a 25-year mortgage for 90 per cent of the cost of the country’s median-priced house, worth $345,000 last month, would currently cost a new home-buyer $745 a week, including rates, maintenance, insurance and an allowance for other costs.

By contrast, the national median rent last month was only $305 a week.

He will tell an Australasian Housing Institute seminar on affordable rental housing in Waitakere today that the ratio of mortgage costs to rents is higher in New Zealand than in five similar countries.

“Right now the gap is enormous, but it’s always been there because New Zealanders prefer to own their own property rather than rent, so they are always willing to pay a premium rather than renting,” he said yesterday.

“At the moment a first-home buyer could save more than $20,000 a year and rent for, say, three to five years, then they’ll have $60,000 to $100,000 extra to put towards a deposit.

“They can probably also take advantage of KiwiSaver, so there is a real incentive at the moment to rent.”

Like many pundits, Mr King predicts that average rents will rise as people realise that they are better off renting.

But a Crockers Real Estate analysis of tenancy bonds lodged with the Department of Building and Housing suggests that rents are rising only slightly, particularly in Auckland where they were already well above the national average.

The average rent for a three-bedroom house in Auckland rose by 3.8 per cent from $420 a week in July last year to $436 last month, roughly in line with the general inflation rate of 4 per cent. Nationally, the three-bedroom average rose slightly faster, from $320 to $340, or 6.25 per cent. The average jumped by 8.3 per cent in Wellington, but actually fell by 6.7 per cent in Christchurch.

Crockers marketing manager Karen Coleman said it was hard to generalise about whether it was better to rent or buy because everyone’s situation was different. “If someone was totally cashed up, why rent? But if you are going to borrow … ”

Source

Tax rules tabled in Parliament recently will affect many property investors and, once enacted, will widen the net that taxes capital gains on the sale of rental properties in some circumstances. Are capital gains from properties taxable?

New Zealanders love rental property, and it is well known that no tax is payable on capital gains made on the sale of rentals in most circumstances.

But there are longstanding rules that tax profits on the sale of properties where a taxpayer is in the business of developing, dealing in, or building properties. These rules are necessary because they tax business income rather than capital profits from long-term investments.

There are many entrepreneurial New Zealanders involved in both types of activity – they earn regular income from taxable property activities (development, for example), and also hold rental properties for long-term investment. There are rules which generally tax capital gains made by these investors on the sale of their rental properties.

The capital gains are taxed if the person or entity (a company or trust, for example) selling the rental property is “associated with” the person or entity operating the taxable property activities. This is commonly referred to as “tainting” of the rental properties for tax purposes.

It can be illustrated through a simple example. Bob has a building business. He also owns a company which holds rental properties for long-term investment. Because of Bob’s common ownership, the rental properties are “tainted” by the building business. This means capital gains on the sale of the rental properties will generally be taxable to the company.

Under current rules, taxpayers like Bob could have legitimately structured their affairs to ensure rental properties are not tainted. Many taxpayers do this.

Such a structure often involves the use of one or more trust and/or company to ensure rental properties are not “associated with” the taxable property activities.

These taxpayers can therefore ensure that (like other New Zealanders) they do not pay tax on the sale of their rentals and so they are not disadvantaged merely by the fact that they carry out other property activities. So what is changing?

The Government is cracking down on taxpayers who have structured their affairs to ensure rental properties are not tainted.

They are doing this by widening the rules that determine whether one person or entity is associated with another, making many existing structures ineffective from a tax perspective for future property purchases. What should you do now?

If you think you may be affected by the changes, your first step is to understand how.

There are limitations in current and proposed rules which may mean it’s not time to write that cheque to the IRD just yet.

First, if you have rental properties that are tainted, tax will generally be payable only on the sale of a property if it is sold within 10 years of purchase. Capital gains on rental properties held for longer are generally still tax-free.

Second, your existing property portfolio will not be affected by the new rules. If you have a structure that means your current rental properties are not tainted, the new rules will not affect them.

The new rules will apply only to property purchases from April 1, 2009 onward (or, in the case of builders, to property improvements made after that date). This gives you the opportunity to talk to your accountant to understand the impact of the changes. Why have the changes been made?

The Government’s press release stated that the changes were intended “to close gaps in the definition relating to land sales that allow land dealers, developers and builders to circumvent the rules by operating through connected persons”.

In our view, the changes will not be well received.

Land dealers, developers and builders have previously been allowed to structure their affairs to avoid tainting of rental properties so that they are not placed at a disadvantage to other taxpayers.

The controversial draft legislation is a fundamental shift in tax policy that will be seen by many as another step closer to a capital gains tax.

* Chris Leatham is a director at PricewaterhouseCoopers in Wellington, specialising in the taxation of property transactions.

The record high reached for rents at the start of the year was $300 a week, Massey University’s Real Estate Analysis Unit said.

The unit’s director, Prof Bob Hargreaves, said the 1.6 per cent drop was somewhat unexpected because rents had been rising steadily last year and during the first months of this year.

However, on an annual basis, rents were still 5.36 per cent higher than in May last year.

Prof Hargreaves noted commentators believed a significant number of would-be vendors had taken their houses off the market and chosen to rent them out instead.

The 50 per cent fall in the number of houses sold compared to 2007 was reinforcing renting as the better option, he said.

“As house prices decline, renting may be a more attractive option for some households than buying. However, in the medium term, history shows buying is normally the most attractive option, particularly when the period of ownership is over five years.”

Wellington was doing better than Auckland on the apartment front, with a median weekly rent for three-bedroom apartments at $600, compared with $435 in Auckland, possibly because of areas of oversupply there.

The median rent between the two cities was $288 per week in Wellington and $280 in Auckland.

Source

Industry experts say even tenants who can afford a deposit and mortgage repayments are taking advantage of market conditions and enjoying a less stressful life.

Andrew King, of the Auckland Property Investors Association, said renting was “extremely good value” at the moment and believed the number of long-term tenants had been rising for at least 18 months.

King said maintenance, rates, and insurance cost landlords up to $10,000 a year, per property after tax – and that was $10,000 a tenant didn’t have to pay.

“Renting is a very cost-effective thing do to,” he said. “It’s not even just the cost of the maintenance, you also don’t have to do it, you can just ring the landlord.”

Tenants also had the freedom that comes with flexibility. They only have to give three weeks’ notice, while a landlord has to give 90 days, or 42 if they are selling. They also have the protection of the Tenancy Tribunal.

King said the doom and gloom surrounding the housing market had seen more rental properties become available, especially in the last month.

Finding properties weren’t selling for the price they wanted, homeowners have been renting them out while the market corrected.

But King said the “slight oversupply” didn’t mean you were likely to get a rental property on the cheap, especially in Auckland. Some landlords, facing rising costs, were putting up rents by as much as 15 per cent, forcing some tenants to move.

Property investment consultant Tanya Kwasza, of Auckland-based Catalyst 2, has been a long-term tenant and said it could be a better bet than saving for a deposit.

After returning to New Zealand from overseas, she invested her savings in other properties while still renting, holding off buying a home for herself until she was in her 40s.

“I was able to rent where I wanted to live, in an area I couldn’t have otherwise afforded to live in, while also getting tax relief from my other properties and building up my portfolio.”

Her business partner, Nikki Connors, said the idea that a freehold home provided financial security for later in life might be untrue.

“We have a lot of people who have paid off their mortgage coming to us at retirement age and they’re officially on the New Zealand poverty line, the Government pension,” said Connors.

“They face having to sell and downsize, or take out a reverse mortgage on the very house they have spent all those years paying off just to retain their lifestyle.”

Connors knew an entrepreneur with several businesses who was renting a $4 million home off Auckland’s pricey Paratai Drive. Although his rent was high, it was less costly than a $2 million mortgage and freed up funds to invest in his businesses and rental properties.

“It’s something I have considered myself,” said Connors. “I don’t know why I own my own home when I could be renting a fabulous place. That [mortgage] money could be topping up two or three rental properties.”

Tradition isn’t the only thing dictating whether a person buys or rents.

John Grant, director of New Zealand business for GE Money Home Lending, said whether or not you aspired to owning a home was “a lifestyle choice these days”.

“The attitude towards home ownership isn’t the same for generations X and Y as it was in the baby boomers’ time,” said Grant.

But he said if you wanted to buy a home it was better to get on the ladder as soon as possible. “The longer you leave it, the harder it will be.”

It was also important to be a highly-disciplined saver if you wanted to rent long-term and invest in shares rather than property.

“Property tends to be a lifetime asset you would be reluctant to sell just so you can go on a big holiday. But it’s far easier to sell a few shares off.”

Financial writer Mary Holm told the Herald on Sunday renters might be smart to sit on the fence “for a while, if not forever” as long as they saved in other ways. On the flipside, those who wanted their own home shouldn’t let market worries affect their decision.

HAPPY TO BE MORTGAGE-FREE

Rachel Rae is a renter – and she’s happy to stay that way.

The Auckland web developer has lived in rented accommodation for 15 years. Despite having a good income and the ability to get a mortgage, the thought of never owning her own home doesn’t bother her.

The single 36-year-old shares a flat with her landlord in Herne Bay, Auckland. Rae loves to travel and she is disciplined enough to save a good chunk of her income for other investments.

“I prefer to have the availability of more savings,” she said.

“If you own your own home, you can get in the situation where you have to come up with quite a lot of money in a short amount of time.

“I’d rather make other investments that don’t require me to come up with $5-10,000 in maintenance every year.”

Rae said she normally allowed her savings account to grow to between $10,000 and $15,000 before investing the money through her bank. “It’s safe and easy, and the money can be made available if it’s really needed.”

She’s lived in eight rental properties over 15 years and has never had a bad landlord.

In one place, the landlord decided to raise the rent by more than she thought reasonable, so she moved.

Another time the house she was living in was sold so she moved.

“If you have to move, you have to move… the only major disadvantage [of renting] for me is not having the ability to put in gardens.”

RENTING VERSUS BUYING

RENTING – THE PROS:

• You may get a higher return on invested money.
• Greater flexibility with savings.
• Better savings diversification.
• Less responsibility.
• Can move easily and cheaply.
• It might be easier to live in the suburb you want.
• No maintenance worries.

RENTING – THE CONS:

• Can be booted out.
• No say over choice of decoration.
• More discipline needed in order to save money.
• Exposed to rent increases.

BUYING – THE PROS:

• Accumulate equity in property.
• Future retirement accommodation.
• Easier to borrow for business.
• You decide when you’ll leave.
• Decorate and garden as you please.
• Pride of ownership.
• Security.
• Freedom to have pets.

BUYING – THE CONS

• Good credit rating needed.
• Home maintenance.
• More difficult and expensive to move.
• Inflexible savings.

Source: Get Rich Slow by finance writer Mary Holm