Ring fencing to hurt property maintenance businesses

[donna]

Hi All,

Has anyone thought about doing the maintenance of their IPs instead of using suppliers due to the ring fencing rule? We know ring fencing is coming in and likely to be backdated to April 19, so I see landlords questioning why they should incur the costs of outsourcing maintenance like painting, etc

There's only so much you can pass onto the tenants, so the can will be kicked down the road with a lot of maintenance and that will hurt the sole operators.

Before ring fencing you could offset the time and materials and other expenses against other income it made sense to work on creating more income and paying for the maintenance. However I can foresee a couple of things happening due to the ring fencing -

1. maintenance will be put off until it's absolutely necessary - and it can be immediately passed onto the tenant
2. DIY maintenance - instead of using businesses - this will hurt the economy

I wonder if the Gov't has factored in the cost to the economy with less work for the cottage industry operators of which the property sector has thousands of sole operators.

cheers,

Donna

[Rosco]

I think it really comes down to are you really in the business of property investment?

If it is a real business, you should be making a profit, or at least have a plan to move from losses to a profit. If a profit, ring fencing has no impact.

A real business, will have a maintenance plan. So work on preventative maintenance, rather than reactive.


In some ways I think Ring Fencing is good, as it should get landlords focusing more on making a profit, and running it as a real business.

Bad side - Some rentals will be sold, lots will have high rent over the long term, so for tenants Ring Fencing is probably bad as it will force out some of the cheap rentals, and some of the more relaxed landlords.

Ross

[artemis]

Maintenance is not the main issue, not usually anyway. Mortgage interest is the biggest ticket item in the early years and is the main contributor to an overall loss.

Hard to avoid seeing ring fencing as one influence on reducing new residential property borrowing - Reserve bank numbers certainly indicate a very big drop over the last 2 or 3 years.

[Don't believe the Hype]

no doubt it will have a negative impact on property investment due to the negative impact on overall returns but Donna raises some interesting points around

i) delaying of maintenance - if there is no offset the cost of maintenance just increased by up to 30%

ii) The trade off between paying someone else to do the work vs. doing it yourself - in the past the justification was that doing what you do to earn money then paying someone else to do maintenance) may have been a better outcome financially.
An unintended consequence nay be that if maintenance becomes DIY as a result of ring fencing we might find in a decade or so that poor quality maintenance done by people who really don't know what they're doing we might see the deterioration of properties happen faster.

[Rosco]

i) delaying of maintenance - if there is no offset the cost of maintenance just increased by up to 30%

ii) The trade off between paying someone else to do the work vs. doing it yourself - in the past the justification was that doing what you do to earn money then paying someone else to do maintenance) may have been a better outcome financially.

i) If making a profit then repairs is an expense, so would reduce profit and reduce tax. So for many property investors there is no change!

ii) DIY vs paying some one else - for many property investors making a profit, there is no change. For those making a loss, many will own rentals in other cities, so DIY isn't really an option. Many will still be earning high incomes so will prefer to pay someone else to do it. The % left in the can't afford it category is probably quite small, and they still will not want their rental to reduce substantially in value due to poor maintnenace.


Overall - why not just focus on making sure rentals are positive and make a profit?

Ross

[artemis]

We don't have the final legislation yet, but seems that investors with more than one rental will be able to treat the portfolio as a whole to offset losses.

Single rental owners will get a rude awakening when they sell up while carrying a loss - which disappears.

[Don't believe the Hype]

i) If making a profit then repairs is an expense, so would reduce profit and reduce tax. So for many property investors there is no change!

ii) DIY vs paying some one else - for many property investors making a profit, there is no change. For those making a loss, many will own rentals in other cities, so DIY isn't really an option. Many will still be earning high incomes so will prefer to pay someone else to do it. The % left in the can't afford it category is probably quite small, and they still will not want their rental to reduce substantially in value due to poor maintnenace.


Overall - why not just focus on making sure rentals are positive and make a profit?

Ross

This is sound advice Ross and something I subscribe to and achieved. Great for those yet to enter the market. But it's unhelpful to the many who have cash flow negative holdings already. What Impact will ring fencing have for those who already have CF negative single properties or portfolios?

[AlFa]

In some ways I think Ring Fencing is good, as it should get landlords focusing more on making a profit, and running it as a real business.

I'd love to see more mom&dad investors running for the hills. Over the years I had only bad experience with these guys like not caring who's the tenant (mongrel mob anyone?), trusting PM blindly, not keeping up with market rents... When you talk to them they remind me Twytford - "it's ain't gonna happen" or "effect will be marginal if any"... and then in month or 2 I see them taking away trucks of trash or stripping the drug contaminated gib/carpet or just crying all over FB how much rent they've been owed...

[donna]

Ma and Pa investors are the majority of landlords in NZ

[artemis]

Ma and Pa investors are the majority of landlords in NZ

Over half of private rentals are managed by property managers. In effect some of them are NZ's mega landlords.

[Don't believe the Hype]

it would be interesting to see the % of self managed rentals in other markets. I don't think many do it in Aus but have no idea about the US/UK etc...

anyone got these stats to hand?