April 29, 2021

Property Investment
By: metronz

First, let me give a shout-out to all landlords. We know that most of you aren’t greedy or bad. If you follow this topic on social media, you’ll agree that landlords are getting a bad rap and that the rhetoric that landlords must endure has become mean and outright dangerous. The tame entries regularly combine “greedy” and “landlord” as though they naturally go together and on the other scale there have been significant threats. In our view this has been incensed and encouraged by the recent and divisive changes affecting landlords (and tenants alike). https://www.nzherald.co.nz/nz/brooke-van-velden-solve-housing-crisis-by-uniting-new-zealanders-with-good-ideas/LLFXW2SFFWLNQRWF6SLQMWNWVI/

Similar negative rhetoric came from the landlord lobbyists. There has been intense response to the recent tax changes. Some of the reaction was quite unnecessarily strong.

Rather than listening to social media or pressure groups, it is worthwhile to consider the position of the largest group of landlords; the “mom and dad” investors.

By far the biggest group of landlords are “Mom and Dad” Investors

Most landlords (well over 80%) have only one rental besides their own home. The press likes to call them “mom and dad” investors and that is probably an accurate term. Generally, they are not people that have wads of cash. With some equity in a home, “mom and dad” investors were able to invest in more property, especially if a portion of the mortgage is paid by the tenant. (This has become more difficult under the new rules). Most other investments require available funds that few “mom and dad” investors have or had access to.

Most “mom and dad” investors see their investment as some additional “passive” income once the mortgage has been paid off, usually when they hit around retirement age. The prospect of living on the superannuation alone is not palatable and providing for additional income during retirement should only be commended.

Remember that the wisdom that comes with hindsight did not exist at the time of their purchase and many of these investments were made with the backdrop warning of “busting bubbles”, and in one case we know of, against the explicit advice of their accountant. Those that say that investing in property is risk-free have probably never signed mortgage documents. That is true regardless of when the investment was made, even 30 years ago.

How “passive” is the rental property “passive income”?

Most investors learn quickly that owning rental property is all but passive.

On the financial side, many landlords subsidise rent to cover the mortgage and there are other on-going expenses. Added to that, the healthy homes act triggered expenses that were usually outside of the budget but still had to be covered. Consequently, many of our landlords take care of any maintenance themselves and end up sacrificing weekends to do that. Depending on the tenants, they can be unpleasant tasks that go well beyond maintenance. Many of our landlords do not have the budget to call in cleaners or a professional maintenance crew. They’re happy to put in the hours to make their investment worthwhile.

Landlord and tenant obligations

The last decades have been kind to property investors. In return, we believe that most “mom and dad” investors are keen to provide a healthy and pleasant home, in line with the new laws, without trying to cash in on the inadequacies of the housing market.

In contrast, to the belief that landlords are just riding a wave of luck, (https://www.stuff.co.nz/business/opinion-analysis/300284756/landlords-missed-a-chance-to-change-nzs-mind) we know that signing a mortgage, especially a second one comes, despite research and forethought, with trepidation and doubt. If returns were guaranteed, then more would have invested and fewer would have believed in bubbles bursting.

Some landlords don’t increase the rent during a tenancy, provided that the tenants look after the property. They understand the financial value in having good tenants. Perhaps, to keep rents low, reasonable obligations should also be placed on tenants, just as they have been on landlords.

Those obligations we believe, are missing from the latest rules.

We believe that few landlords deserve being labeled as greedy or lucky. Generally, they are hard working and smart and please note, that does not imply that we think our tenants are anything other than that.