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Having explored the central North Island in September I decided to break out the long-johns, brave the howling westerly winds, and go to see how Southland is surviving the GFC.
Invercargill, apart from being nationally known as Shadboltville, does not normally feature highly on most people’s radar. It appears to be modestly prosperous, apparently on the profits from the dairy farm boom. Certainly there are a small number of high-end retailers and a few quite expensive restaurants who seem to be trading well. Other retailers are reported to be not so happy, with concerns about the growing number of empty shops now apparent in the central city area. The prospect of the Tiwai Point aluminium smelter closing sometime in the foreseeable future is certainly reining in any optimistic thoughts.
Residential property in Southland ranges from the reasonable in Invercargill and Gore to the frankly ridiculous in Clinton – how would a three bedroom house on a full section plus a two bedroom house on the section next door plus an adjacent vacant section all available as one package for the asking price of $109K appeal? Bring your own snow.
Back in Auckland, my Samoan family have just got far too many uncles and grannies so they moved out to a larger house. They left the place in reasonably nick, but when I looked around I thought “this place really needs an inside repaint right through”. It’s been quite a few years since I last personally tackled a painting project of this size, but hey ho away we go.
First up was to break out the sugar-soap and wash everything down, getting rid of all the crud. After patching a few minor dings in the walls that had accumulated over the years it was off to the paint shop to get the necessaries. As I’m matching the existing colour, one coat right throughout should do the job nicely. Waterbased enamel for the kitchen, laundry, bathroom and toilet; ordinary acrylic for the living room, hallway and three bedrooms.
Feeling in need of a challenge, I decided that applying the paint with a roller would be the way to go. I have never tried this before, but it looks to be the easy way to go. Roller, pole, tray, dropcloths, brush for the edges and batteries for the portable radio all to hand.
Well, you would have died laughing. The pole would not stay attached to the roller frame, the roller left an unwanted embossed pattern on the wall and in among the chaos the paint brush took the opportunity to fall into the paint. I didn’t actually put my foot in the paint tray as in the movies, but it was a near run thing. Even the dog watching from next door found it funny. How can other people manipulate this gear to achieve a perfect result and old fumble-fingers here can only excel at getting paint to where it is not wanted. There has to be a trick to it.
Retiring, defeated, I dusted off my speedbrush from years ago and used that. Probably a bit slower than a roller, but for me far less hazardous to the health. Yes it did take a remarkably long time to complete all that painting but I am happy with the result.
Of course I know that any painting exercise involves getting a fair share of the paint on the clothes you are wearing at the time, so I kept some old clothes at the rental while the work was being done. Part way through the exercise, while I was having a rare morning lie-in, M said “have you seen these marks on the sheets?” as women do. Well, as a guy, of course I had not, but on close inspection sure enough there were lots of little spots on the bed linen. I know those signs well. Fleas. We have not had a flea infestation since the last of the domestic feline and canine friends passed on the great kennel in the sky some years ago. There was, logically, only one way they could have arrived. On me. From the rental house. Via the painting clothes. Oh dear. So, flea bombs for home and the Debug woman for the rental property. Yet another hazard of the Landlording business. Do I get danger money?
The arrival of the 20% minimum deposit scheme has had the usual unanticipated consequences. More than one of the ‘big five’ Banks in apparent disarray and various builders bleating about the negative side-effects. I was interested to note one comment from a building company, they apparently started out with the idea of building low-cost houses chosen from a small number of simple standard designs for first home buyers. They soon found out that this did not work. Their clients wanted amendments, alterations, and ensuites off every bedroom. Few wanted a house that would look the same as another person’s house. What would our friends think? Bespoke was what the market demanded. How things have changed from the streets of Universal, Beazley and Keith Hay homes that were a feature of the 1960s.
Right now in Auckland we are certainly in a seller’s market. I have trawled a couple of likely purchases, and have found that real estate salespeople are currently treating buyers with disdain. Leave a message about a property with a salesperson and you are lucky to get any response at all. I guess they are too busy chasing the vendors. It doesn’t concern me too much, as I am happy with the additions I have made to the property portfolio over the last two years and, if necessary, I can go to sleep until the next downturn in the market puts buyers back in demand. It will happen, eventually.
Fleas from the rental, lovely. And in the bed, lol.
Oh the glamour of the property management business! The other day I was scrubbing down an inside car park area - a delivery truck had parked there while unloading and left big rust stains from the radiator like 600 wide and 6m long. Newish concrete so it looked like crap, had to be cleaned.
Then it was on to picking up the rubbish around the back of the property, disposing of other people's unwanted lunch/food containers/wrappings, old carpet etc.
A friend of mine is trying to buy an apartment. He couldn't get any sense out of the agents so rang the owner direct, who rang the agent, who rang my friend and yelled down the phone at him. But then calmed down and tried to help but still couldn't answer basic questions like what the actual net rental is.
Basically they don't need to just now. They just get the listings and sit back. They sell themselves.
Rental property investment is indeed glamorous... a couple of weekends ago, I removed over 400kg of rubbish that a tenant left in the garage. They hadn't put out their household rubbish in nearly three months. In the process, I managed to return a stolen hire BBQ to a local business, so they were happy!
The couple in my one-bedroom flat, having bred, decided to move to a larger property and duly gave notice. As I had then given them my standard written ‘Cleaning Guide for Departing Tenants’ I was anticipating that the property would be left in good condition, and they did not disappoint. Apart from a few paint touch-ups in the high-wear areas of the corners and edges, there was not a lot for me to do in the interior.
The problem, as so often happens, arose in arranging the fate of the bond.
“What about the final week’s rent payment?” I asked. “Are you going to give me that now, or do you want me to take it out of the bond?”
They looked at each other, confused. “But we paid that when we moved in!” they chorused.
“No you did not” I replied. “You paid me the bond, which went through to the bond office as shown in your receipt from them, and you also paid me the first weeks rent. At the end of the first week that rent had been used up, and you then paid me for the second week, and so on.”
The wife then muttered something about ‘the free week’. I leapt in. “There is no such thing as a free week” I stated, “You pay rent for each and every week you tenant the flat, no less and no more”. Obviously they had all of the money from the bond earmarked for some other purpose, and paying me anything was going to disrupt their plans.
Eventually, thanks to my comprehensive payment summary, they had to agree I was right and we signed the bond refund form with one week’s rent arrears going to me and the balance payable to them. Once again, it shows the absolute importance of keeping accurate payment records.
After retrieving the right tin of paint from the lockup and dabbing it on the worn corners of the rooms, I stood in the bedroom seeking a moment of quiet contemplation while the paint dried. My thoughts were disturbed by a bloop . . . bloop . . .bloop . . .
I tracked this low-level but annoying sound to the guttering downpipe. Obviously, the top entry to the pipe was almost blocked and the trapped water could only descend one drop at a time, causing a sound that would be highly irritating while you tried to drift off to sleep in the bedroom.
So, exterior maintenance is required. Out with the ladder and up onto the roof with bucket and trowel. While I was engaged in these low-level aerobatics, my thoughts turned to the cost of maintenance on residential rental properties.
If you own a rental, you probably also own the house you live in. You will therefore be only too aware of how much regular maintenance even the smallest house requires for it to be kept in good condition. Yet it often amazes me how many prospective property investors gloss over both maintenance costs and also the significant on-going costs of unavoidable overheads in their budget calculations.
By my reckoning, a standard three-bedroom house in a working-class Auckland suburb will right now accumulate at least $2500 in fixed costs each year. That’s just for rates, insurance and fixed water charges. Add in some lawn mowing and you’re looking at three grand. That’s $60 a week. Move to a more affluent Auckland suburb with its much higher rates charges and this figure will substantially increase.
Obviously maintenance costs for a property will vary from year to year depending on the age of the property, the materials in its construction, the type of tenants you attract and the level of market to which you pitch the property. I dug out my own figures and found that I have paid out just over $41,500 on maintenance work on my rentals in the last financial year. That’s quite a significant sum, and does not include any of my own time spent doing some of the more mundane maintenance tasks.
There are Landlords who basically ignore the need for any maintenance work on their properties until the house is actually falling down. These tend to be the Landlords you see featured in the Sunday newspapers and on television in shock horror stories about the need for compulsory warrants of fitness for residential tenancies. Apart from the bad publicity, these Landlords are eventually landed with huge bills when someone finally needs to practically rebuild the property.
So, on top of the $3000 a year running costs for our modest South Auckland rental cottage we should expect at least a couple of thousand more to go out on repairs and maintenance. Hence we are now looking at the thick end of $100 a week from the rent going straight back out from your bank account to keep the place running.
When you buy, does your budget allow for this? So often I see a place advertised as ‘An Investors Dream’ with the salesperson promising that unending riches will flow to you if only you leap in and grab this particular property.
A few minutes with a calculator usually shows that this investment will require a 20% deposit from you and the balance of the asking price can be borrowed at an interest rate that will neatly swallow up all of the proposed rental income.
Is this the bargain of the year? No return on your deposit, which could otherwise be sitting in the bank at least earning some interest, and no allowance at all for the overhead costs of running the property. Cash out exceeding cash in.
You have to ask, is this property worth the time effort and risk? Are you a Landlord or a Speculator? Both have their part to play in the market, but you must know which part you are playing and have a clear idea of the risks involved.
Feeling in need of a challenge, I decided that applying the paint with a roller would be the way to go. I have never tried this before, but it looks to be the easy way to go. Roller, pole, tray, dropcloths, brush for the edges and batteries for the portable radio all to hand.
Well, you would have died laughing. The pole would not stay attached to the roller frame, the roller left an unwanted embossed pattern on the wall and in among the chaos the paint brush took the opportunity to fall into the paint. I didn’t actually put my foot in the paint tray as in the movies, but it was a near run thing. Even the dog watching from next door found it funny. How can other people manipulate this gear to achieve a perfect result and old fumble-fingers here can only excel at getting paint to where it is not wanted. There has to be a trick to it.
Retiring, defeated, I dusted off my speedbrush from years ago and used that. Probably a bit slower than a roller, but for me far less hazardous to the health. Yes it did take a remarkably long time to complete all that painting but I am happy with the result.
Just curious--is this the first time you painted or did you do the walls before with only a brush?
You should give the roller another try next time--make sure its a good roller sleeve--make sure the roller pole has a thread to screw on to the roller frame(good quality)--make sure you dont overload the roller--roll the paint on gently until you start to feel the slight friction caused by sleeve running out of paint and then gently ''lay off''(go over area just applied from top to bottom so its even with no streaks)---You'll get the hang of it and its much better and faster than the speed brush which is really a handy mans tool .
Well, that’s another year ticked off the calendar and packed away. Apart from a few more of the seemingly endless succession of water leaks and one tenant who seemed to think that Santa was more deserving of his rent money than his poor starving Landlord, the year ended on a quiet note. Time for the usual end-of-year thoughtful contemplation.
Looking back on a busy last twelve months I can now add in another four of my life’s ambitions as realized, and only two of those were property related. All in all, despite the vicissitudes of fate, not a bad run.
Within the Landlording world this year we have had to withstand a rising tide of criticism of our activities. During the year pundits from both the political and welfare spheres have claimed that Property Investors in general and Landlords in particular are apparently the cause of most if not all of the social ills of our society. From house price inflation in Auckland and Christchurch to malnourished and flea-ridden children in low-income homes and the asthmatic elderly in city flats, all of these problems would be cured if only we Landlords would insulate heat repair and generally upgrade our rental properties.
Most if not all of these pundits seem to have little knowledge and no personal experience of the landlording business. Secure on substantial salaries in their government-funded office blocks they can safely pontificate on points of law and social policy from within an ideal socialistic world where market forces and economic reality have no part to play. Apparently all costs can be loaded on to benign and wealthy landlords without any possibility that these increased capital and compliance costs could have any possible impact on the rents that tenants must pay. As has been said, the problem with socialism is that eventually you run out of other people’s money.
In this ideal world, all Landlords are affluent businesslike professionals intent only on gathering in the largest possible amounts of rental income and spending as little as possible on property maintenance and upgrades. While this may be true in some part of the market, the majority of New Zealand residential landlords are ordinary Kiwi ma-and-pa investors who rent out just one or two properties in an attempt to secure their and their family’s future in an increasingly unsettled and economically uncertain environment.
Calls for compulsory heating, insulation and warrant of fitness compliance seem to ignore the substantial number of Landlords who simply inherit Aunt Maud’s home unit after she passes on and then decide to rent the place out rather than sell it, or the similar number of home owners who wish to rent out their own home while they are away overseas on either an extended vacation or on a working contract. Faced with these sorts of compliance costs and impositions, how many of these amateur investors will proceed with such a project?
As with any product or service that is in steady demand, a reduction is supply and an increase in costs will over time result in an increase in price. The reality is that in the current residential rental market no-one is making huge profits from the rental income in relation to the capital involved, so there is certainly plenty of room for rent rises to occur. We have all recently seen substantial rises in pricing from the post-competitive economic sector in insurance, rates and government charges and I doubt if any Landlords have yet been able to fully pass these increases on to their clients the tenants.
The constraint on rents is largely related to the wages of the tenant. A family bringing in $900 a week simply cannot pay $800 each and every week as rent. Such a family also cannot afford to buy a Lexus or an Audi. So they look around the market to find a place that they can rent for $400 a week, and drive a Honda or a Toyota. Should, for whatever reason, their costs increase then they either need to increase their income or downgrade their life. The socialist pundits seem willing to ignore the cost impact of their proposals or, if pressed on this point, blithely assume that such increases will be absorbed by the Landlord.
We like to call ourselves a first-world country, with legislation already in place to control housing quality, ensure proper sanitation and ban overcrowding. Certainly, in terms of health care, education and environment we fall in this category, yet we are also a low-income society. Our main income-earning industries are agriculture and tourism. These industries mostly employ farm-hands, stockmen, bus drivers, waiters, receptionists and house maids. All modest-income low-status occupations. Yet, whenever proposals are put forward to develop alternative higher-income industries, whole sectors of our society rise up in protest. Suggest large-scale mining as a solution to the endemic poverty in Northland and the protests will start immediately.
New Caledonia is the home of a huge nickel mine, and consequentially rates as one of the largest economies in the South Pacific. A few years ago I visited the place, hired a car, and drove right around the main island of Grande Terre. Without prior knowledge, you would have not known that mine existed. Tucked away out on its own, the enterprise quietly churns out employment and substantial wealth for both the French expatriates and the indigenous Kanaks. Similarly, Norway enjoys a very high standard of living thanks to its oil industry and yet retains its scenic tourist image.
By not exploiting our own resources, we are condemning ourselves to relative poverty that is spread unequally around our society. The solution to our underfed and flea-infested children lies not in robbing Peter to pay Paul but in seeking innovative long-term solutions to some deeply embedded problems. Cycle-ways and film subsidies may have their part to play, but we need to replicate the entrepreneurial spirit of our forefathers who developed substantial industries in frozen meat and dairy products that could be exported to the world.
In the forthcoming election year it may pay to remember that the solution to both your own and your tenant’s economic woes could perhaps lie in a more practical approach to exploiting our industrial potential.
flyernzl, I agree with all the stuff you said in the first 2/3 of that post re government/council regulators etc.
But I don't agree that the solution is digging stuff up out of th eground and selling it. It's flawed thinking that so many people fall into. It's essentially throwing your furniture on the fire to keep yourself warm, works in the short term, but ultimately you're just using up capital.
We need sustainable businesses that can go on for century after century. Then we'd have a society that would last forever into the future.
We certainly know it’s an election year when the politicians head back from Hawaii, Paris and the Bahamas only days after the Christmas trees have been packed away and then straight away hit the publicity trail.
My attention was immediately taken when Our Leader stated that he would pay some members of the teaching profession substantial extra money to become mentors within their profession. “How generous of him”, I thought, and went on to wonder if I could arrange some similar substantial Key subsidy to mentor within the Landlording trade.
Of course, John Key did not actually mean that. He will, personally, not fork out one cent to these people. Like all such keepers of the public purse, what he really means of course is that dollars extracted from the taxpayer will be used to fund this exercise. His own personal money-pile will remain intact. It may well be that this is a good and useful use of such public sector money, but for any politician to imply that ‘they’ will pay the bill is, at best, misrepresentation.
When you listen to the political promises this year, remind yourself that these people are attempting to bribe you with your own money. After all, the cash that we pay in has to go somewhere, and just perhaps, some of it actually does some good.
I have just spent a week in Tauranga, rubbing elbows with the rich and famous of the flying fraternity. People who think it quite normal to run a private jet or warbird. Nice people who have worked hard to earn their place in the sun, most of them, but of course inevitably locked up entirely within their own world.
One fine evening we commuted to the social hub of Tauranga, The Strand. Plenty of pubs, clubs and restaurants which were very busy at this time of the year. A very pleasant time was had by all of us, and, somewhat replete, we decided an evening stroll along the waterfront would round off the evening quite nicely.
Along the waterfront the local Council has provided a number of seats, usually available for strollers and courting couples to sit and admire the view. However, at that time of the evening, most of these seats were occupied not by tourists and sightseers but by what we may politely call men of the lowest class of society who were carefully arranging their newspapers and threadbare blankets before dossing down for the night.
It would seem that the sunny and affluent city of Tauranga hosts a considerable number of the homeless. Come nightfall, as you would expect, these people seek out secure and comfortable spots for sleeping, and the Tauranga waterfront is apparently one of their favourite places.
No doubt some of these unfortunates have drug addictions or psychological problems that have driven them to this state, but coming from a pre-Rogernomics background where there was little in-your-face evidence of poverty and homelessness I find seeing such people in my own country deeply disturbing.
I have travelled extensively in many countries of the East where your family is the only social welfare available, and I am accustomed to seeing beggars and vagrants in such places as Myanmar, Cambodia and Indonesia. However, within New Zealand, we have an implied social contract that, in theory at least, rescues the unfortunate and indigent from the worst that poverty can bring. As residents and business people we pay taxes and rates into the public sector so that all can live relatively secure lives and not starve in the street if misfortune strikes.
As Landlords, we both contribute financially to this social contract and also benefit from it. We pay our dues and also provide housing to many of those who cannot afford the price of outright property ownership. Of course, within any large groups, there are ratbag Landlords who attempt to rort the system and ratbag Tenants who attempt to extract more than their entitlement. However, to claim that Landlords and Tenants are natural enemies is going a step too far. We need each other, and in most cases we can co-exist in a comfortable relationship.
There are, among both Politicians and their pressure groups, those who seek to stir up enmity and propose elaborate and costly solutions to perceived problems within our industry. The Politicians do it because they expect an electoral advantage in such announcements, the pressure groups presumably because they seek fame, revenge, power or social importance.
I have a tenant, one of several. She comes across as a good hearted soul. A tryer, but she is, quite frankly, hard work. The rent is paid in dribs and drabs, $100 here, $400 there, sometimes money comes in three times a week, other times she pays nothing for seven or eight days. Keeping track of the unders-and-overs is no picnic. The house will be a mess one week and neat the next. She never quite oversteps the mark that would make her in breach of the Act, and she always has plenty of reasons for the current difficulties. I smile and nod, she pats me on the shoulder, and we both agree that life can be a problem.
Back in late November I hardened my heart and issued her a 90 day notice. She took it well, promised to reform, but of course things have gone on much the same. So, I have a dilemma. The 90 days is still ticking. Do I throw her and hers out into the street come the day? I have evicted tenants in the past, and despite the hard-hearted Landlord reputation, it is not easy. Or do I let her stay, and therefore continue to suffer from her bumbling life-incompetence?
Landlords are supposed to be flinty-eyed profit-driven creatures with little time or sympathy for sob stories. I wish I conformed to that stereotype, and could sleep easy at night after throwing widows and orphans out into the snow. Unfortunately, I have been through hard times myself and my empathy can be too easily aroused. We shall see.
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