Monday, May 5, 2014

Frank Newman: Perils of being a landlord

The term Land-lord has an aristocrat resonance about it. The reality is there is nothing easy about being a landlord. For most it’s a rude awakening into aspects of human behaviour that most prefer not to associate with. 

The NZ Herald (Diana Clement, 3 May) ran an interesting article recently about the perils of being a landlord. Here are some key points.

The most common complaints or frustrations from landlords were:
  • Not getting paid! In 2013 there were 45,093 applications nationwide to the Tenancy Tribunal. 41,496 or 92% were from landlords. The other 8% (3,597) were filed by tenants. Most of the applications filed by landlords were for rent arrears (61%). Given there are about 500,000 rental units in New Zealand, in any year one in 18 landlords (about 6%) suffer arrears that are significant enough to warrant the matter being referred to the Tenancy Tribunal.
  • Prospective tenants not keeping appointments to view the property.
  • Smoking in the dwelling even though the tenants have accepted a non-smoking condition of tenancy (and then they will no doubt moan about the cost of having someone clean the tar from the ceiling and walls!).
  • Keeping pets in a pet-free property. One property owner describes it this way. "Turning up to a property that you've let in pristine condition to find dog sh*t all over the yard, dog hair inside the house embedded in the carpet, scratch marks over the interior and exterior doors, a pervading smell of dog inside the property and burnt patches of grass where the dog has been peeing tends to make one think long and hard before re-renting to dog owners."
  • Tenants who claim to have paid the rent but haven't. This shows the importance of providing receipts if rent is paid in cash (which is suspicious in itself as they may be using your premises to operate a “cash” business).
  • Tenants who sublet the property without the landlord’s consent.
  • Exceeding the maximum number of people permitted to live at the property, causing overcrowding and additional damage.
  • Tenants leaving piles of rubbish and belongings when vacating.
  • Tenants who don’t report problems, like leaking pipes and fittings that damage kitchen cabinets and floors. A lot of damage can be done between inspections.
  • The problems often continue once the problem tenants have gone. Enforcing debts after judgement is hugely bureaucratic, often with little to show for it or repayment in small amounts over a very long time.

One does not have to be Einstein to work out that the main problems within the rental sector are to do with bad tenants rather than bad landlords. It’s an issue that could be sorted if the regulators that are so keen to come down hard on landlords, came down hard on tenants.
Some people avoid all of these problems by having a property manager look after their investment. That too is not without its frustrations, but that’s another story.
Last week the Labour Party announced it would introduce changes to KiwiSaver, should it be in control come 20 September. It is no surprise that further changes are in store for KiwiSaver – it’s far too big for politicians to ignore.
Labour’s scheme is to:
  • Make KiwiSaver compulsory for wage and salary earners. It would be optional for the self-employed.
  • Employee contributions would progressively increase from 3% currently to 4½%. This would be matched by the employer, so the savings contributions would be 9% in total.
  • The Reserve Bank would be given the power to vary the KiwiSaver contribution rate as an alternative to increasing or decreasing interest rates via the Official Cash Rate.

In my view New Zealanders are so bad at saving, particularly those who most need to save, that compulsion is the only way to create a reservoir of savings. So many people are already members that making it compulsory is no big deal anyway. The real benefits of the scheme come with time. Within another decade the savings pool would be big enough to funds the things that are financed by offshore capital at present (25% of all mortgage lending for example is financed from offshore). The danger for employers is that they alone will be called upon to make the bulk of the contributions in the future, something no doubt the anti-business members of Parliament would be encouraging.


paul scott said...

yes Frank. The myth of the greedy landlord . Especially here in Christchurch. Once you do the journal ledger of your leased/rented property you will get a fright. Then add in costs of your own labour and your eyes will glaze over.We rent our home out here to Earthquake refugees while we go overseas. It is imperative for me to have a good agent who cares for the tenant.
I often used too put up the figures, to show how I lost money and lots being a fastidious land manager owner.
Gerry Brownlee down here is acquainted with the facts about returns and profit/loss on property

Brian said...

Perils of being a Landlord.
If you think New Zealand is tough on Landlords, you should try Britain. Here since the advent of the first Socialistic “Labour” Government after World War 2 being a Landlord is a risky, if not uneconomic occupation. That is, if you are situated within the bounds of a Labour dominated Council whose sympathy for non payment of rents is just about nonexistent.
But overall their infamous Rent Restriction Act could have been taken straight from Lenin’s book on “How to destroy the Capitalistic System by the weight of Bureaucracy”.
Landlords as you say Frank are a despised breed, basically set alongside second hand car salesmen, our environmental police, and the Nanny State. I do however agree with the main thrust of your Blog, with the exception of the last paragraph.
Here you state that New Zealanders are bad savers, true but just what incentive is there to save? Kiwi Saver is promoted to give people a sufficient income on retirement. Good idea, except for the single and most important factor which is left out of this equation.
In forty years time will what has been saved thru Kiwi saver be enough to give people the same equivalent lifestyle now enjoyed?? If this is the case why then are retirement Government employees still on an inflation adjusted pension?, and why the need anywhere for such an adjustment?
Surely the supporters, proponents, and political parties of Kiwi saver should have the enough faith in this system of saving to place all retirees on the same equal basis. I therefore question your statement regarding offshore capital due to the fact that we do not know how much part inflation will play out in our future. But wholeheartedly agree that whatever the outcome, it will be the employers who will foot the bill.
After all elections have to be won and the lure of office, “The Wellington Fever” remains a dominant factor in Political thinking whatever the circumstances.
Brian said...

My biggest concern is that the Employers portion equates to an unofficial pay rise. This actually distorts the pay statistics as it is not included. ie: A worker must get a minimum pay figure by law but you can increase that figure by 3% currently. I wish I could get a 3% increase in turnover to help pay for it. If they will not or cannot save it should not be forced on others to make it happen. Essentially they are saving the employers money, not their own.

Unknown said...

Re the landlord issue: I imagine that most would agree that any investment involves an element of risk.
I would also imagine that most rental properties are purchased as investments...
Where's the problem?
As a long-term renter, I can agree with Paul Scott's comment about the necessity for good property managers. Why would you try to save approx. 8% of the rental income by not using one?
As a tenant, I'd far rather deal with a property manager who is realistic about factors such as genuine wear and tear, and market rentals, than some bunch of clowns who expect to profit immediately from their latest purchse, without the need for spending anything on R & M.
Fortunately for me, I'm blessed with both a good property manager AND realistic landlords, unlike some others I know...
On the Kiwisaver issue, I know I can very safely say that my employer gets more than 3% of unpaid overtime out of me. About 6.5 hours so far this week, seeing as you asked.
If you can't run a viable business, because you haven't factored in all the costs, (and allowed a realistic amount for contingencies), then I'd suggest that perhaps your business is already in some difficulty.
3% pay rise? I don't actually think so.
And as for "saving their employer's money, not their own) ok, run the business without them and see how much "employer's money" you end up with.
It's been said before, but your staff are your biggest asset.

Anonymous said...

I was a landlord, we did make money out of properties, but only On resale,like any house. The rent paid the interest on the mortgages.We purchased only homes that were of a standard that we would happily live in ourselves, in good areas,Then tried to get good, white families in.
I was not racist once, but after dealing with Indians, Maori, Islanders etc, I am now!
We used an agent once, in PN, never again!The house was trashed to the tune of several thousand dollars, (Maori tennants), I got awarded 0ne thousand by the tribunal, and of course, they vanished & I am still waiting.
The tribunal is worse than usless,& to make matters worse, (read the fine print, landlords)I could not take action against our totally negligent agent!

paul scott said...

Everything starts with ethics
[ replies to Frank, and anonymous above].
I give the tenant a good start. It costs me in time and money and effort.
About agents: well I get my best friends to look after the tennant on a regular weekly basis. I pay that agent. Most times when Igo back to Bangkok it costs me maybe $1000 for 6 months, that is a cost, but my tenants do not destroy our property. I mean I pay upfront to friend agents.
These people will come into your house and look after the tennant.
This is important. There is more and i will write later