Life as a Landlord

[AlFa]

After 18 months of almost complete failure by the Government on everything from Kiwibuild and child poverty to the relationship with China, it is clear that, for many of her supporters, it doesn't matter what Ardern does, it is enough that she is.

https://www.nzherald.co.nz/business/...ectid=12210536

Which ones again proves the fact large number of adults are so dumb they should sit some sort of test before being allowed to vote

[Perry]

Labour would just keeping lowering the passing grade.

[Davo36]

Labour would just keeping lowering the passing grade.

Surely a pass/fail system is far too harsh?

And of course favours those from certain backgrounds and not others? You racist Perry? I hear sexism in that comment too! You don't like gay people! You want them all to fail your 'test'!

Your culturally insensitive 'white man' test, with all it's questions only privileged white kids get taught!

Some people should be handed an automatic pass, in fact they won't even have to take your damn test!

[Perry]

Labour would just keeping lowering the passing grade.

Surely a pass/fail system is far too harsh?

Yes - you're right, David.

60% mark simply for trying.

(Passmark = 27.5%)

[eri]

most people

who believe "trying is more important than succeeding"

have a lot of sympathy

for others that "try but fail"

so the people that rushed to vote labour when its face changed from angry andy to joyful jacinda

cut her a lot of slack for at least "trying" to change a world, where success is successful

but in the end

voters have to support

not a party that tries to run the country

but 1 that successfully runs the country

2019 is supposed to be the coalition's "year of delivery"

https://www.stuff.co.nz/national/pol...for-government

or will it be their

"year of excuses"

[flyernzl]

Given the ongoing publicity and often heated discussions, all landlords should by now know that there are a number of mandatory upgrades and enhancements that will be required for all residential rental properties over the next few years.

We have already passed the date when it became compulsory to install smoke alarms in all such properties, and we are very near the time the first part of the insulation installation requirements will be enforced. On the 1^st July, unless your property can be shown to fall into one of the exemption options, your rental will require ceiling and underfloor insulation to either the 1978 standard or the 2008 standard.

Then, over the next few years, we will be looking at the so-called Healthy Homes requirements. These stipulate, among other items, insulation to the 2008 standard, the supply of heating appliances, underfloor moisture barriers and compulsory extractor fans. While a considerable number of residential properties will now never come onto the rental market in the first place and others will be placed into the ‘too hard’ basket, the tenants told to leave, and the property sold, most remaining rental properties will require work that will cost actual cash money – substantial money in quite a few cases. Despite the sweeping assertions of ‘free’ in many of the current Government’s pronouncements, very little in this life is actually free.

There has been much uninformed drivel written about the actual costs of all this work. Some say “So extractor fans are dirt cheap, all you need for the moisture barrier is a couple of rolls of polyurethane, and how much are heaters these days?”. This of course, completely ignore two vital components of the work – the often costly implications of retro fitting electrical appliances into an existing, possibly dated, power system and the labour component of the work involved. Right now, I’m getting the outside of a standard 1960s weatherboard house professionally painted, and I can assure you that the cost of doing that is way, way more than the price of a few tins of paint.

We now enter into the murky waters of the tax deductibility of such work. The rules around the deductibility of residential rental property expenses are, in theory, quite simple. The condition of the property on the day you acquired it established the benchmark. Any subsequent expenditure incurred in getting the property back to that condition is a legitimate tax-deductible expense but any spending on improving the property beyond the condition it was on that day is classed as capital improvements and therefore non-deductible.

When you buy a property where the roof is in sound condition and then years down the track it rusts, leaks and needs replacing, providing that you replace that roof with a similar new one then, no argument, that is a deductible expense. You are now back to where you were on day one. However, if the roof was bad when you bought the place and you splash out on a new roof so your tenants can enjoy the good life then that is clearly betterment. The logic is that you got the property a bit cheaper because of the roof, you have now improved it beyond the condition of it on day one, it is now worth more, so sorry no tax deductibility.

Seems simple. But, in many cases confusion reigns. If a component of the property deteriorates and needs replacing but you decide to upgrade your replacement the tax-man can become quite unfriendly. Last week I heard of a landlord who needed to replace the existing windows in an investment property. In itself, quite deductible. However, he was attracted by the idea of moving to double glazing rather than replacing like with like. This would cost $5000 more. Could he claim the quoted costs of the like-for-like replacement as a deductible expense, and treat the extra $5000 was capital expenditure. No, he was told. If he double glazed, the entire cost would be capital and there would be no tax deduction at all. Zilch. I’m sure that this ruling would have greatly influenced his final decision.

One available option, faced with the often substantial costs of upgrading a rental property to meet the new standards, is simply not to rent it out. Or, to turn the logic on its head, to keep the property running as an income-earning business you, as the owner, will be required by the new legislation to carry out and pay for these upgrades. I have seen a number of queries along the lines of “Surely if I am compelled to spend this money in order to continue my rental business, I should be able to treat that unavoidable and mandatory cost as a deductible expense?”

The bad news is that it does not work that way. The IRD’s interpretation of the tax law remains that if you improve the insulation, pay for the extractor fans and the heating, then regardless of the reason that is improvement and sorry no deductibility. In law they are actually quite correct in saying that. The Property Investors Federation has made representation to the Government that there should be some tax allowance for the cost of this work but received a very fast and firm rebuff. Sure, you may be able to claim depreciation on some of these items over time, but the full cash impact is right now.

Given that one of the publicly stated aims of all this legislation is to reduce costs to the public purse within both the health system and the education system with “ . . . fewer hospital admissions and fewer school days lost” it would seem to be fair to do this. However, the current refusal to do so means that effectively private landlords are directly funding the costs of implementing these public sector savings. Actually, they are paying twice, as the price of every item of insulation, every roll of polythene and every hour of paid labour to install these upgrades incurs GST, which then also goes directly into the Government coffers.

A case of we lose, and the Government wins twice.

[Perry]

And the [creative] solution to this is . . . . ?

[Keys]

And the [creative] solution to this is . . . . ?

To impose a capital gains tax so that the improvements ( non deductible ) become taxable at the time the property is sold.

*wanders off wondering who will make improvements to any investment property*

[artemis]

I hope this government has commissioned some serious risk management advice on this and related issues. I've read most of the consultation docs and yes there are usually a couple of woolly sentences about risk. Maybe there is a lot more, with numbers attached. Will we ever know? Maybe not, but the Opposition will be entitled to know.

I predict quite a few rural properties will become implement sheds or workshops. Certainly a risk to the current tenants who, if they can find another rental will be paying more rent.

[Perry]

As Peter said / inferred, the Draconian scope is intended to scare the bejabbers out of everyone, allowing the socialists to appear to "be reasonable" and only apply CGT to residential rental owners.

There will never be any admission that the idea is fundamentally flawed.

[flyernzl]

All the heat light and thunder of the Capital Gains Tax controversy has faded away into the sunset, leaving only the whimpering of the envious, the teeth-gnashing of the jealous and much disillusioned harping from the Green Party faithful in its wake. Fortunately, I did not devote too much of my time to agitating against the proposals as it seemed evident to me that the whole exercise was a political ploy with some predetermined outcome.

However, I did find two surprises within the exercise. Firstly, just how many previously sensible people argued the case for a CGT on the basis of ‘fairness’ How could it be fair, I would respond, when you and I could each buy a house for $100,000 and both keep ownership of those houses for 25 years. When we both decided to sell after that length of time, and each now got a market price of one million, I get to keep all of the money whereas you would have to pay $297,000 in capital gains tax just because you had rented out that house whereas I’d lived in mine? As soon as you exempt anything from a CGT you immediately lose any so-called fairness and all sorts of remarkable, convoluted and unforeseen distortions set in.

The second surprise was that we property investors and landlords now have a new and powerful friend. That’s right, Dr Michael Cullen. He of the ‘rich pricks’ comment has now stated “It is hard to understand why those renting out properties, a necessary part of the housing market, should be singled out from all others who benefit from the largely unearned increment derived from the almost inexorable rise in land prices.” I was stunned.

For many years we landlords have been reviled, abused and blamed. Everything from the overcrowding of hospitals and the shortage of rentals to the outbreak of swine fever in Hari Hari has been our fault. If youngsters can’t afford their first home or the elderly can’t afford to pay their power bill it’s because we are snapping up all the houses and our rents are too high. We must be singled out and punished. Although we are supplying a legitimate and badly needed service to a demanding and undersupplied market there should be targeted and vengeful taxes, state-funded witch-hunts, and possibly tarring and feathering in the council carparks for all those who dare to rent out homes to other people.

So now we have the screaming headlines: “Rotorua rental shortage: It is getting worse“ , “Just desperate: Rental shortage hurting renters, Auckland mum says” , “Rental squeeze grips country as rents climb to record highs in Wellington and Auckland”.

This is the unfortunate but expected outcome from several years of landlord bashing. Terming us 'speculators' and imposing draconian rules, harsh compliance demands and specific punitive taxes on people who are actually providing a legitimate and legal service to the market will, inevitably and over time, reduce the supply.

As landlords, we have maintained that this would happen, were then told that we would be 'forced' to do this that and the other, and frequently vilified by politicians, the media, tenant groups and academics as greedy.

Most of these accusations and the subsequent demands seem to be based on thin evidence, or in some cases, on no evidence at all. Housing Minister Twyford has made repeated claims that 6000 children are admitted into hospitals each year for housing-sensitive illnesses. He has then used this as the reasoning behind his push for the so-called Healthy Homes Standards (strange how the word ‘Guarantee’ now seems to have faded away).
Unfortunately for him, when recently questioned two of his own Government’s Ministries provided contradictory data that provided no grounds for the Minister claims. Support for the Minister's allegations that "we are doing it for the children" appear to be at best exaggerations based on minimal evidence, or at worst based on no evidence at all, just a convenient push of the emotional button.

Thus the considerable cost imposed on rental property owners (but not owner-occupiers, who are apparently immune), many who will be forced to spend several thousand dollars on each dwelling for largely unnecessary work, will go no way in improving child health. Instead, when the cost of these modifications is inevitably passed to tenants, it is likely to cause even more overcrowding and a further reduction in living standards. In the meantime, property people, overwhelmingly financially-stressed Ma-and–Pa investors, face stark economic choices. Either they must dig into any personal savings to fund these largely useless alterations, borrow the money to do so, or sell up. As we have seen in some of these newspaper reports, a tenanted house when sold to owner-occupiers displaces even more people onto the streets looking for a convenient bridge to sleep under.

All this seems to have been done with minimal reference to those who are out actually working in the rental property field every day. Neither the Property Investors Federation nor any of the Property Associations that I am involved with have been asked to give any significant and meaningful input into what is actually required to solve this crisis. Any input that we have been able to supply has been drowned out by ideology and dogma. It is time that those with the power to create change listened less to those who moan the loudest and more to those that work the hardest.

The bottom line is that, in our society no-one can be forced to become or remain a residential landlord. If the business just becomes too difficult, people bail out.

There is a strong undercurrent among the state-funded chattering classes that this will be a good thing, that there should be no private landlords, and that all rental housing should be provided by HNZ or social housing providers. Their queues are long and getting longer. It costs the government (and hence the taxpayer) more to house a tenant in a state house than any accommodation supplement paid to that tenant for housing in the private sector market. The Government is an inefficient, costly and ponderous landlord.

Well, let’s see how they cope now.

[Perry]

Well, let’s see how they cope now.

In a word: badly.

Or perhaps horribly, terribly, awfully badly?

[Davo36]

It's just a case of people thinking they know better.

The current set of pollies in power truly believe that if they are allowed to get in and solve this housing problem, they'd have it licked in a couple of years. Everyone then having a nice warm, dry, affordable place to live. Problem solved. Contented sigh...

But reality is kicking in. 18 months later they've set up numerous committees, authorities and so on. Given themselves sweeping powers to bypass planning regulations etc. And they've built what, 60 houses or something?

And if they just got all the 'do gooder' regulators out of the way, the private sector would fix it.

[Perry]

It's just a case of people thinking they know better.

And if they just got all the 'do gooder' regulators out of the way, the private sector would fix it.

You evil, degenerate, capitalistic sod, you.

Go wash your mouth out with socialist soap.

Refer back to the cartoon above.

This lot knows better, you see.

[flyernzl]

Acquiring a new tenant for a residential rental is always a stressful time, stressful for both those applying for the tenancy and for the landlord.

The landlord is generally in the position that he is receiving no rental income from that property, but of course his costs in the form of rates, insurance, and most likely mortgage interest relentlessly continue every day. Thus the landlord must balance his desire to rent the property quickly and so restore his cash flow against his need to select the most suitable applicant available.

In basic terms, what a landlord requires from a tenant is that they pay the rent in full and on time, and that they do not damage the property. All the work of screening and all the time-consuming sifting and checking of application forms is actually devoted to minimising and wherever possible eliminating that risk. Given that the landlord is about to hand over sole possession and day-to-day occupation of a valuable asset worth several hundreds of thousands of dollars to a total stranger with a bond security legally restricted to less than one half of one percent of its value, is it any wonder that he would require as much information as they can get about that person?

Any experienced landlord knows, usually from bitter and expensive personal experience, that it is essential to put any worries about the steadily mounting costs of leaving the property vacant to one side and instead concentrate on finding the low-risk tenant, the careful tenant, the tenant who can show that they are both fiscally competent and careful with other people’s property. As with all of human nature, the best indicator of someone’s future behaviour is their behaviour in the past. As the saying goes, leopards don’t change their spots.

I have, in the past, been guilty of haste in my tenant selection. I have accepted as tenants people who have been unable or unwilling to provide proof of past performance. I have fallen for sob stories. I have taken in people who have sworn that they have seen the light and now wish to reform. Almost without exception, these people have left me out of pocket, with expensive damage to repair, filth to clean, stolen fixtures and fittings to replace, and substantial rent arears that I can spend frustrating years in futile attempts to recover.

So now, I am slow and careful in my tenant selection process. If an applicant is in a hurry and can move in quickly, that rings an alarm bell. Why are they in haste? Sure, there may possibly be a legitimate reason, but it is far more likely that someone else wants to get rid of them, and if so, why? Do I really want a tenant someone else is keen to throw out. Conversely, if an applicant is already renting elsewhere, and knows that they need to give at least the legally required 21 days notice to depart from their present tenancy, then I consider that to be a good indicator that they are aware of their obligations as a tenant and are willing to abide by them. If everything else checked out satisfactorily I would hold my property vacant for that tenant. Quality is worth the wait.

So when a person applies to me for a tenancy I want to know as much as possible about that person in order to minimise my risk. Some factors are irrelevant. I don’t care about their sexual preferences or orientation or their ethnic background. They may or may not be legally married to their partner, belong to any religion or none, vote for this political party or that, I don’t need or even want to know. What I do want to know is that they will pay the rent in full and on time, and not damage the property. Anything that detracts from that desirable outcome will influence my decision. As such I will adopt the positive expectation of a negative outcome. Unless you can prove good behaviour I will assume bad behaviour.

Privacy Commissioner John Edwards has recently provided a guide to what information that landlords may require from prospective tenants and also what should not be required. Now Mr Edwards is most likely a fine and upstanding fellow, but as a career lawyer and latterly a public servant I feel not only does he lack the ‘street smarts’ that would be needed to properly develop such a listing, but he has seemingly failed to consult any individual or organisation that is actively involved in the residential rental business. Thus his list is substantially academic, idealistic, and would be dangerous for any property manager or self-managing landlord to follow to the letter.

He also indicates that the more intensive screening of tenancy applicants is due to the current shortage of rentals. This is false, two other factors are at play.
Firstly, by carrying out my assiduous search for the bad bits of an applicants life and history I am protecting myself from yet another loss. Landlord’s insurance policies these days usually include a clause that the landlord must keep written records of the tenant’s application for the tenancy, and show proof that the landlord has carried out sufficient and adequate research into the information provided in that application and the tenants background to be reasonable sure that the tenant is a fit and proper person to be granted the tenancy. If I don’t do that, I invalidate my insurance and can have my claim turned down.

Secondly, there is actually a shortage of good tenants. In the past, I have tended to give some applicants the benefit of the doubt. If they have a Vodafone bad debt from five or more years ago and nothing since, I have figured that they learnt their lesson, reformed, and will probably not do such a thing again. However, now that the current Government seems hell-bent on making it much more difficult to get rid of tenants who turn out to be unsatisfactory then I and most other experienced landlords will minimise that risk by rejecting any applicant with anything less than a 100% squeaky clean record. As a result, we are all fighting to attract the relatively few excellent tenants while the feral, the incompetents and the undesirables are already lengthening the queues at Housing New Zealand’s door.

It is interesting that the Reserve Bank is cautioning the trading banks of New Zealand that they must carry out full and intensive appraisals of their customers, including complete details of their income and banking history, before granting them loans of tens of thousands of dollars or they may be held liable for not acting with due care. Yet we as landlords are being cautioned that we can be penalised if we attempt similar appraisals on our customers before we lend them assets worth hundred of thousands of dollars.

One law for the powerful and well-connected corporates and another law for small-time private individuals? You decide.