Life as a Landlord

[artemis]

Sante, the figure I used is from the 'Summary of costs and benefits' in the MBIE discussion paper. 'Average cost to install ceiling and underfloor insulation $3400 (excl GST).'

There is a footnote to the table with assumptions, though how these were arrived at who knows. Given the poor quality overall of the CBA in the discussion document I don't think legislators should rely on the assumptions without some trenchant questioning.

[artemis]

..... Flyernzl I entirely agree there's no such thing as free, and that if it's the taxpayer who's going to be paying, that should be explicit. I suspect that is what Caritas had in mind - there's uncertainty over whether even the targetted insulation subsidies still available through EECA will continue past this financial year......

The more relevant point is that is is the tenant who will be paying. The government including ACC, will be a massive beneficiary.

[flyernzl]

My initial investment into the Pukekohe property market just on a year ago seems to have been successful, so when late last year a house near that property came up for sale it took my attention. A nice solid three-bedroom place, it had undergone a substantial upgrade just a few years ago. It was subject to an existing tenancy, but those tenants had already given notice that they would move out mid-December.

After checking out the details I calculated that the place, located in the fast-appreciating northern side of Pukekohe, would be a reasonable buy if I could get it at the right price.
The vendor had a highish price in mind, but over a few weeks I managed to get him down by thirty thousand or so to what he firmly stated was his final figure. By this time the tenants had departed and the house was sitting empty. I deliberately turned vague at this point, muttering away about this and that, until on Christmas eve I counter-offered at another ten thousand lower.

This technique worked. Faced with an untenanted property and the probability of the imminent four weeks of legal holiday he accepted on the same day without any more argument.

As I included my usual early access clause in the sale-and-purchase agreement, I was able to get into the property to carry out some minor touch-up work, eliminate the weeds and install the smoke alarms in the weeks before settlement. I also listed the tenancy with Bungle & Trouble the agents, and it was all go.

The first snag came from the bank. Yes, they would give me a mortgage, but not for the full amount I wanted. Seventy thousand less, in fact. Embarrassing, particularly as I had sweetened the deal by making the purchase unconditional. After a bit of beating of bushes I realized that the financing scene has actually become a bit more challenging and the banks a bit more nervous. Reluctantly, I have had to use a substantial chunk of my existing revolving credit to get the deal across the line.

Fortunately, B&T had signed up a tenant who was due to move in just a few days after settlement. That would get the cash-flow going nice and early anyway.

Neatly timing the completion of my bits-and-pieces on the day before the tenants were to take up residence, I rang B&T. “Is everything OK for the new tenants to move in tomorrow?”
“Oh yes” they replied, “we’re just waiting for them to pay their money”.
Alarm bells rang. “So how much have they already paid?”
“Oh they haven’t paid anything yet”.

God save us. They had signed up the tenancy agreement and taken the property off their listings without actually getting their hands on a single dollar!

All I could say at that stage was “Well let me know when they have paid up, as obviously we cannot let them move into the house until they have paid both the bond and the first weeks rent”.
Here am I, a supposed amateur, telling the so-called professionals how to run their business.
Of course, those ratbag people never did pay a sou. They gave a succession of promises, none of which came to anything, and eventually after a few days of this foolishness I told B&T to relist the place.

It took another three weeks to check out another tenant and move them in, three weeks of lost rent which as you know adds up to a not insignificant sum.

I do have the original TA that they signed, so it’s probably worthwhile hauling the non-performing prospective tenants up in front of tenancy services and seeing what coin I can shake out.

Dealing with people, whether they are tenants, agents, tradies or brokers is always a risky business, and such risk is inherent in any activity. However, the law-makers are now redoubling their efforts to remove any and all risk from whatever we do. Thus we are now faced with the machinations of the new Health and Safety at Work Act.

This Act puts landlords under a positive obligation to ensure the health and safety of any workers and subcontractors they engage during the conduct of their rental business. Although the definition of a business is wide-ranging and includes such activities as schools, your owner-occupied house is specifically defined as a non-business activity. Interesting.

This means that you can get someone to crawl over and around your own home cleaning out the guttering and painting the windows without any danger of transgressing the Act, but when they move across to your rental property next door to carry on exactly the same work, then you are at risk of a 300K fine or five years in the slammer should you fail in your legally-defined duty of care.

As an example of the vagueness that has now been created, there has been whisperings of meth lab testing being made compulsory for all rental properties because of the new Act. There is nothing in the wording of the Act specifically requiring all rental properties to be meth tested, but perhaps it could be expected as a reasonable precaution for some properties in some locations. How is a practical landlord supposed to cope with that?

The publicity around this new legislation has tended to focus on the risk to schools if kids getting hurt while climbing trees. So far no-one seems to have thought how this will impact on management and maintenance costs for rental property. Given the presence of substantial numbers of middle-aged non-technical ladies among those employed as property managers by the larger real estate firms, I can sense a looming problem as and when they are required to be completely informed about any of the potential work hazards at every single one of the many hundreds of properties within their management portfolio.

You can no-longer off-load risk onto the contractor who actually does the work, and you cannot insure against any penalties that may be imposed. You are in the hot seat, and eventually someone is going to get fried.

[Perry]

Wouldn't it be nice if the screams from the frying pan were coming
from any one of the W'gton woodenheads responsible for this mess?

[flyernzl]

Many years ago it quite simple to be a residential landlord. All you needed was a cattle-prod and a hovel. You moved your tenants into the hovel, and when they didn't pay the rent you jabbed them with the cattle-prod until they did. Easy and very cost-effective. Unfortunately, those happy uncomplicated times have passed and landlords now have to deal with a large and seemingly ever-growing mass of rules and regulations if they are to avoid substantial fines or risk being pilloried by the sensation-hungry mass media.

Right now, in New Zealand, anyone an set up as a rental property manager, either of their own properties or professionally. No training, knowledge or experience is required. While many people cope quite well in this role, there are always those who create the ‘shock horror’ stories that keep the Sunday paper headlines abuzz.

The problem is not unique to this country. However many of the USA states require property managers to be registered and licensed. In the UK, Wales has mandated a requirement that, as from late this year, anyone who manages a rental must register and show proof that they have completed an approved training course in property management. So from this date, if you are a landlord there, you must either fulfill this obligation or pass the managment of the tenancy on to someone who has done so.

No doubt the lawmakers and their political masters will be watching this experiment with keen interest and, given time and the right political climate, will look at introducing a similar restriction here.

Apart from ad-hoc information sessions on certain specific topics run by local property investor associations, where can you go as a self-managing landlord to acquire such knowledge locally? The Real Estate Institute operate a training program for property sales staff, and this does cover some aspects of property management, but there are many aspects that a self-managing landlord needs to know that are not within that syllabus.

The Property Investors Federation (the umbrella body of the associations) are considering this problem. Ideally, when the legislation requiring training and licensing looms over the horizon they want to be in a position to say "Yes, we think this is a great idea and we have such a training program already set up and running. We can be the ones to run it, and we can run it from a position of industy knowledge and strength" rather than having some batch of book-based idealistic Otago academics imposing purely theoretical ideas on us all.

Assuming that this is all a jolly good idea, where to from here? We can reinvent the wheel by developing an industry-specific course based on our own syllabus and associated notes in-house and offer it to PIA members in meeting or classroom situations ourselves. This would not be related to NZQA in any way, and would be the cheap and cheerful option but would lack any academic credibility.

Another option, after creating our own syllabus, we could pay a substantial fee to have it approved by NZQA, and then set up a full scale tertiary education system to present this syllabus to the members (and potential members). This exercise will take a considerable amount of time and resources to set up and also to maintain. I have seen estimates that a successful system on this scale would take at least one person full-time to run.

Somewhere between the two is the option to arrange access to the REI online NZQA-approved system already up and running with skills.org. This contains Level-3 property management modules designed for the real estate salesperson course. We could cherry-pick which modules we wanted to use, and possibly create just a few more to fill the gaps. The cost to do this could then be directly related to the number of participants.

A related problem with all this palaver is, in the interim, how do we attract an adequate number of students into such a system during that awkward and possibly lengthy gap between the creation of the qualification and the time when it becomes a legislative requirement? I have no doubt that there will be small number of self-managing landlords who will be keen to to leap in and participate, but most will just say “What a good idea, but I’m too busy right now” and put it in the ‘maybe tomorrow’ basket.

So what carrots can we offer? Realistically, most tenants will not really care at sign-up time whether their landlord is professionally qualified. Maybe insurance companies could be tempted to give some premium discount to rental property owners who can prove competency in a similar way to the discount they may already offer if a burglar alarm is installed at the property. PIAs could institute a tiered system of membership – you join as an Associate and after completing the qualification you then advance to full membership status which would bring some additional benefits. Many professional associations already operate such systems.

As you can see, this is all pretty much up in the air at the moment, and we are seeking constructive input. Should we continue to move on this idea, or just sit back and leave it to someone else? Maybe we should do nothing, and then fight tooth-and-nail against any eventual compulsory training requirement. Would you, as an individual, participate in such training voluntarily rather than under duress?

Feel free to comment, so that I can get some idea of the strength of feeling for and against the proposal. My time has value and I don’t want to waste it flogging an idea whose time has not yet come but I am prepared to expend the effort to promote this plan if the crowd thinks it is worth it.

[Keys]

Have done the Skills course. I insist that everyone on our team do it. Am doing the "P" course which Glenn has just passed. Would expect that both courses would be recognised as prior learning should legislation be established.

There will be a howel of protest if mum and dad landlords are legislated out of the ability to manage their own properties.

However, having been in the industry for some time, it is imperative that those who do the job have some inclination of what it is they are doing. I've seen some cracker tenancy agreements handed to me when I inherit a tenant.

[artemis]

The first thing I'd want to know - what is the problem.Then, if there is a problem, how big is it. Without this info, registration is probably a solution looking for a problem.

Agree with Keys, stopping owners from managing their own places would be an election loser.

[flyernzl]

Perhaps I should make it clear - I am talking about the probability of self-managing landords being allowed to continue that activity, but being required to prove that they have the knowledge to do that in a competent manner.

[BigWal]

Somewhere between the two is the option to arrange access to the REI online NZQA-approved system already up and running with skills.org. This contains Level-3 property management modules designed for the real estate salesperson course. We could cherry-pick which modules we wanted to use, and possibly create just a few more to fill the gaps. The cost to do this could then be directly related to the number of participants.

Small point - 'skills.org' is actually 'skills.org.nz'.

Thanks for the pointer though. Definitely worth a look at.

[sidinz]

However, having been in the industry for some time, it is imperative that those who do the job have some inclination of what it is they are doing. I've seen some cracker tenancy agreements handed to me when I inherit a tenant.

Cracker or crackers?

[eri]

can't say that in america

[Perry]

No doubt the lawmakers and their political masters will be watching this experiment with keen interest and, given time and the right political climate, will look at introducing a similar restriction here.

The first thing I'd want to know - what is the problem.Then, if there is a problem, how big is it. Without this info, registration is probably a solution looking for a problem.

Agree with Keys, stopping owners from managing their own places would be an election loser.

There you have it. Despite Flyer's thoughtful exposition, is not the reality that a decision by the W'gton woodenheads will be based, not on any real or perceived problems of significance, but on getting votes and tax revenue.

[Learning]

'Average cost to install ceiling and underfloor insulation $3400 (excl GST).'

4 years ago I got an EECA approved installer to supply and install R2.8 Ceiling and R1.8 underfloor insulation in my 100sqm rental for $2480 excl. Took full advantage of the 60% EECA grant at the time so the grand total I had to pay was $1140 including GST. I felt it was well worth the cost to have warm, healthy, happy tenants who want to stay longer.

[Perry]

I felt it was well worth the cost to have warm, healthy, happy tenants who want to stay longer.

Aren't you falling in to the same trap as the Otago airheads?
As in insulation does not ipso facto a warm house make. It
keeps warmth in, but that warmth first needs to be created.

[Learning]

Heat pump $100 off trademe (two years old. seller said it was too big for their lounge) and $300 to have it installed by certified installer. ;-)

Rental insulated and heated for under $1600.