Article: Property Investment

Facts, Figures And Property Managers with Frank NewmanFacts, Figures And Property Managers with Frank Newman

Here are some tidbits from the “Interesting facts and figures” file.

• A third of New Zealand households are renting (589,000 households). In 1991 about a quarter were renting. It’s a growth market.

•  The average tenancy is around 12 months. Housing New Zealand tenancies
average nine years and five months.

•  The majority of tenant households rent from private landlords. Around 11 percent
(66,000) are in public housing.

• Most of the private landlords own one or two properties. They are likely to have
the highest debt to equity levels and most vulnerable to new government

• Ninety percent of applications to the Tenancy Tribunal are made by landlords. Of
those, 75 percent are for rent arrears.

• 34 per cent of private rental properties are managed by a property manager.

What is interesting is that while the government may have landlords in their sights, there are nine times more bad tenants than there are bad landlords.

Unfortunately that convenient truth appears to be overlooked by the media who seem fixated on publishing anti-landlord stories. My guess is the ratio of “bad -landlord” to “bad tenant” stories appearing in the media is the direct opposite of the reality as shown in the Tenancy Tribunal applications. That perversion is probably not unexpected, given not only the media’s bias against wealth creators, but the government’s over-active spin machine feeding ‘anti-landlord’ stories to the media.

That anti-landlord sentiment also reflects the organised nature of tenancy advocacy groups who passionately speak out on behalf of renters, creating more acceptable headlines than articles about the financial successful of landlords. These days, the perception is that anyone doing well has achieved their good fortune at the expense of others.

In fact, public odium now appears to be the norm for anyone who wants to do well for themselves financially. While entrepreneurship and financial success has always been the pursuit of a minority, nowadays it’s not only unfashionable to overtly pursue wealth, but it’s looked upon with some contempt. These days, altruistic and puritanical careers - like working for the Department of Conservation or as a planning officer for a local council - are more socially acceptable. Unfortunately the wealth creator seems to be a forgotten species, despite being the ones who pay the bulk of the taxes that fund the social services that everyone needs.

The fact that only 11% of housing is provided by the state, and the average state tenant stays about nine times longer than those in private sector tenancies. This may be because of the circumstances of the tenants, but may also be because state tenants pay “income related” rent.

Private landlords have a critical role to play in housing. This makes it even more surprising that the government is making life more difficult for them, and is potentially running the risk that they will scare off new landlords. The long-term effect of that would be that the supply of rental homes would grow at a much slower rate than demand, causing rents to rise.

The other surprising statistic is that only a third of private sector rentals are in the hands of a property manager, especially since managing tenants can be quite problematic, and there are now serious consequences if a landlord fails to meet their legal requirements.

The most common mistakes DIY landlords make are:
• Underestimating the amount of time it takes to manage a property well.
• Not vetting tenants properly.
• Not conducting quarterly inspections
• Failing to keep up to date with the ever-changing legal requirements (like smoke
alarms, insulation, etc).
• Not understanding their insurance cover, or not having adequate cover.
• Not collecting the full four weeks bond.
• Not getting onto rental arrears quickly enough.
• Deferring maintenance, and not responding to problems quickly.
• Charging less than market rent.
• Failing to budget for major repairs, and the costs to comply with new government

In my view property management is a job for a professional. I advise against a landlord managing their own properties, unless it is a primary source of income and they have the time to do so. I think more DIY landlords will come to a view that they are better off with a property manager, both financially and for peace of mind.

There have been calls for property managers to be regulated, but that will simply increase compliance costs, which will be passed on to landlords in higher fees, and potentially onto tenants in higher rents. It also seems futile to regulate an industry when two-thirds of all properties are not managed by a property manager. If there are “bad landlords” they are most likely to be DIY landlords anyway.

Frank Newman is the principal of Newman Property Consultancy. He is the author of numerous books on investment matters. For questions or comment about this article contact .(JavaScript must be enabled to view this email address)

Leave your comment