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Property Investment Blog

APIA Property Blog

What to do when you suspect a meth-lab contamination?

Tuesday, September 30, 2014

Meth lab contamination

In this week's Ask An Expert feature, Craeg Williams gives you a step-by-step response guide to any meth contamination suspicion.  

APIA Ask An Expert

Two tenants who occupied a property of my recently had an acrimonious break up which resulted in one tenant moving out of the premises.  The remaining tenant has given me enough information to strongly suspect the departed tenant to be a meth user.  At this stage I don’t believe the property was used for P-manufacture but it may had been used for consumption.  Is it necessary for me to carry out any tests or alert any authorities at this stage?  What should I do to confirm my suspicions? 

APIA Ask An Expert

1. Do not alert the authorities until you fully understand the level of contamination as this could result in it being put on the property LIM;
2. Understand that having one tenant vacating the property makes no difference to how to deal with the problem; 
3. Get the property tested by a reputable company.  This part is crucial to get right, there are rogues in this industry, you can visit their Facebook pages to see what people say about them before getting the testing done. Once you have the test results you can proceed;
4. If the test results are above 0.5 micrograms then the place will need to be professionally cleaned by a company that specialises in meth cleanups.  We can recommend companies that we know are good to work with here; 
5. If the amount is below 0.5 micrograms then it does not legally require professional cleaning, however you can still do so if you wish to; 
6. The costs of the cleanup can be passed on to the tenant if you can prove it to the Tribunal.  This will come down to the quality of evidence you provided.  Consider obtaining a testimony from the remaining tenant, though this will not necessary guarantee an order to your favour, it is a starting point.  Be mindful that in theory you could make the other tenant liable for the cleanup costs so it may not be his/her best interest to provide that testimony in the first place.  Communication skills and prudent negotiation are key to resolve this impasse, consider obtaining the testimony in exchange of a waiver of liability.  


It is also important to note that all of the above depends on whether there was a joint and several liability clause present in the tenancy agreement. If there is not, then you can only make each tenant liable for half of the total debt, rather than one tenant liable for the whole total.


Craeg Williams
Craeg is a director of Tenancy Practice Service, a tenancy consulting firm which advises major property management brands.  Craeg and his team are also involved in providing support for private landlords by way of training seminars, best practice protocols, drafting applications, advice about re-hearing and appeals, tenancy debt collection as well as human rights and privacy issues.  

Do you have any property related questions for our panel of experts?  Comment below or email us at questions@apia.org.nz.  

Hot or not? How seriously should you be following 'property hotspots'?

Friday, September 26, 2014

In this week's Ask An Expert feature, David Whitburn tackles the myth of property hotspots and breaks it down once and for all for investors.

APIA Ask An Expert

What are your thoughts on property hotspots?  A lot of times I find people asking at APIA meetings Where is the next Auckland hotspot?  But what if somewhere that was flagged, quite legitimately at first, as giving investors good capital growth and yield, was to bottom out due to over demand and the prices are to plummet?  That would be stressful for owners who bought during the hype, especially negatively geared ones.  Should I therefore take hotspot talks with a grain of salt?  

APIA Ask An Expert

Many people look for the next silver bullet and get rich quick scheme.  Hotspots are sometimes giving by intellectual pygmies and that is disingenuous.  The timeframe is an issue to consider too.  Is it a next couple of months guess, medium term (say 5 year pick) or long-term >10 year pick?  There is an element of crystal ball gazing of course, so hotspots have to have a level of art rather than be pure science.  

Property investment is a get rich medium strategy in Auckland, and get rich slow in many other parts of New Zealand.  Negative gearing is of course common as shown in the Barfoot and Thompson monthly suburb reports.  The latest month's statistics showed the average gross yield is 3.63%.  Whilst I acknowledge a significant number of investors don't have any debt, the majority do and interest rates are generally at least 2% over this average yield figure.  There is pressure likely to be seen next year on interest rates to go up so cash-flow is important to focus on.  

The truth ignored by many is that property investment is a balance of cash-flow, equity and growth.  If you just go for growth, unless you have outstanding personal cash-flow then you are in trouble when you seek your next loan approval.  The hotspots have changed as the growth has rippled further out.  I see a number of people with a flawed property strategy that invest in older units at sub 5% yields in Central Auckland.  Growth has historically not been as high as places with more land, which like Sydney and Melbourne will improve over time, but we are not there yet.  Then there are risks from the Unitary Plan which is likely to be in place in late 2016 which makes it much easier to have brand new, better built, warmer, dryer units which are easier to finance in light of being exempt from the Loan to Value Ratio restrictions.  Would you rather have an old unit that fundamentally looks ugly despite your best endeavours that your home-owner end buyer has to put four times the deposit into to purchase than a brand new one?  Already a number of terraced houses and apartments are in the development supply pipeline to compete against these units.  Buying new is better and will deliver you better tenants paying better rent, staying for longer with their warmer drier healthier homes, and give you better financial performance with lower repairs and maintenance bills and a higher depreciation expense.  

The truth ignored by many is that property investment is a balance of cash-flow, equity and growth.

The hot spots I am investing in are based on breaking down suburb data, migration trends, rental trends, current supply statistics from building consents, demand levels (more of a qualitative measure from trusted agency owners, real estate agents and branch managers), the Unitary Plan, discussions with developers, Auckland Council forum, planning policies and local trends, discussion with senior bankers, many other sources and of course 'the vibe'.  

The Unitary Plan is using a model of having satellite CBDs, so areas like Westgate (Massey North), New Lynn, Albany, Takapuna, Manukau will provide large stimulus.  You don't have to be a tax lawyer to work out that what happened to properties around significant new infrastructure and amenities like the St Lukes Shopping Centre, Botany Town Centre, Sylvia Park and other shopping centres around the world will repeat.  A screamingly obvious hot spot that few identify successfully is Westgate Town Centre which is a 56 hectare billion dollar development on the northern side of SH16 to the current small Westgate shopping centre.  This is far larger than Sylvia Park and Botany Town Centre. House prices and rents in suburbs nearby such as Massey, West Harbour, Royal Heights, Swanson, Ranui, Whenuapai, Hobsonville (watch over-supply) will go up as more of the development is built.  This is because they will be in demand in terms of people wanting to spend less time commuting and be closer to work and all the things they need are at there footsteps.  

West Harbour

If you wanted my top 5 picks I would go for Massey, West Harbour, Swanson for the Westgate Town Centre reasons and I like the locals and their pride with their elegant green suburb of Swanson which they name Swansonby.  Then there is Birkenhead, which was a little run down in decades past but those commanding views many residents have, the gentrification of the suburb still leaves me to believe this suburb is under-priced.  And I would add in Papatoetoe as it has far more home-owners than surrounding suburbs, spending good money to improve their houses and gardens, and there are redevelopment plans for the Papatoetoe Town Centre in St George Street, traffic improvements happening and there is rental safety with the nation's fastest growing and largest hospital in Middlemore Hospital so close by to the north of the suburb, Manukau Town Centre to the south of the suburb, including a large new campus for MIT (Manukau Institute of Technology) and the continued growth of Auckland Airport and its nearby businesses.

Of course some areas may only go up 50% in 10 years when someone thought that suburb would go up 75%.  If you have high enough cashflow the downside will take care of itself.  By investing in New Zealand's economic and migration hub Auckland, you are pretty much guaranteed long-term growth.  I know of an APIA member who bought two investment properties in the 1970s/80s who now has two debt-free investment properties as well as their own home and this provides them over $80,000 per annum cashflow on top of their pitiful National Superannuation (net of taxes is sub $20K/year).  Time in the market not timing the market is the key.  I wrote in my best-selling book Invest and Prosper with Property, about how my my grandparents bought a section from farm subdivision off plans in 1955 in Kohimarama for £600. It is valued over $2,000,000 now.  Kohimarama might not have been a hot spot then, and may not be one know - but the views of Rangitoto and our stunning Waitemata Harbour and now views of the raised CBD skyline are all still there.  

Top 5 Auckland suburbs

Sometimes it pays to think long-term, and to satisfy the three pillars of property investment success:
cash-flow, equity and growth.


David Whitburn
David is a project manager with Fuzo, a medium density housing development specialist.  His passion is to create good property projects and connecting passionate people.  David is a past president of the Auckland Property Investors' Association, a trusted media commentator, and a bestselling author.  


Do you have any property related questions for our panel of experts?  Comment below or email us at questions@apia.org.nz.  

How to achieve positive cash-flow

Wednesday, September 03, 2014

What is positive cash-flow?

In this week's Ask An Expert feature, David Whitburn talks positive cash-flow.

APIA Ask An Expert

I am a newbie investor and find myself struggling with many investment jargons thrown around at APIA meetings.  What is ‘positive cash-flow’?  How important is it to have a positive cash flow?  How do I achieve it considering I am only on my first property?

APIA Ask An Expert

There is a lot of jargon in property investment.  Positive cash-flow is where the rental income from your property exceeds the outgoings (rates, insurance, repairs and maintenance).  Positive gearing is where the rental income from your property exceeds your loan repayments.  

With the centuries long old trend of population increases in Auckland, and the fact we are the third most liveable city in the world, house prices are rising in Auckland.  Our gold sponsor Barfoot & Thompson publishes excellent data on house prices and rentals, which shows a gross yield of 3.7%.  Interest rates are at least 2% higher than this, let alone extra costs for rates, insurance, and a provision for repairs and maintenance.  If you are wanting to build a sizeable property portfolio since the banks look at deals with a higher interest rate to best ensure you don't get into trouble (a stress test), you need to focus on cash-flow or you are likely to get your loan applications declined as you try to build your portfolio unless you have high cash-flow from other sources.  Speak to ANZ at one of the next APIA meetings for further advice on this.  They have run some numbers for me through their calculators in the past to test scenarios.  I have noticed that many APIA members have things like home and income properties such as minor dwellings, and inner city studio apartments to provide solid cash-flow for them in the current market.


David Whitburn
David is a project manager with Fuzo, a medium density housing development specialist.  His passion is to create good property projects and connecting passionate people.  David is a past president of the Auckland Property Investors' Association, a trusted media commentator, and a bestselling author.  


Do you have any property related questions for our panel of experts?  Comment below or email us at questions@apia.org.nz.  

Understanding building guarantees

Tuesday, August 19, 2014

In this week's Ask An Expert feature, lawyer Adina Thorn shows investors how to understand builder's guarantees.

APIA Ask An Expert

I am about to engage the services of a builder but am overwhelmed by the different building  guarantees out there on the market.  A couple of friends of mine had trouble in the past enforcing their guarantees,what I should look out for when I assess different contracts?

APIA Ask An Expert

In any building contract you want to know what the builder is promising to provide you.

 
Generally, the contract starts with what the builder is agreeing to build (often by reference to the plans and specifications). From there many building contracts provide further guarantees/warranties.  These are in addition to your other legal rights – including under contract, in tort, and under legislation (such as the Building Act 2004 and the Consumer Guarantees Act 1993, where applicable).
 
You need to work out

  1. how the guarantees/warranties relate to your other legal rights 
  2. what additional protections they are giving you, and 
  3. that they will work in the way you think they do, should you need to enforce them.

From there you want to consider issues like who you are contracting with, what security you have, and what provisions there are if something goes wrong.
 
You also want to look at where and how you enforce the building contract if something goes wrong.
 
I strongly recommend you to seek legal advice in relation to the types of contract and ensuring that appropriate protections are in place.


Adina Thorn
Adina runs a specialist litigation law firm, Adina Thorn Lawyers with expert skills in property, construction and commercial litigation. She holds degrees in both Property and Law (Honours). Her knowledge in relation to property matters is a real strength to her clients.


Do you have any property related questions for our panel of experts?  Comment below or email us at questions@apia.org.nz.  

The politics of houses

Monday, July 14, 2014
Upcoming policy changes affecting Auckland property investors

With the General Election merely weeks away and housing being the epicentre of the political battlefield, it is time for property investors to understand the positions of each of the major political parties and how our investments are likely to be affected.  

Below is a summary table of the four major political parties and their policy positions for the seven hot button issues for investors: 

  National  Labour Greens New Zealand First
Rental Warrant of Fitness  Targeting state houses and those receiving accommodation supplement Mandatory for all rental properties  Mandatory for all rental properties  
Capital Gains Tax   No Yes 15% (excluding family homes) Yes (excluding family homes)  
Ring Fencing Losses "Bach tax precedent"  Yes Yes  
Heating and Insulation   Healthy Homes Guarantee Bill Energy Efficiency Conservation Bill  
Residential Tenancies Act  No Yes Yes Yes
Rent Freeze   Yes With Limits Yes
Regulation for Foreign Investors  No Overseas Investment Bill Yes Yes

Source: New Zealand Property Investors' Federation 


How to stop tenants from 'breaking-bad'?

Tuesday, July 08, 2014
Prevent your property from being used as a meth lab

It was one of those shows that is entertaining on the telly but an absolute nightmare in real life.  It goes without saying that Breaking Bad has hit a raw nerve in the landlord community.  Residential rental properties are considered prime locations for clandestine meth labs.  The high risks of fire, explosion, and toxic fumes make weekly rental payments almost negligible.  More troubling still is the seemingly incoherent fashion meth labs are entrenched in our community.  While there are pockets of meth lab hot-spots, not one suburb is entirely without risk.  If an innocent enough looking high school teacher can conceivably moonlight as a meth-cook, anything can happen. 

In the end, landlords are the ones picking up the pieces.  Not only is your property almost irreversibly damaged, in many instances the damages may not even be covered by insurance.  

The best way to handle of risk of meth labs is to manage it while it is still just a risk.  Here are some tips to help you identify early signs of trouble.  Next week we will share tips on what you should do when you seriously suspect that your property has been used as a clandestine lab.

  1. Meticulous tenant screening - Reference check your tenant thoroughly.  Watch the How to reference check tenants properly video on APIA TV now.  Or consider having your property professionally managed, meth-cooks are known to target self-managing landlord on the basis that they are seemingly less professional and rigorous in their management; 
  2. Regular inspections - Stick to a regular property inspection schedule.  You are legally entitled to inspect your property once every four weeks.  Meth-cooks know that the more present their landlords are the more likely they will get discovered; 
  3. Inspect throughly or don't inspect at all - Go through every room and outdoor areas (such as garage and shed), be mindful of the items around the place as well as the smell of the room.  Refer to this list of ingredients commonly associated with cooking meth and look out for them; 
  4. Look for tell-tale signs - such as large quantities of plastic sheetings, patches of dead grass outside the front door (may indicate toxic dumping), white powdery residue littered around the corners of the house, ammonia or cat urine smells, boarded-up or blackened windows, as well as stained sheets or coffee filters; 
  5. Establish a good rapport with the neighbours - By maintain a good relationship with the neighbours of your rental, you are more likely to have a real understanding of how the property is being treated in your absence.  Neighbours are excellent sources of information to raise the alarm bell if there is an abnormally large amount of foot traffic through your property or if there is any other suspicious activities;  
  6. Pay attention to changes in behaviour - Do not discount changes in your tenant's behaviours.  If you are suddenly getting rents paid in cash rather than direct debit then it may be worthwhile to schedule an inspection. 

How have you been handling the risk of meth labs in your property?  Meth labs pose a real risk of residential property investment that are often detrimental to the value of the entire property.  Comment respond below to share your experience.  



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