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NZ Houses Need Serious Fix-Up - Survey

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  • Josko
    Fanatical
    • Dec 2004
    • 2075

    #1

    NZ Houses Need Serious Fix-Up - Survey

    I remember a recent discussion on maintenance allocation where $500 p.a. was suggested as a viable figure it seems the professionals believe that even $1300 p.a. is not enough to maintain a house.

    Here is an interesting article...


    04/10/2006 NZPA

    New Zealand houses are often built in such a way they will end up damp, and most homeowners know they need to fix up their houses but usually do not, a building research study has found.

    Of the 565 owner-occupied houses inspected by researchers from the Building Research Association of New Zealand (Branz), each house needed an average of $3700 worth of repairs.

    When interviewed, homeowners said they spent an average of less than $1300 a year home maintenance, which researchers said was not enough to maintain the houses.

    This was, however, an improvement on previous years.

    In 1999, houses needed about $4900 worth of serious repairs, and researchers said the average overall condition of houses was better than in previous surveys.

    The survey found in 58 percent of the houses, the water cylinder had no earthquake restraints.

    Dampness was a major problem - caused by poor ventilation, and improper cladding, and 43 percent had poor or seriously inadequate underfloor ventilation.

    This was a major problem, which could lead to timber decay, invasion by fungus and borer and dampness, Branz materials manager Mark Jones wrote in the October edition of the association's magazine, Build.

    "Around 40 litres of water evaporates from the soil under an average house every day.

    "In a number of houses inspected in the survey, water was flowing under the house from driveways, paths and lawns," he said.

    Many houses also had poor kitchen and bathroom ventilation, and cladding used on the outside of houses on almost half the houses was too close to the ground.

    "Increasingly, priority seems to be given to linking inside and outside at the expense of good building practice, and the newest houses seem to be the biggest offenders," Mr Jones said.

    Also, 78 percent of the deck barriers on houses - and most houses had decks - did not comply with building requirements, being too low, or having gaps that were too big.
    Article available at http://xtramsn.co.nz/news/0,,11964-6389524,00.html
  • Dean@Massiveaction
    Giving life my best shot
    • Jun 2005
    • 5213

    #2
    If I could keep my maintenance below $4000 PA per property I'd be ecstatic

    Comment

    • FatBelly
      Opinionated
      • Dec 2005
      • 240

      #3
      Dito - I dont think I have ever owned a property where I have got by with less than $1300 maintenance a year?

      Comment

      • JohnL
        Addicted
        • Feb 2004
        • 651

        #4
        Yes, you need to allow enough each year to do the more major refurbishments every 5 to 10 years, depending on tenant abuse. Painting and re-carpeting can easily cost $10,000-$15,000 and you have no rental income while you are doing it.

        John

        Comment

        • freezinhot
          Addicted
          • Oct 2006
          • 569

          #5
          I have 2 IP,s now and and am just starting to realise the cost of maintenance.

          Good experience!

          FH

          Comment

          • NZGEMS
            Addicted
            • Jun 2005
            • 772

            #6
            we just had to spend $14k on one of ours, tenant abuse, still we get off light I guess as it is the first time we have really had this happen.

            I allow $1k per property but it probably isnt high enough although I do find overall it is all it costs me with the lower end ones costing more, have had a bad run in the SI this past year with several heaters packing up they are about $3k each to replace, went for heatpumps in a couple of cases which were better so that sort of thing can immediately wipe the budget still I do average out, if you are buying the cheaper houses you do need to allow I would say more like $2-$3k a year

            Comment

            • Propoholic
              AKL Event Organiser
              • Apr 2005
              • 786

              #7
              I thought it would be a good idea to look at typical maintenance costs for a 2 - 3 brm weatherboard house over a 15 year period.

              paint interior twice ($5000 x 2) $10,000
              paint exterior $10,000
              carpet $3000
              tiles? (kitchen/bathroom) $1000
              stove $800
              kitchen bench/units $4000
              rangehood $200
              light fittings $500
              toilet $1000
              vanity $1000
              shower $2000
              curtains $1000
              loss of rent due to interior refurbishment(~ 6 weeks @ $300) $1800
              hedgecutting (2 times/year @ ~$100/cut) $3000
              lawnmowing ($440/year) $6600
              exterior house wash (yearly inc clean gutters & downpipes) $4500
              cleaning between tenancies (~$200/year?) $3000
              general plumbing repairs $1500
              general electrical repairs $1500
              hot water cylinder $1000
              Roof repair $3500
              Driveway repair $3500

              Maintenance Grand Total (15 years):-$64,400
              This produces an average of $4293 per annum.

              The above allowances are estimates for a good property in a good location with good tenants (over a 15 year period). There is no allowance for damage, you can add your own guestimate? There is no allowance for increased maintenance due to poorer quality tenants (paint, carpet etc etc). Another $1000 - $2000 per annum(damage & wear and tear) could be added to the above for poorer geographical locations.

              This is not a definitive example of maintenance ( 2 - 3brm weatherboard house) for a 15 year period but is a realistic assessment from my own/colleagues experiences over 20 years. Figures provided are based on 2006 $costs.

              You may feel some of the above figures are light (for your own investment situation) for maintenance and some allowances are more than you'd expect?

              Items such as roof and driveway repair are likely to show their full replacement cost over a 20 -30 year cycle; I have included for a roof recoating system for ~ $3500 (as against new roof) and I have allowed $3500 for bitumen seal on driveway.

              How does the above impact on your positive cashflow properties purchased 2 or 3 years ago?

              Comment

              • xris
                Fanatical
                • Nov 2005
                • 3283

                #8
                This line of thinking has been discussed before but it is definitely worth repeating. Propoholic's reasonomg is an excellent way to think about maintenance and to plan accordingly. Any 'saving' should be regarded as a bonus.

                This also helps to put the current flavour of the month/decade '+cash flow into perspective. With long term rentals you make your money on capital growth, not monthly cash flow. Monthly cash flow is merely a consideration (a very important one perhaps, but still only a consideration, not the be all and end all) to take into account. This is the same as considering the location, the predicted maintenace, your personal circumstances and so on.

                xris

                Comment

                • xris
                  Fanatical
                  • Nov 2005
                  • 3283

                  #9
                  There are two threads running here on the same topic. Any chance of combining them?

                  Frightening as it may sound, having to budget for $3-4,000 per property per year, it is generally true. Anyone who has been in the game for a while will testify to that. There are some posts coming through now which do in fact confirm this fact.

                  I am in the process now of one of these 'corrections' on two properties.

                  Over the years they have had long-standing tenants and I have done what most people do - the neglect regular maintenance and get away with $200-300 each year for several consecutive years.

                  Then the tenants leave and reality hits home. Cleaning, tired dark and and dull interior decor, antique bathroom, barely functioning shower unit, cracked window panes, rotted weatherboards, broken this, cracked that, threadbear carpets. The list is endless as are the tradesmens bills. On top of this, until most of this defered maintenance is done it is difficult to show people through, let alone sign up a new tenant.

                  When a new tenant is signed up, the new higher rent received will only partly offset the maintenance costs. This is where a long term plan comes in and all these costs can be put into perspective. That makes it a lot easier to accept a sudden whack of several thousand dollars. Without a long term plan a sudden bill for several thousand dollars with no rent coming in can be painful. If, like many landlords, nothing has been put to one side to help to cover this expense, then it can be the difference between tiding out the storm and jumping ship.

                  xris

                  Comment

                  • xris
                    Fanatical
                    • Nov 2005
                    • 3283

                    #10
                    Originally posted by Propoholic View Post
                    I thought it would be a good idea to look at typical maintenance costs for a 2 - 3 brm weatherboard house over a 15 year period.

                    paint interior twice ($5000 x 2) $10,000
                    paint exterior $10,000
                    carpet $3000
                    tiles? (kitchen/bathroom) $1000
                    stove $800
                    kitchen bench/units $4000
                    rangehood $200
                    light fittings $500
                    toilet $1000
                    vanity $1000
                    shower $2000
                    curtains $1000
                    loss of rent due to interior refurbishment(~ 6 weeks @ $300) $1800
                    hedgecutting (2 times/year @ ~$100/cut) $3000
                    lawnmowing ($440/year) $6600
                    exterior house wash (yearly inc clean gutters & downpipes) $4500
                    cleaning between tenancies (~$200/year?) $3000
                    general plumbing repairs $1500
                    general electrical repairs $1500
                    hot water cylinder $1000
                    Roof repair $3500
                    Driveway repair $3500

                    Maintenance Grand Total (15 years):-$64,400
                    This produces an average of $4293 per annum.

                    The above allowances are estimates for a good property in a good location with good tenants (over a 15 year period). There is no allowance for damage, you can add your own guestimate? There is no allowance for increased maintenance due to poorer quality tenants (paint, carpet etc etc). Another $1000 - $2000 per annum(damage & wear and tear) could be added to the above for poorer geographical locations.

                    This is not a definitive example of maintenance ( 2 - 3brm weatherboard house) for a 15 year period but is a realistic assessment from my own/colleagues experiences over 20 years. Figures provided are based on 2006 $costs.

                    You may feel some of the above figures are light (for your own investment situation) for maintenance and some allowances are more than you'd expect?

                    Items such as roof and driveway repair are likely to show their full replacement cost over a 20 -30 year cycle; I have included for a roof recoating system for ~ $3500 (as against new roof) and I have allowed $3500 for bitumen seal on driveway.

                    How does the above impact on your positive cashflow properties purchased 2 or 3 years ago?
                    A simple follow on to my thread on landlording maintenance skills (which seems to have branched out into all sorts of threads) is to calculate a rough saving if one does do some of the maintenance oneself..Using Propoholic's excellent list of costs over fifteen years, if we take off the painting costs and one or two others, such as the gardening costs (the labour part only of course), you can quickly and easily bring this down to $3,000-3,500. With a bit more DIY input and buying well (such as buying a house with a tiled or brand new metal roof, you can cut this cost down even more.

                    Spread out over say twenty properties, the savings can be substantial, as can the performance/cash flow of each individual property over time.

                    xris

                    Comment

                    • JohnL
                      Addicted
                      • Feb 2004
                      • 651

                      #11
                      Yes, this is one path to go down. Manage your own properties and do as much maintenance you can. With a reasonable portfolio you are now a full time property investor.

                      But its not the only way to go. If you are trading as well as having a portfolio of buy and holds, then you would probably be contracting out all the $20 per hour work and focusing on the activities that are making you the most money (or if you are running some other sort of business).

                      I remember Graeme Fowler challenging us at a session he facilitated. He got us to write down what we thought our hourly rate was worth and its amazing how that grosses up to be you annual earnings.

                      So is your time worth $20 an hour or $1000 an hour (or some value in between). What is Donald Trumps hourly rate?

                      This could be one an area that our subconscious mind has an influence. When we start becoming more successful than our subconscious image of what we are worth, we can start to self sabotage.

                      John

                      Comment

                      • xris
                        Fanatical
                        • Nov 2005
                        • 3283

                        #12
                        I agree on these points. My thinking and comments on this have been solely from the perspective of long term portfolios, and possibly too with portfolios with a maximum of say 20 properties.

                        If you have more or if you are trading/developing you are in a different area of property and your whole business needs to be looked at differently. You simply will not be able to have the the luxury of spending your time painting, fixing washers and weeding.

                        On the subject of what do you charge yourself, the landlord, for doing this work, then that is an excellent question. I have analysed this often in the past and speaking generally it simply is not worth your time because with all the work you put in you are likely to be working for only a few dollars per hour, and in many cases you will be losing money compared to what it would cost you employing a contractor. This though is an extention of this diy subject.

                        Also, it should not be forgotten that the feeling of self satisfaction cannot really be quantified in monetary terms which is why charging for your own time may not always be an important consideration.

                        xris

                        Comment

                        • SuperDad
                          Hamilton Event Organiser
                          • Apr 2006
                          • 4015

                          #13
                          xris (and others),

                          When you do maintenance work yourself (or selves), do you charge your time out and claim as an expense?

                          I know that this is probably self-defeating for a lot of people. Say you own a property in a trust, and you are earning a $45K salary. You do some repairs, and charge the trust $100. The trust pays you $100, and so that $100 constitutes an expense that the trust does not pay tax on (at 33%). But then you as an independent contractor pay income tax at 33%. (Alternatively, the trust is registered as an employer and payes PAYE on your wage, again at 33%.) If you're in the 39% bracket, then there's little point in drawing a wage when it could be distributed end of year at 33%. (That's not to say that there are no advantages to doing this, you'll just be paying a 6% premium for the use of the money now rather than later.)

                          But what about those of us in the 19.5% bracket? If I am employed by my trust for maintenance, then the trust payes me a wage and payes PAYE. So I can get money out of my trust at 19.5% over the course of the year. Profit could equally be distributed to me at the end of the year as beneficiary income at the same tax rate, but without the advantage of being available over the year. If that profit is retained in the trust, it gets taxed at 33% irrespective of my tax rate.

                          So I think that I'm about to start drawing a wage from my trust, for all of the work that I do!!! I would have done so earlier, but the property hasn't produced the requisite cashflow to this point.

                          Is anyone else doing what I am about to do?

                          Paul.
                          Last edited by SuperDad; 09-10-2006, 09:14 AM. Reason: Added a thought on the 39% bracket.

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