Hot Investor Tips – November 2013
SMOKE ALARMS – ACTUAL ISSUES IN AN AVERAGE RENT ROLL
- 39% have no smoke alarms
- 19% have faulty smoke alarms
- 21% have alarms that are too old
- 8% do not have the right number of alarms
- Only 13% of properties are up to standard.
How can UNO Property Management help you?
Our partnership with National Smoke Alarm Services, means we can organise the install, service and maintenance of smoke alarms in rental properties across New Zealand.
The implementation programmes are property management specific and can be rolled out in 3 easy steps. All you need to do is complete the Smoke Alarm Installation and Maintenance Program provided to you by your Property Manager and we will do the rest.
Your property is then on the list to have a certified contractor go out to the property, install or replace the smoke alarms, and then the property is followed up every 12 months by NSAS.
To reduce your exposure to risk as a property investor and give you tenants peace of mind, call us today to inquire about our smoke alarm program.
It’s as easy as picking up the phone, 09 361 7707.
VIDEOS AND PICTURES
It is a growing trend for property managers to use video tours to show their properties here in New Zealand.
Typically used for property vacancy tours, but now also used for routine inspections, condition reports, vacate inspections and for general maintenance issues. Video is a fantastic way to communicate with the owner.
Outside of good communication alone, there are many positives resulting from video tours. Vacant properties get great exposure as potential tenants do not need to leave their chair to see through the property!
Photos are a great way to rent a property as long as many pictures are available. A property manager may not be a true photographer but they certainly have a great deal of experience behind them when it comes to taking best practice pictures and knowing what works best to let your property as quickly as possible. In order to get potential tenants to attend your property, correct use of pictures is crucial. Order of pictures, light and correct type of hardware makes a huge difference.
Video tours and professional photos are a must to show your property in the best light, ensuring low vacancies and best possible tenant application.
STANDARD LETTERS AND DOCUMENTS
There is a substantial amount of documentation required for a property manager to do their job effectively. Between 50-70 standard letters and 20-30 documents (typically) an agency has at their disposal.
All documentation serves a purpose and must be constantly altered and updated.
For example, let’s look at a tenancy agreement. A tenancy agreement that a typical agency will use has the terms of the tenancy noted and a comprehensive condition report completed. The tenancy agreement can be used at court if your tenant stops paying their rent, to stipulate terms and conditions agreed upon. The condition report can be used in the event damage is caused to the property.
It is extremely important that the correct documentation is used and correctly filled in. There are all sorts of special terms an agency will use in their tenancy agreement to protect you the owner of the property. For example, should the tenant break their lease they can be held liable for break lease fees to cover advertising costs and of course rent through till the property is re-let.
Another example of letters and documents used by a property manager is breach notices for rental arrears. Such letters serve two purposes. One is to get the defaulting tenant to pay their rent, the other is for use at court if it becomes necessary to evict. Furthermore, an insurer will typically ask for such letters when making a claim for rent loss. It is important that such letters are used in accordance with New Zealand legislation and that issuing terms are abided by.
The application form is of course another typical example of a document that a property manager uses on a daily basis and is the best way to collect important information from the tenant. The application form being used needs to be in accordance with legislation, ensuring correct terms are noted, confirming privacy rules and only then are credit checks are allowed to be completed.
THE DANGER OF CONTRACTING UNINSURED TRADESPEOPLE
We are all aware that litigation is common in our society today, being influenced by the litigious attitudes commonly seen in the United States.
With newspaper, television and internet media commonly making us aware of litigation cases for the purposes of maximising readership and selling advertising space, the result of that exposure is that litigation has become more commonplace.
Property management is in no way immune to litigation and one area of concern is injury to tenants and/or their visitors or damage to property caused by tradespeople. As professional agents, it is our duty to ensure that all tradespeople are screened not only for their qualifications, but also to ensure that they have adequate public liability insurance.
However, we do come across landlords from time to time who wish to contract their own tradespeople, not being aware if they have adequate qualifications or the right insurance cover should something go wrong. Where a landlord chooses to do this, we are unable to deal with these preferred tradespeople directly because we have no way of knowing they are qualified or insured to perform the work required, leaving us exposed to risk.
So, because of this we insist with our clients that all work be performed by OUR qualified tradespeople, specially selected for their quality and reasonable rates.
GETTING AROUND THE LOAN LIMITS
One way many would-be home owners are dealing with the new loan to value limits is tapping into the government’s Welcome Home Loan programme, which still allows a 10% deposit if you meet certain criteria.
The amount you can borrow depends on the region, and each area has a house price cap. In Auckland the price limit is $485,000. In Wellington City it is $425,000 and $300,000-$400,000 elsewhere in the country.
For more information, visit www.welcomehomeloan.co.nz..
Hot Investor Tips – October 2013
TRANSFORMING A FAMILY HOME INTO A RENTAL INVESTMENT
It has been tough going throughout New Zealand in terms of selling for the past 24 months or so. In some regions we are seeing markets showing strong growth, whilst in others we are still very slow. What this has meant for property management businesses throughout the country is increased numbers of owner occupied dwellings becoming rental properties. Owner occupiers that have had to move for various reasons who do not want to take the hit of a slow market have chosen instead to rent out the family home.
A true investment property purchase is typically motivated by capital and yield return whilst purchasing a property to live in is typically motivated by family matters such as; children’s schooling, employment, family and pets. So what happens when the family home becomes a rental investment? Can a property that was bought as a family home be used for investment purposes? I believe it can, but it needs to measure up to strong yield and capital returns, as a typical rental investment would. Can modifications be made to increase the returns, such as increased bedrooms or bathrooms at a property? Or perhaps you have a house that could be converted into multiple dwellings? A great way to establish potential extra yield is to have an experienced property manager attend the property to advise you on what can be changed to create more tenant interest and maximise rental income.
The most difficult thing when using a family home for investment purposes is the emotional attachment that a client may have to their property. This is a very common issue. Emotionally attached owners and their properties take a lot more time to be managed. Best practice would see you, the property manager; have the chat with the owner at the initial signing of the management authority. This clears the air and ensures that everyone is on the same page in terms of the initial and long term goals of the client.
BLOCKED TOILET TENANCY TRIBUNAL
Scenario: A toilet is found blocked at the end of a tenancy, due to tenants negligently overloading the bowl most likely with toilet paper. So who is responsible for the repairs?
An adjudicator in this Palmerston North tenancy tribunal case rejected the property manager’s claim for reimbursement for plumbing repairs, stating in the order;
- I am satisfied that the toilet had something in it at the end of the tenancy, most likely paper of some kind.
- I do not however accept that a plumber was required to fix this issue as the plumbers account notes that the blockage was “in the pan”. A landlord has a duty to mitigate their loss and it is likely this blockage could have been cleared by either removing the item with a gloved hand or a plunger. Compensation of $20 is awarded for this damage.
This is why we recommend all tenancy agreements should have a clause “Drains and Wastes: The tenant agrees to keep all drains, sink wastes and sanitary appliances, clear and free from obstruction”
COLLECTING YOUR CIVIL DEBT FROM A TENANT
When a tenancy tribunal makes an order in the landlords favour to recover money owed to them by the tenant, how do you as a landlord enforce this?
The Tribunal or civil court decision will set out clearly how much the debtor has to pay to the creditor and by when. It may include details as to how the payment should be made.
To ensure you recover your debt you need to:
- Contact the person and arrange payment.
- Obtain their current contact details including address (work and home), their phone number(s), and registration details of any vehicles they own.
The contact information is very important if you later want the Court to assist you with getting your payment.
If the person fails to pay you on time or at all, there are steps you can take.
Your options include:
- Asking a solicitor to act on your behalf e.g. a formal letter from a solicitor to the person spelling out the costs of taking enforcement action that would be added to their debt. This may be enough to encourage them to pay promptly (solicitors fees may apply).
- Asking a debt collection agency to collect the debt on your behalf (they may charge a set fee or take a percentage of the debt).
- Asking the Court to take an enforcement action.
We recommend having a thorough read through the Ministry of Justice website, there is some valuable information on there for owners who are struggling to recover a debt that’s owed to them.
DEATH OF AN INVESTOR
Successful property investment requires long-term focus and an eye on the bottom line. Death rarely features in these considerations. Perhaps, it should.
Whether your portfolio contains one property or a hundred, it is important to know what will happen to the management and ownership of the portfolio on your death. This means that you need a will.
This is the case regardless of whether the properties are owned personally, through a trust or a company as each ownership option presents different issues following death. For example if assets are owned through a trust it may be appropriate for your will to determine who has the power to appoint and remove trustees following your death.
Once your mind turns to a will, you also need to consider how different life events can affect your will. For example, do you know that entering into a marriage invalidates your will? You also need to know what the consequences of failing to make provision for a spouse or partner, or child might be. It is also important to keep your will current so that you are not inadvertently leaving your property portfolio to a former partner … If it’s all too hard, you can do nothing.
However, if you die without a will, the assets that comprise your estate will be distributed, not in accordance with your wishes, but pursuant to a rigid statutorily determined criterion. Things to think about.
TAX OBLIGATIONS FOR RENTAL PROPERTY OWNERS
If you own rental property in New Zealand you will need to file a New Zealand tax return that declares the rental income from the rental property.
If you are not a New Zealand Tax Resident (please note that Tax Residency is separate to actual Residency) you will file a Non Resident tax return. If you are a New Zealand Tax Resident then you’ll include the rental income/loss in your normal tax return.
How you own the rental property, i.e. in your personal name, in a company or a trust will also determine what type of tax return you will need to file.
The simplest form is in your personal name, you just need to include all rental income and expenses in your personal return. However, there are several reasons why you may not own a rental property in your personal name – including limited liability and asset protection.
If you own the rental property through a company or a trust then you will need to prepare accounts for the company or trust and file a tax return for the company or trust.
If you are unsure about your Tax Residency status or what entity is best to own your property in please do not hesitate to contact Amanda Watt at Crowe Horwath.
Amanda Watt is a property investor and a chartered accountant specialising in property investment accounting and tax. She is a Principal at Crowe Horwath and heads up the Property Team there.
LOAN RESTRICTIONS COULD HELP INVESTORS
New lending limits may slow the housing market for a while, but conditions could improve for investors.
Starting this month, the Reserve Bank is requiring banks to clamp down on lending over 80% of a residential property’s value. High loan-to-value ratio loans (LVR) in the past represented nearly a third of new loans, but that drops to 10% under the new rules.
This will produce a shock effect, leading to a sharp, but temporary, drop-off in house sales. However, the long-term effect on the housing cycle will be limited as investors become more active, Westpac says in a new report.
Banks will ration the high LVR loans through higher pricing, but those borrowers who can muster a deposit of 20% or more will likely enjoy lower mortgage rates than otherwise.
Many first home buyers will drop out of the market and continue to rent; but investors will help fill the gap, attracted by comparatively favourable mortgage pricing and more renters. This will cause prices to resume their rise over the next two years.
Secondary finance companies may also step in to help low-deposit borrowers, according to some international reports.
SECOND DWELLING AND SUBDIVISION COSTS
Land is a sunk cost for an investor, and once you’ve got it, it makes sense to maximise its return by increasing the property’s liveable space.
Rents and capital value will increase, but the costs are considerable.
- Minor dwelling: One of the most common projects is turning a basement of an existing house into a separate one or two bedroom flat. Your section must be a minimum size (generally 600sqm). You will then need resource consent, plan and building consent. Total costs could be between $100,000 and $150,000, depending on what services are already there, according to Property Investor Magazine. Council and civil costs account for anywhere from $20,000 to $60,000, as you will need a separate water meter, sewerage and power.
- Second dwelling: Building a 60sqm two-bedroom second dwelling could cost between $150,000 and $200,000, including resource and building consent. Subdivision costs run an additional $60,000-$100,000, including professional fees, engineer, council costs and drainage connections. It should rent for $250 to $350 per week, depending on location. (In parts of Auckland it could be over $400 per week). Generally, you will at least recoup the costs in additional capital value.
Tenancy tribunal delays have not improved under the Ministry of Business, Innovation and Employment. The tribunal was one of several organisations absorbed under the “Super Ministry” which was designed to cut costs and create efficiencies.
However, NZ Property Investors Federation president Andrew King says that tribunal delays are still a huge issue and wait times are slipping back again. Errors on application forms are a significant source of delays, and the federation says it is working with the Ministry on an improved application form to speed processing time.