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Welcome to APIA

We are Auckland's only non-profit incorporated society that provides property investors and landlords with support, education and networking opportunities.  Join us at our next property event.

Property Investment Blog

APIA Property Blog

Monday catch up: 7 things we are keeping an eye on this week

Monday, April 06, 2015

Auckland Transport City Rail Link

Prices seem to be on everyone's mind, yours, mine, the Reserve Bank's... But hey!  At least in the myriad of incessant and unending stories about Auckland house prices, there are some meaningful updates on a number of policy fronts.  Here are the stories that caught my eyes, take a look: 

1. The on-going saga of the Reserve Bank vs Auckland housing market has entered into Act Two.  Looking set to reclassify loans to property investors, the Reserve Bank has issued a consultation paper to that effect.  If these changes come, they will spell an unfortunate denouement for most property investors.  Submission close on the 7th of April.  We have put in ours, you should too.  

2. Meanwhile, Barfoot & Thompson has just reported its March sales figures at an all time high (ave. $776,729).

3. Looks like RMA reforms have been binned for now and top man John Key is not too worried about the effect this may have on (Auckland) housing supply.  

4. Auckland's 2014 General Revaluation seem to have been hit with a big bucket of cold water with Herald reporting on Sunday that some of the latest CVs are already out of date.  Properties in Mt Roskill is already overshooting by 26% - what is going on out there?

5. The Salvation Army isn't buying.  Will property investors?  The Government's plans to sell down state houses (post-upgrade) is met with a healthy dose of scepticism by the New Zealand Property Investors' Federation.  All we can say is watch this space.

6. Irrespective of how you feel about Len and Auckland Transport for that matter, the City Rail Link project is gathering momentum.   Some investors are already keeping a keen eye on the suburbs the rail link will transverse through and mapping their buying strategies for the coming years.  

7. Still blaming the Asians I see... 

What have you been keeping an eye on?  Comment and share below! 

Smoke alarms: your quadrum and a solution

Tuesday, March 31, 2015

The numbers are in and they tell a bleak story:

Between November and December 2014, there were five serious house fires in rental properties that resulted in four deaths as well as three severe burn injuries.  Of the seven victims, six were considered to be remote enough from the initial fire that they could have escaped had they been aware of the fire in the first place.  Rental houses account for only 33% of our housing stock yet staggeringly they set the scene for 55% of all house fires and 89% of all fatal fires.

While inferences can be drawn about tenants being at higher fire risk (and necessary targeted education campaign must follow), as accommodation suppliers, we must ask, What can landlords do to promote the safety of our tenants and minimise the effects of house fires? 

On behalf of the 19 Property Investors' Associations around the country as well as their members, the New Zealand Property Investors' Federation ("NZPIF") is collaborating with the Real Estate Institute of New Zealand as well as the New Zealand Fire Service to show its support for the introduction of mandatory smoke alarms to be installed in residential rental properties.  

The three partners support a proposal for the amendment of the Residential Tenancies Act to the effect that: 

  • Landlords are required to install smoke alarms to provide for the safety of the occupants;
  • Tenants are responsible for informing their landlord if the alarm is not working consistent with Section 40(d) of the Act; and
  • Tenants are responsible for any damage they inflect on the smoke alarm consistent with Section 40(1)(a) of the Act as they would for any other property they damage. 

Legislative change does not get away from the fact that even with the provision of smoke alarms (often at landlords' cost), the benefits will not be realised if tenants interfere with their correct operation (e.g. pulling the batteries out).  That is why the Auckland Property Investors' Association ("APIA") shares the NZPIF's belief that a long life photoelectric alarm is preferable to the traditional 9 volt alarms.  The reasons being: 

  • Photoelectric alarms are physically harder for tenants to interfere with; 
  • Photoelectric alarms are less likely to give a false alarm (such as smoke from burnt toasts); 
  • Photoelectric alarms are easier to turn off; 
  • Photoelectric alarms remain operational for longer.  
At its first communication meeting of 2015, the NZPIF announced that it is close to securing a bulk purchasing deal of photoelectric alarms on behalf of all the Property Investors' Associations around the country.  Information will be circulated to all APIA members once it has become available.  

Reserve Bank consulting on property investor loans

Tuesday, March 17, 2015

**7th April 2015 Update** For a copy of APIA's submission click here.  

The Reserve Bank of New Zealand (RBNZ) is a politically independent body charged with overseeing the stability of the country’s financial system. As such, it can set down rules and issue instructions to the trading banks and to other financial institutions.

The Governor of the RBNZ has looked at what happened overseas during the recent financial turmoil, and decided that borrowings by property investors pose a greater risk to financial stability when times get tough than borrowings held by owner-occupiers. 

There are estimates that around 30% of new mortgages are going to property investors, but no-one really knows. Therefore the RBNZ is currently working with the trading banks to try and find out exactly how much bank mortgage borrowing is tied up in funding the activities of investors.

So far, several different criteria have been suggested to identify such investor clients, but each one has raised too many complications to be a practicable method. A clear definition is still being sought.

The RBNZ maintains that investor loans are more risky than loans to owner-occupiers. Therefore, in the interests of trading bank stability, banks should hold greater capital to cover these loans and reduce their perceived vulnerability. When banks are able to identify their investor clients as a separate group from their owner-occupier clients, the RBNZ claims that they can then better manage that risk and influence the financial system in order to mitigate any potential crisis.

This is liable to raise the costs within the trading bank system, which would either have to be absorbed by those banks or passed on to their investor customers.

We are told that such an increase in costs, if passed on as a premium on investor interest rates, would be minimal.

The consultation will end on the 7th of April 2015 and more information is available here.  

We believe that investor loans cannot be given blanket coverage as high risk. In our view, the riskiest property loans are those made over holiday homes. Many of these beachside or resort properties return minimal or no income to their owners and are occupied for only a very few weeks of the year. When the economy turns down these are the first properties to go on the auction block, as is clearly shown by the wildly fluctuating sale price histories of places such as Pauanui and Snells Beach.

There are a number of investors that have minimal borrowings on their investment properties in relation to the asset value. After many years of ownership, they possess high equity and would more easily be able to ride out any financial storm than an owner-occupier who has recently bought with a high mortgage and who then loses their main income as a result of the predicted financial calamity.

Whatever method is used to identify investor clients of the ban, some will be mis-identified. Can you say that a bank client who happens to own five rental flats all on one title is in any way a different risk that the investor who owns a similar block next door where the five rental flats have all been moved on to five separate titles?

In our view, although the current intentions may be benign, once a particular class of bank client can be identified then at some time in the future it is possible that punitive action will be taken against that group. Banks are commercial businesses, and interest is the price of money. Banks already work hard to identify risk in their clients and it is unlikely that a public servant would be able to do a better job of identifying risk than those who are already charged with lending out the bank’s money. Effectively, the RBNZ is advocating price control, something that we are told went out of fashion at the end of the Muldoon-era.

A typical APIA member...

Wednesday, March 04, 2015

A huge thank you to everyone who filled out the 2015 annual APIA membership survey.  You have given us plenty of information to continue serving our members well.  Here are some preliminary results which may be of interest.

10-point health check for your property portfolio

Monday, December 15, 2014

It is astonishing to me that so many investors talk about how man properties they own rather than how well their portfolios are performing.  This kind of autopilot investing without context can be detrimental.  The coming holiday season is as good as any for you to give your portfolio a much needed health check simply because sometimes in life, more is not necessary better.  Here are some questions to get you started: 

1. What is your overall investment goal?

Why are you investing in properties in the first place?  Are you investing for cash-flow or capital gain?  Are you investing for a better quality of life in five years?  Ten years?  Or twenty years?  Without knowing clearly where you are heading any investment strategy would be haphazard at best.  Reaffirming your overall financial goal can help you visualise where you are at and how your portfolio is performing for you.  

2. What positive steps can you make to attain this goal?

Review your portfolio activities in the last 12 months.  Have you bought any new properties?  Have you added value by renovating or developing?  Do you action strict rent arrear and rent increase protocols to maximise your cash return on each property?  I will always remember Kesh Maharaj telling a room full of APIA investors how income from property investment is anything but passive.  Truly successful investors are anything but stagnant.  Consider this a performance review of yourself as and investor and work out which areas you can improve on in the coming year.  

3. How well do you know your properties?
No really.  How well do you know your properties?  When is the last time you did a property inspection?  Do you know the current market value of your portfolio?  Given the strong performance of the Auckland property market in the last 12 months, it is time to think about how you can accelerate your portfolio growth.  Consider getting a valuation report done to make use of the additional equity.   
4. Which are the stars and which are the slackers?

Now that you have a clear direction for your investment strategies and got to know your properties, it is time to look critically at each and every single one of your properties.  Which ones are propelling you towards your ultimate financial goal and which ones are holding you back?  Are any of your properties suffering from persistent high vacancy?  Giving you a poor cash flow or uninspiring capital growth?  These are your under-performers.  Start building a strategy to either sell these properties or make changes to them to improve their performance.  The APIA 10 Year Wealth Projection Calculator is a good starting point.  

5. How compatible is your portfolio to your lifestyle? 

We all go through various changes in life and your property portfolio can either add to or take away from your current and upcoming lifestyle.  When you started investing, you may had been single, footloose and fancy-free.  The investment strategy and portfolio style that suited you then would not necessarily be the best for you current lifestyle as a father of two with a third baby on the way.  You have have changed jobs or combined your finances with a new partner.  All of these changes have implications to your savings and disposable income capacity not to mention your cash reserve to remain active on the property market.  

Additionally changing circumstances in your life may also require a reexamination of the way your portfolio is structured.  To stay on top of maximising tax savings, book an appointment with your accountant in the new year to discuss changes in your life.  

6. Is it time for some TLC? 

Regular maintenance, repairs, and even moderate renovations are vitally important for your property to command a high rental return.  While these works are easy to keep on top of when the property is being managed full time, for many part-time landlords, they can slowly build up into an insurmountable mess.  Schedule in a property inspection during the Christmas downtime and take stock of what needs to be repaired or maintained.  

7. Are you paying too much? 

Without a doubt financing constitutes the highest costs faced by most property investors.  Now that we are three months away from the end of the financial year, examine your existing mortgages closely and look for ways to save on interest costs.  Have you utilised your 0.25% off home loan interest discount with the ANZ?  Have you been make the most of your relationships with the banks?  Is it time to consolidate or refinance?  

8. Do you have a safety net to fall back on? 
Once you have made real in-roads into various cost savings, take a look at your risk mitigation strategies and consider ways to increase your security.  Kevin Green at the 2014 NZPIF Conference talked about not holding onto debt for longer than 10 years as a way to continue building his portfolio in a sustainable manner.  Additionally you may also want to consider life or income protection insurance to guarantee your current lifestyle despite change in circumstances.  

9. Are you renting to the best people out there?  
You can do everything right and tick all the boxes when it comes to property investment, but all of your hard work will come to naught if you rent to the wrong people.  At his latest presentation to APIA investors, Craeg Williams from TPS Credit Control talked about there being $100 million a year of rent arrear disputes adjudicated by the Tenancy Tribunal, 'and that is just the amount we know about.' said the specialist tenancy debt collector.  Take a look at your tenants' performances in the last 12 months.  Do they pay rent on time?  Do they look after your properties?  Review your tenancy agreements and use this opportunity in the summer to consider whether you are better off renting to a bad performing tenant or go back to the market to look for better tenants.   

10. Are you up-to-date?
Property investment does not happen in isolation nor should property investors be ignorant of topical issues and likely policy changes that will have impacts on your portfolios.  In this rapidly changing market, knowledge is quite literally gold.  "The best way to stay connected with the industry is to stay connected." says Andrew Bruce, APIA President, "Networking with fellow investors and tuning in to industry presentations are the best way to stay current."  If attending events is not your bag, just know that property information is also readily available online and in print.  

These questions provide a good foundation for you to get a true appreciation of how well you have been investing so far.  Once you understand where you are at and map out the steps to get you to where you want to be, you will be on track for a truly rewarding 2015! 

Will you be doing a portfolio health check this summer? 

What is fair wear and tear?

Monday, December 08, 2014

Unlike most commercial leases which can require tenants to leave the property as they found it, residential landlords are expected to inherit fair wear and tear by the tenants at our own costs.  It goes without saying that there is a very fine line between fair wear and tear and what constitutes damages.  

Understandably both parties to a residential tenancy have good reasons to take a diagrammatically opposing view on the what is fair wear and tear, especially when it boils down to bond refunds.  Take carpets for example, while cigarette burn holes and rips are obviously damages, the thinning of fibres are usually fair wear and tear.  But that said, how thin does the carpet have to get for it to be deemed a damage?  

Fair-wear-and-tear vs damages

Current statutory ambiguity and a lack of industry standard have proven unhelpful.  In this state of flux therefore, what are your guiding principles to determine fair wear and tear?  

The overarching rule is that of betterment.  In terms of property condition, a landlord should not be in a better position materially than you were at the start of the tenancy.  Unlike commercial tenancies, the bond is not to be used as an insurance policy where you might get full replacement value with no due consideration for fair wear and tear.  From there, a few factors can come into play: 

  1. Length of tenancy - "You have got to consider the length of tenancy.  Fair wear and tear is very different for an 8 year tenancy and for a tenancy of 6 months," says Jan Galloway, Director of Corinthian Property Management.  The longer the tenancy, the more natural wear is to be expected.  
  2. Number and age of occupants - The more bedrooms and occupants, the higher the wear and tear in all the shared spaces (e.g. living room, kitchen) should be expected.  Are there children living in the property?  A property occupied by a young professional couple would suffer far less wear than a family of four with young children.  "I always think about the wear and tear that would have occurred if I had lived in the property with my family," says Galloway. 
  3. Quality of the property/fixture - A modern accommodation with thinner internal walls would require more maintenance and repair from the landlord's part as oppose to an older building that has a more robust construction.  
  4. Original condition - "You have to consider the condition of the property when they moved in," said Galloway,   "if you had brand new paint and there were a lot of scuffs on the wall then you should get some money towards repainting.  If there were a lot of preexisting scuff marks on the wall then you are not likely to get compensated for the sake of two or three additional marks."
  5. Reasonable lifespan - Don't forget that nothing lasts forever.  If a dishwasher breaks down after 15 years of good service then it is fair to say you have got your dollars' worth and claiming against the tenant (even if there are signs of abuse) could be petty and unnecessary. 
  6. Overall condition - Galloway's rule at final inspections?  "Look at the property overall rather than each single feature in isolation.  A slightly dinged front door can be balanced out by a pristine carpet and scuff free walls."  Do not get fixated by one single damage when the overall condition of the property is reasonable.  
  7. Overall relationship - **Caution** this is a contentious one.  At the end of the day, residential tenancy is about people doing business with people.  If you have had a good relationship with your tenant who paid rent on time and had been generally well behaved, it is not necessary to quibble over small maintenance issues.  Consider the value you have received from your tenant over the years and repay them with a suitable degree of lenience.  

Preventative measures

As a landlord, your aim is to minimise the level of wear and tear in the first place.  But it is not an easy feat as a tenancy agreement guarantee your tenant exclusive possession of the property.  Here are some tips:
  1. Tenant referencing - When you select tenant applicants, take the time to ring ex-landlords for a reference and ask questions like "Would you rent to xxx again?"  If not, why not?  
  2. Good relationship - If you maintain a professional and good relationship with your tenant, it is more likely that they will come to the party and look after your property well.  
  3. Decorate sensibly - No tenants, no matter how careful, can prolong the lifespan of cheap fittings and appliances.  When you fit out your property therefore, look beyond the price tag and take into consideration the quality, make, and after-sales service of your product selection.  
  4. Inspect and maintain regularly - This is especially important for longer term tenancies.  By refreshening up your property at regular intervals, not only will you have a more on-the-pulse handle of the condition of the property, you are also reducing the need for a big refurbishment job at the end of the tenancy period.  
  5. Communicate your level of expectations - Set your expectations from the outset.  Remind your tenant that regular cleaning and maintenance can make their property feel more like home.  Encourage them to contact you as soon as maintenance issues crop up and be responsive towards these communications.  

Dispute resolution 

Disputes happen - they are just a matter of course when it comes to residential tenancy.  While some disagreements do get resolved privately, others are presented to the Tenancy Tribunal for adjudication.  Drawing on her experience pursuing tenants through the Tribunal over damages, Galloway cautions landlords to always prepare for the worst from the outset.  "Property damages is a very arbitrary thing and quite challenging to prove at the Tribunal level.  Good documentation is crucial.  Always keep a thorough written and photographic inventory of all of the chattels and the property condition at the start and end of the tenancy as well as invoices for remedial work you are claiming against your tenant."  If you can, get your tenant to sign and date these documents.  Ultimately, the higher the quality of your evidence, the more likely you will be recompensed for remedial work done between tenancies.  

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