What Charity are you Supporting?

Many landlords are happy to take less than market rent from their tenants because they are doing them a kindness, they like the tenants, and they don't want to be greedy, and they don't want their tenant to move out.

These are wonderful and admirable qualities.  It does tend to result in very long term tenancies, as lets face it, who wants to give up a very sweet deal?  Tenants are well aware of where their property sits compared to similar properties, and know when the rent is very good compared to others.

I know a tenant who has a four bedroom home in the Capital city who pays a mere $200 per week, when market rent is over $650 per week.  How long has she been there?  15 years and counting.  Does the tenant know how much she'd need to pay if she moved out?  Yes, she's well aware she'd need to pay $350 for a one bedroom place, let alone what four bedroom is worth.  This happens a lot more than anyone wants to admit.  It's a lot of support landlords give their tenants.

I wonder though if the support landlords give their tenants could be better used elsewhere.  Supporting more causes, doing greater good.  Making the world a better place.

Lets look at this in a bit more detail.  If you rent your property to someone for $50pw cheaper than the neighbours rent an equivalent property, you are effectively handing your tenant a gift, tax free, of $2,600 per annum.  Over 10 years that's $26,000, or with compounding interest at 7.2%, closer to $50,000.  That's a lot of money!

What could you as a landlord do with that money?  What does your tenant do with it?

How many 'One Dollar a Day' charities could that support?  Answer: 137 families fed and lifted from poverty.

How many families are supported when a landlord discounts their rent?  Answer: 1.  What do they do with it?  Who knows!  It could be supporting a charity, or it could be spent at the pub.  It's not in your power to choose.

$50 per week would make a huge difference to an animal shelter, protecting wildlife, feeding kids good food, clothing those who need it, programs for disadvantaged youth, researching cures for disease.  There are lots of great uses for your funds surplus to your requirements.  Why would you not want to be in control of where it goes?

Now imagine how much that would be if every landlord of the estimated 300,000 rental properties in New Zealand did the same.  

How much good do you think three quarters of a billion dollars do?

Off-peak letting vs in-peak letting.

I'm a big fan of fixed term tenancies, as long as they end at the right time of year.  If they don't, landlords are doomed to suffer financially.

Why?

Firstly, it takes longer to rent a property when fewer people are looking, and Wellington certainly has a season of many people looking vs not many people looking the rest of the year.

Secondly, in off-peak, the proportion of high-risk tenants to low-risk tenants is higher.  So, while 8 out of 10 may be excellent in peak season, in off-peak season that may be only 2 out of 10 people.  You have a choice of taking a high-risk tenant knowing you'll be paying for it with rent arrears and damages, or wait for the great tenant when they finally come along, resulting in longer vacancies.

Thirdly, landlords know it can be hard to attract tenants in the off-season, so lower their rents.  This means you could get less money for your property than it would be worth in peak season, when the laws of supply and demand mean higher rents are easier to get.

We know someone with a property that has fixed term tenancies to peak season, but their tenants for the last few years have broken the lease late in the year, in off peak, meaning the usual process of advertising the property is disrupted.

Outgoing tenants usually accept the landlord going 'oh, you are leaving?  I'll put the rent up for the next person then', unless that tenant is responsible for finding the new tenant as they are breaking their fixed term.  In this circumstance, they see it as a hindrance for replacing themselves, and argue against it.  Ordinarily this may be no big deal, but bear in mind it must be 6 months after the tenancy begins before a landlord can increase the rent again, so this slows down the usual pattern of increase.  You may have been just about to do a rent review in the current tenancy when they leave, and instead of realizing its planned review, see it as a barrier to replacing themselves.  You need to decide if it is worth the hassle of arguing the point, or just take the hit.  Many just take the hit and keep rent the same.

If this happen for several years in a row it compounds the effect.  Take two properties next door to each other.  One has the leases end at peak season, and has long term tenants who have regular rent increases.  The other keeps ending at the wrong time of year, and has all the above inhibiting factors on the rent discussed above.  Which property performs better financially?  The one with regular increases of course.  It may be $50 per week or more better than its neighbour after a few years of market forces and stroppy outgoing tenants effecting the rent.

It's only quietly on the market

With the recent boom in house prices it is natural for investors to consider if this is the time to sell their property.

One of our long term clients rang us recently to let us know that they were going to get a real estate agent to go through to appraise their multi-unit property as the agent had recently sold a similar property nearby for a surprisingly large amount of money.  
"Is it going on the market?" I asked our client.  

"No, I'm not selling it.  Of course, I will if they can bring me an offer to match the other property.  They won't be marketing it or anything, they'll just be talking to the buyers who missed out to see if it will suit them, and if so, then hey, we'll sell."  The owner commented casually.  

I confirmed my understanding that "the agent is just doing an appraisal, nothing for us to do but arrange access for this?" The owner agreed, so we did.

A week later, I'm filling our client in on a prospective new tenant and I asked him if he was going to list it.  "No," he says, "They haven't brought me an offer yet, so no, I'm not selling it, let's carry on as if I am going to own this property for the rest of my life, which was the original plan".  

"OK, tell me if anything changes as we'll need to notify tenants if it goes on the market" I sign off.

So, we carried on as usual, organizing some maintenance work we agreed on, and proceeded arranging a sign-up with the new tenant for the available unit.

On the day we are due to sign up the new tenant, we get a call from the real estate agent.  "I want to bring a buyer through, can you please arrange it with the tenants?".  Hold the phone, we thought it wasn't being sold, so I called our client to ask what was happening.
"Oh yes, that's fine, they can go through" he said.  

"But is it on the market or not?" I asked, "we legally need to notify tenants if so*".

"I'm not getting the agent to advertise it, it's only quietly on the market, so no it's not on the market as such" declares our client.

"We can't deal in ambiguity, or more importantly, the law can't.  Have you, or have you not, signed a listing agreement with the real estate agent?" I asked as patiently as we could.
"Oh yes, I signed one several weeks ago for a ninety day period, but as I said, they are not doing any marketing" says my client, blissfully unconcerned.

"Then it's on the market" I say, holding my head in my hands for the breach of the Residential Tenancies Act that has been unknowingly committed. "The advertising isn't the defining factor; you've authorized someone to sell your property for you.  Therefore it's on the market.  I'm notifying your tenants straight away."

My client kindly assures me "Tell my tenants not to worry, I won't sell it unless I get the price I want".  I mutter darkly that this is hardly reassurance, few people sell without getting the price they wanted, but assure him we have a polite and calming letter for the very purpose, and as soon as I am off the phone I am sending it to his tenants, including one to present to the new tenant I am due to sign up in 20 minutes time.  Boy was he surprised, but took it rather well, and proceeded to sign the tenancy agreement.  I was less inclined to be unconcerned about it, given we do all we can to keep clients out of trouble, and this one just landed themselves in a particularly messy spot.

Two days later, the day I am due to do the initial property inspection with the new tenant, I receive another call from the property owner.

"Guess what?  I've just signed a sale and purchase agreement.  Settlement is in three weeks time, the purchasers will be doing their due diligence next week, help them out won't you?  I've told them they need to use you guys for managing it, you are the best!".

I can only hope they are better at keeping us informed of important things like this.


* See Residential Tenancies Act 1986 Section 47 for more details of the law that applies here.

Lesson:  Knowledgeable property managers to help save you from mistakes that may land you in hot water, but you need to tell them exactly what is going on for them to be able to do so.

Unforeseen Trouble in your neighbourhood?

If your tenant is a victim of crime, is this an unforeseen change in their circumstances which may result in them breaking their fixed term lease early?

I'm currently waiting on the outcome of a Tribunal hearing to find out.

Some people would consider having their car broken into as a reason to move away from an area as soon as possible.  Others would shrug and say 'that the roulette wheel of life, could have happened anywhere'.

If you have a tenant in the former category, and you are firmly in the latter, your tenant will probably find you unsympathetic to their cause.  But will they win over the sympathy of the Tribunal should they wish to break their fixed term tenancy early?  

The Tribunal does not need to feel that the hardship caused by an unforeseen event is severe for a reasonable person, but that it was severe for the person affected.  So if that person is a drama queen, their drama is real for them, even if the rest of the world is rolling their eyes at their thespian antics.

I personally can't understand it when people make a big deal out of a small issue.  I'm not cut from that cloth and I'm told I have a higher tolerance to stress than most.  I'm pretty hard to panic, it really needs to be life and death for me to get that feeling of 'OMG what am I going to do?', which is why I am so good at first aid.  I don't like feeling that way, so I prepare and practice.  (I'm definitely one to have on your team when the Zombie Apocalypse happens; the only question is, are you one I want on mine?).

If you have always lived in a plain, foothills will seem as high as the Himalayas to a mountain goat.  What do the Himalayas look like to an astronaut in space?  A wrinkle on a tablecloth?  Problems are all a matter of perspective.  

It was suggested to me today that landlords buying property in a particular area should expect problems with crime, and their tenants wanting to leave as a result, and it is a risk they should bear.  I wish I'd retorted that tenants wanting to live in a particular area should expect problems with crime, and their landlords wanting them to stay in spite of it, and it is a risk they should bear.  If an area has a reputation, is an event in keeping with that reputation unforeseen?

I will find out when the order comes.

Osaki sucks for Landlords

This Osaki case is no end of trouble.  If you've not heard of it, if you are a landlord you probably soon will.  The Osaki's burnt down the rental property they lived in when they left an unattended pot of oil on the stove.  They didn't have insurance cover themselves.  They then refused to be held responsible for their careless negligence, stating they should have advantage of the landlords insurance cover.  The landlords insurance company took them to court, and, unbelievably and against all understanding of all that is fair and right in the world, lost.

I think however there have been a few assumptions made in the decision which need to be addressed, and also there is a huge gap that the Tribunal has not recognised.

First the assumptions.  Reading the Court of Appeal decision, paragraph 36 states that the tenants effectively pay the insurance premium for residential landlords through rent.  I guess the judge in this case had never heard of negative gearing?  Or thinks all landlords live off the proceeds of rent and don’t have other jobs which keep everything afloat.  For investors like me who realise some years will be losses and some will be profits, I am often forking out in the loss years to cover expenses.  All sorts of things can change, such as Government policy changing deductibles (e.g. loss of depreciation), increases in expenses like rates, insurance or interest rates; or doing a lot of maintenance like painting.  It’s pretty hard to say with conviction that the insurance premium is always covered by the rent, even if nothing else is.

In Paragraph 53 they say that the cost of insurance is factored into market rent.  Umm, I’m pretty sure I’ve never heard a residential tenant offer rent for a property based on the landlords outgoings.  Rather, it’s determined by what the landlord next door is charging – and they may choose not to have insurance, and may have owned the property for 50 years, so are not worried about their mortgage repayments or insurance premiums, unlike their neighbour.   The decision then goes on to say that if the premises doesn’t attract a sufficient return then it will not be on the residential tenancy market.  Yep, property is such a liquid asset.  Oh wait, no it isn’t.  But the landlord who can’t get enough rent to cover their outgoings can always sell it at a profit to cover their debts on the property, can’t they.  Oh wait, that also is not always the case.  If it were, developers would never go broke.  So what are they thinking of here?

Landlords certainly suffer because of a lot of assumptions.

The huge gap in the decision now:

The Osaki case talks about insured peril, like fire and flood.  As far as I’m aware all insurance policies cover fire, it’s the mainstay of policies, which is why the Osaki’s had the benefit of the landlords insurance cover, as they had cover for that peril of fire.  I am yet to see a peril identified in an insurance policy as ‘4 year old spilling drink on the carpet and nobody bothering to clean it up’.  I am yet to get clarification on the definition of ‘insured peril’, and I think it is particularly relevant for most landlords who suffer losses from careless and negligent tenants.  While I’m not keen to see long lists of what is and isn’t included in a policy, I’d like a peril to be a bit more defined than ‘accidental damage’.

As for the excess, I note commercial leases, which are based on the Property Law Act, of which the Osaki decision draws, require tenants to pay the insurance excess, as this is the amount that the landlord is not insured.  As Housing New Zealand is not insured, they can pursue their tenants for the entire cost of damage, all landlords should be able to claim the excess on their insurance policy as an amount they don’t have insurance for.  I don’t see what the difference is between having no cover whatsoever, and having cover for amounts over the excess eg $550 of damage.  The first $550 in either case should be the tenants cost to bear.

The Osaki decision also makes reference to Acts of Parliament correcting judge made law.  When will we see an amendment to the Residential Tenancies Act to correct this particular judge made law?

It is costing the insurance industry and landlords millions of dollars and there is no personal responsibility by tenants for careless or unintentional damage anymore, no matter how sever.

I welcome your comments on this post, and urge you to discuss it with your MP.  

People forced to live in garages?

I’ve read and heard so many articles about just how bad the housing crisis is that people are forced to live in garages and emergency accommodation at great expense.  What I haven’t heard is ‘why’.  Oh, I hear that it’s because there is a housing shortage, too many migrants, too many greedy investors, too many houses being sold and so on.  But that doesn’t really answer why some people are in emergency housing and desperate situations, yet others are not.  Am I missing something?  I’m not hearing why people are not still in the houses they were in before things hit the fan.  Contrary to popular myth, most landlords don’t like tenants leaving and needing to find new ones, it’s a sometimes stressful and expensive exercise full of risks for both landlords and tenants. And yet, the myth persists that landlords kick out tenants at a whim and without much notice.  There is more to this story that is not being spoken about.  And why isn’t it?  

I believe there is an unspoken bias in the media which says ‘tenants = good, landlords = bad”.  While I am sure there are plenty of people who are blameless for what life throws at them (most accidents and sickness for instance), I find it hard to believe they make up the majority of people in emergency accommodation.  The questions I want asked in these reports is if they paid their rent on time and in full, if the landlord took them to Tribunal or issued a 14 Day Notice to Remedy some matter.  I bet what we will first hear is a whole lot of complaints about greedy landlords in substandard housing, but if the journalist persists with the question, I believe a lot of those in ‘housing crisis’ ended up there because they didn’t meet their half of the bargain, i.e. they didn’t pay their rent, disturbed the neighbours or other tenants, caused damage or some other big no-no.

How do I know about it?  Because people come to me with their down on their luck stories, and I ask them. I eventually hear that they did something they shouldn’t, or didn’t do something they should.  It always comes back to something within their sphere of control.  Victors or victims seem to differ in that one takes responsibility for their own selves, the other blames the world or their luck.  I believe psychologists refer to the internal or external ‘loci of control’ – what we believe to be guiding our lives.  Is it within us, or without?  If you have ‘bad luck’, why let someone or something else guide your less than optimal fortune?  Surely it’s time to do the steering yourself?

People forced to live in garages?

I’ve read and heard so many articles about just how bad the housing crisis is that people are forced to live in garages and emergency accommodation at great expense.  What I haven’t heard is ‘why’.  Oh, I hear that it’s because there is a housing shortage, too many migrants, too many greedy investors, too many houses being sold and so on.  But that doesn’t really answer why some people are in emergency housing and desperate situations, yet others are not.  Am I missing something?  I’m not hearing why people are not still in the houses they were in before things hit the fan.  Contrary to popular myth, most landlords don’t like tenants leaving and needing to find new ones, it’s a sometimes stressful and expensive exercise full of risks for both landlords and tenants. And yet, the myth persists that landlords kick out tenants at a whim and without much notice.  There is more to this story that is not being spoken about.  And why isn’t it?  

I believe there is an unspoken bias in the media which says ‘tenants = good, landlords = bad”.  While I am sure there are plenty of people who are blameless for what life throws at them (most accidents and sickness for instance), I find it hard to believe they make up the majority of people in emergency accommodation.  The questions I want asked in these reports is if they paid their rent on time and in full, if the landlord took them to Tribunal or issued a 14 Day Notice to Remedy some matter.  I bet what we will first hear is a whole lot of complaints about greedy landlords in substandard housing, but if the journalist persists with the question, I believe a lot of those in ‘housing crisis’ ended up there because they didn’t meet their half of the bargain, i.e. they didn’t pay their rent, disturbed the neighbours or other tenants, caused damage or some other big no-no.

How do I know about it?  Because people come to me with their down on their luck stories, and I ask them. I eventually hear that they did something they shouldn’t, or didn’t do something they should.  It always comes back to something within their sphere of control.  Victors or victims seem to differ in that one takes responsibility for their own selves, the other blames the world or their luck.  I believe psychologists refer to the internal or external ‘loci of control’ – what we believe to be guiding our lives.  Is it within us, or without?  If you have ‘bad luck’, why let someone or something else guide your less than optimal fortune?  Surely it’s time to do the steering yourself?

On the Market: Should tenants get a rent reduction if you are trying to sell a rental property?

From time to time clients will sell their rental properties.  When we notify the tenants, I often am asked “Is there any sort of compensation/rent reduction while it’s for sale?  We have been through this before, and the rent was reduced while on the market.”

The best way to handle tenants expectations while the property is on the market is to: 
a) have a good rapport with your tenants from the beginning 
b) keep them informed during the process – uncertainty is the biggest issue for most people
c) have a great real estate agent who understands how to work with tenants regarding both parties rights and responsibilities 
d) do what you can to have a short marketing campaign 
e) say thank you sincerely.  A card and small gift (wine or chocolate, but not a whole shop full) is often sufficient.  Don’t give cleaning products – it’s not saying anything good.

As for decreasing the rent, my automatic answer is ‘No’.  Why?  There are many reasons.
1. Investment properties value is connected to the rent received.  If the rent being collected is not the same as stated, it could jeopardize the sale, or the price.
2. It is an inherent risk for tenants that properties they live in are sold.  If they want to control that process they should consider carefully if they want to be tenants.
3. If tenants are on fixed term tenancies, there is little risk their tenancy should end when the sale goes through.  As a buyer I’d look less favorably on tenants who want a rent reduction at every opportunity, and would be less likely to renew their lease.  
4. Periodic tenancies have the ultimate power when the property goes on the market.  If they don’t like the open homes, they can move with only 21 days notice to the landlord.  That’s good motivation for landlords to keep tenants sweet, but there is nothing to prevent them moving even if the rent is slashed to nothing – tenants can’t contract out of their rights to 21 days notice, no matter what landlords offer in return.
5. The tenants are not doing you a favor by having the property clean and tidy for the open homes.  That’s a basic requirement of tenants in the Residential Tenancies Act.
6. Tenants are not doing you a favor by allowing open homes or viewings by appointment. Again, they are required to give reasonable access by the RTA.
7. Tenants don’t need to be there, or need to go out, while the property is being shown to prospective purchasers.  They can carry out their normal activities while purchasers are looking around, so no disruption is necessary.  This has led to some awkward and funny situations, but there is only their own modesty to stop them.
8. Some tenants express concern about their stuff being stolen when prospective purchasers view the property.  I don’t know of any property or real estate agent that has actually had this happen.  Reducing the rent won’t cover this anyway.
9. If landlords are realistic about the price they would like to see, and choose a good real estate agent to get that, the property won’t be on the market long if the tenants are meeting their obligations.  The less time on the market, the less disruption to the tenants.
10. If your tenant is adamant they won’t cooperate unless they are compensated, why would you give in?  Never negotiate with terrorists, it just breeds more.  There are ways to deal with this, ask us if you need to know more.

Just because others are doing something doesn’t mean you should.  Any tenant (or Adjudicator) telling you ‘most landlords reduce the rent’ is trying to get you to bend to peer pressure, when is that a good thing?  Instead gently ask what the issues were they experienced last time, and let them know what you intend to do to prevent or minimize those issues.  If more landlords automatically drop the rent whenever they want to do something, the harder it is for all others in our industry to enforce rights enshrined in law.  So, think of your peers and don’t agree to drop the rent.

Some property managers react to properties going on the market as a slight, and a threat to their income.  They hinder the process by not providing the information required in a timely manner, or just refuse to help.  If this has been your experience, deal with people who realize you will adjust your portfolio from time to time and want you to be financially successful.  Those are the property managers who know you and all your friends will be coming back, because they help you make more money and make it with pleasure.

Slimy pile or rich resource?

How do tenants dispose of lawn clippings?  Does your property have the classic pile of grass and weeds, and probably rubbish mixed in, in the corner of the section, up against the fence?  If the answer is yes, guess what?  Your fence is going to rot, and you will get more rubbish, more slimy grass, and more pests at your property as they burrow and breed in the slimy heap.

What can landlords do about it?  Well, we can ask tenants, tell tenants, show tenants, but we can’t force them to do the right thing.  I find it is often better to make it so easy to do the right thing, the wrong thing is too hard to bother with.  

Grass clippings and garden waste are a valuable resource and a good source of fertility for your soil.  If like me you’d rather not spend money on fertilizer and removing waste, but rather efficiently combine the two, try this.  

At your property build a compost bin (open at the bottom so earthworms can munch on the goodies within) or a raised garden bed of at least 1 cubic meter of capacity.  If there is a lot of lawn to mow, and so a lot of clippings, make the boxes bigger.  Locate them near trees you want to feed and make healthy (e.g. fruit trees), and encourage tenants to put clippings and veggie scraps there.  Your trees will thrive and you’ll no longer suffer the slimy pile by the fence.

For advanced compost management, tenants can add coffee grounds, small twigs, leaves, poop from their pet rabbit or guinea pig, cardboard and paper, and ash and lime.  I find most people have no idea about gardening though, so if they don't have a natural inclination and curiosity in this area, don't encourage creative composting. It will just become a rubbish pile, exactly what you were hoping to avoid in the first place.  Stick to the lawn clippings, and they shouldn't go too far wrong.

WINTER is coming

It’s a good time to update insulation, heating, and thermal drapes to keep your properties snug and tenants healthy.  While some landlords may not see the benefit of insulation in properties they don’t live in, they do see the benefit of rent being paid.  Insulation is an investment by the landlord to receive regular rent payments.  Cold tenants become sick tenants.  Sick tenants need time off work.  They run out of sick leave, then holiday pay, and start taking unpaid leave, which soon means missed rent.  Their irregular attendance means employers overlook them for promotions, which compromises the landlords ability to put rent up and get it paid.

You don’t need to be entirely self-serving as a landlord to insulate your properties, you can also do it out of respect for your fellow human beings, caring for the environment, and lowering demand on our power generation infrastructure.  
From 1 July, new tenancies need to specify the amount of insulation in the property, which is yet another reason to insulate.  Over time, this will influence the vacancies your property experiences, as tenants choose properties on their thermal performance, which has a direct result on your investment return.

Whatever your motivation, it’s time to insulate.  If you want assistance with this or any other matters relating to managing your properties, come see us at Rental Results.   Phone for an appointment 04 4711880.

PS. Forgive the Game of Thrones reference, it's Monday night, and I'm off home shortly to watch the latest installment and think how fortunate we are it is all make-believe. Tempting though it is to deliver 'the Kings Justice' on deserving people from time to time, imagine the cleaning bill for the carpets.

Ten tips on how to pick great tenants

Oh if we investors could choose tenants perfectly every time, how easy it would be to be an investor!

First you need to attract the right tenants to your property.  See our post on advertising for a few key pointers on this.  If you find everyone who inquires is on your 'no way, no how, not ever' list, then you either need to change the property ad, change the price (upwards is my recommendation), or change your property.  For the purpose of this post, I'm going to assume there are at least a few decent seeming sorts who are keen to take it.

There are the things that are desirable and should be sought, and things that are undesirable and should be avoided.  This list covers typical areas where people make tenant selection mistakes, in no particular order of priority.

1. Steady means to pay the rent.  I don't care if this is a trust fund or a job or running a business or a benefit.  What I do care is that it is approximately three times the amount of the weekly rent.  Any lower ratio that this and tenants are likely to get into rent arrears when unexpected expenses pop up, like needing work done on their car.  Much higher than this and you've got to wonder why they want somewhere so cheap for them.  Ask.

2. Stable household structure.  This means couples that have been together a while (rather than first time playing house), friends who have known each other for years (as opposed to 'flatmate wanted ad' friends), established families, or a single person who intends to stay that way.  Nothing means another vacancy sooner than a household relationship that implodes.

3. Longevity at their previous properties.  If they stay a long time at each place they've lived at before yours it suggests stability in all aspects of their lives.  Be cautious if that stable address was with Housing New Zealand however, as market rent and household budgeting might not have been a feature of their tenancy.  Avoid people who flit around from property to property.  This is only OK for people who are new migrants and had temporary accommodation provided by their employer before moving into a permanent place.

4. References from former landlords.  If they don't have these, really consider if you want to take them.  The exception is for first time renters who have parents willing to guarantee them, homeowners who are now renting, or new migrants.  Everyone decent will have someone who is willing to vouch for them.  Always.   If they don't, and don't have a verifiable good reason, don't take them or you'll be another name they avoid giving to other landlords.

5. The right number of people, pets, and vehicles for the property.  If your property only has one car park, and five vehicle-mad men apply to live there together, it's probably not going to work for the neighbours or your lawn.  Don't allow tenants to pack in extra people to save them money, it's not their budget that should concern you.  If they want more people than you do, don't take them, or negotiate the rent upwards accordingly as you will have a lot more wear and tear.  If you don't want pets, you don't have to take them.  If your property isn't suitably fenced for dogs, don't accept they will have them tied up, it's not good for the dog or your garden.

6. Non smokers.  Yep, sorry smokers, yet another way you are discriminated against.  Lets face it, your peers who think smoking outside is leaning out a window have let you down.  I've also had applicants who were moving because their house burnt down.  What started the fire?  A cigarette butt flicked into the garden.  Nope, we didn't choose them to be our tenants, alarm bells were ringing, and I don't just mean the fire alarm.  The exception to the non-smokers only rule is if the smoker has young children and a non-smoking spouse.  They really will smoke outside for the sake of their family, almost guaranteed.

7 People who have the whole household show up to view the property.  Parents who bring their kids, couples who both attend, and all flatmates who come to view are all much better bets than those who elect a representative to make the choice.  With parents you get to see how effective their parenting is and therefore how much damage you might be facing from rampant children (I sawa kid break three things before his oblivious mother finally got the increasingly strong hints to leave!).  For couples you don't need to worry if the partner is a gang member, or highly strung.  For flatmates, you don't need to worry about disagreements about who gets what room leading to disagreements on who cleans the loo and puts rubbish out, or worse.  Check the vibe in the household.  If they seem to hang well together, you are probably onto a good thing.

8. People who remove their shoes and don't park in the driveway when they come to see the property, and look you in the eye when they say hello.  Respect for you and your property here speaks volumes about how they will treat it going forward.  You don't actually need to hear them say 'be gentle, it's a rental' if you see them acting that way.

9. People you get a good vibe from.  Trust your gut.  Weirdo's should be apparent.  Don't accept tenants who make you think 'what the??' when you meet them.  Be careful not to discriminate unfairly though.  I once met a gentleman with a full face moko at a busy property showing.  On speaking to him I discovered he was a man of high mana in a respected position in the community, and doing great work.  I could have easily dismissed him as a gang member.  My gut said 'yes' so he got the property and was an exceptional tenant.

10. No sob stories.  You are not a charity.  Don't make someone else's problem your own.  Yep, people sometimes have bad luck, but mostly people create their own luck with how they react to what life throws at them.  Are they a survivor or a victim?  People can change their luck, but you won't be able to change it for them no matter how hard you try.  Don't give your property to someone you feel sorry for.  Talking with someone in the Tenancy Tribunal scheduling team I discovered just how often they see situations go to Tribunal where a landlord gave the property to someone they wanted to help, and it went badly.  I have to wonder how many more the Tribunal didn't see because the landlord kept their charitable blinkers firmly in place and lost out to a bad tenant who, unsurprisingly, suffered more 'bad luck'.

And a bonus tip because I'm feeling generous:  People who have a good credit score and clean tenancy history tend to stay that way.  Be careful before you take someone who doesn't.  See point 10 above as to why.

These basics work very well for me and my team.  Perhaps you think we are being too harsh?  Maybe, but we have a duty of care to look after our clients properties well.  You also have a duty of care to your family, your bank, and yourself to choose great tenants.  If you want to be a long term landlord, be careful who you trust your very expensive asset to.  If you had a Ferrari, who would you give the keys to?  I'm guessing that list would be pretty short.  Your investment property is worth about the same, so why would you risk it?  Don't worry about those you reject.  I hope in time they will get the hint they need to change how they behave to get what they want, and that will be better for landlords and tenants everywhere.

Perhaps you are wondering how to get all that information?  Yep, you could seem like a creepy landlord if you try to interrogate the information out of tenants.  Become a master of non-judgmental 'tell me more' statements.  Being a Chatty Cathy works wonders to get people opening up and telling you their life story.  Listen closely and you might just find yourself the best tenant you've ever had.  Lets hope they feel the same about you!

How to advertise properties for rent

You've all seen them, the ad reads:

 "3Br, close to shops and kindy, open fire. Avail now, suit QUIET professionals. No pets or smokers. Bond 4 weeks, plus 2 weeks rent to be paid in advance."

What exactly is in this for the tenant?  It's a good property from which they can set up a sniper position to pick off preschoolers? (Read it again, hear the command).  Tenants who shout 'Quiet!' frequently would be great?  I once saw an ad that mentioned it was close to the bottle shop.  Were they seeking alcoholics in particular?  I can only wonder why.

Obviously there is a bit of an art to writing good ad copy.  There's also an art to taking great photos, but that a topic for another post.

Put yourself in your ideal tenants shoes.  Don't know what your ideal tenant looks like, or what their footwear preference is?  If that's the case, and you are genuinely stumped, we can help with that.  We love the challenge of making your property appeal to great tenants.

Who are great tenants?  Ones who pay the rent when it is due, don't damage the property in any way, keep it clean and tidy, especially when they leave, and don't annoy the neighbours or yourself.  Sounds fairly achievable really, anyone should be able to do that.  Sadly, they don't.  There are also nuances of great, and good copy gets the really outstanding ones excited to see your property.

How do we get to them?  We sell the property to them with love.  We seduce them with the aspects of the property that will give them the life they always dreamed of.  We appeal to their imagination and their intellect.  We flatter them.  We nurture their desire to be special.  We tap into their desire.

Exactly how do we do that?  Your property is more than the bricks and mortar that makes it.  It is the location, the aspect, the way it relates to its section and the neighbours.  It is the people around it.  It is how they get to work and play.  It is what makes your property fit in, and stand out.  It is the value as opposed to cost.  We tap into that and talk about more than the number of bedrooms the house has, because all properties have something to offer the occupant.

What we don't do is turn people off.  It doesn't mean lie or obscure bad aspects, but instead find the upside.  It has a lot of stairs?   "Save gym fees, get a great workout each time you walk to your front door".  Its got a tiny outdoor space? "Easy care courtyard makes weekends all pleasure, not work mowing"... you get the idea.  It's standard 'real estate speak', and it works.

Don't punish new tenants for the crimes of old ones.  Leave out the bits that clearly show you had a bad experience ("clean and tidy tenants wanted"), instead be the landlord you want to be, the one who has a great professional relationship with your tenants.  Make it clear your ideal tenant is the one that the property best suits.  This makes tenants put their best foot forward, and they'll be oohing and ahhing at your showings to show you they love it, and you'll love them.

I notice some landlords don't seem to love their properties.  While you should never buy an investment based on emotion, you should be excited about some aspect of it, even if that is the return it brings you.  If you truly can't find something about the property that could excite you or anyone else, have someone else have a crack at it.  We have a rule in our office.  If you don't love the property, you don't write the advert for it.  How you feel about a property will show in your writing, so we make sure we manage properties we have a reason to love.  And not surprisingly, we get lots of great tenants wanting to see the properties we advertise.

Things you shouldn't say in the advert include matters of bond and rent as they can be worked out when tenants see the property.  If you are adamant on no pets, then sure, have that in there.  Likewise you can discriminate about smokers.  Any other choices you make to thin out prospective tenants needs to pass the 'Human Rights Act'.  So, you can't say 'no children', or 'married couples preferred', or 'Christians ideal' or 'no Australians'.  Trust me, I've had thousands of tenants.  Good tenants, and bad, exist in every way age shape and form, so forget your biases.  You can't even say 'professionals' because that implies blue collar workers are not going to get a look in.  What you mean is 'someone who won't go into rent arrears', and again, that doesn't need to be said as it is an expectation of every landlord.  If you really don't want children in your property (and I honestly can't understand why not, there are good ones) then only buy one bedroom places and limit the number of occupants to one person only.  You can't reasonably limit the number of occupants in a three bedroom place to just one or two, so don't try.

We love using video to promote our properties, and we use it whenever we can to really get someone 'in the moment' of being there.  Again, there is an art to doing this well, which there isn't room to go into in this post.  Video really solves the problem viewers have of 'how does this photo relate to the others?' and you'll get committed prospects turning up to see it.

Make sure you have clear contact details so people can see the property and apply.  I've seen plenty of ads where the only way to contact the landlord was via email, which could be too slow for tenants looking at many properties at once.  What's wrong with taking some calls? A very successful landlord friend of mine has it down to an art and in under a minute can give prospective tenants all the key points they need to know.  We use a cool booking system to get tenants to property showings, it works really well to reduce no-shows and saves us buckets of time.

If you want to see examples of our great ads in action, please view our Trademe listings here.  If this doesn't bring up any properties, it's because they've already been snapped up by eager and awesome tenants.  Contact us to have the same happen for you.

When is a good time to do a rent review?

I've been asked to answer this question.  It's a good one, and my glib answer is: Any time, and all the time!  Think about it when shopping for a new property, refinancing, insuring, renovating, or any other prompt.  Every time you think about your investment property, you should be asking yourself, "is the rent at market level?".   

If the answer is "no", then I hope you are getting above the average for your area, and if not, you are resolved to do something about it!

Section 24 of the Residential Tenancies Act (RTA) 1986 is your friend here, and it says rent can be increased by Landlords every 180 days (6 months, to save you counting your fingers and toes) so long as notice is given in writing 60 days (2 months) in advance, and the amount of increase is specified.  So while you can review it in your head every day, you can change the rent the tenant pays every six months, with two months notice.  So, four months after the last increase took effect, you can tell them it's increasing again in another two months time.  Yay.

There are a few conditions on doing rent increases.  For instance, if you have a fixed term tenancy, you need to specify in the tenancy agreement that you can increase the rent within the fixed term (periodic tenancies don't need special wording).  Otherwise, sorry, you need to wait until you write a new tenancy agreement towards the expiry of the current one.  The RTA helpfully provides a few choices of wording to put into your fixed term tenancy to allow you to do so in Schedule 1.  Provision A is the best for most situations, so copy it word for word into your tenancy agreements.

The rent increase must be in accordance with market rent.  You can't just decide to double the rent, at least, not unless everyone else has done the same (or it has been far too long since your last review)!  The onus of proof of what is market rent is on you, so make sure you keep a copy of the information you consulted when assessing it for at least 3 months after the new rent is due, as it could be challenged.  Look at advertisements for similar properties to yours, and look on databases such as Tenancy Services.  Make sure you are comparing apples with apples, and you are fairly comparing your property with others.  Remember, some areas have a significant difference in quality of most owner occupied properties to the quality of most rental properties.  If your property is in the former rather than the latter category, add a premium as it will be better than most rentals.  Here's where it pays to inspect your property regularly too so you can be sure it's current condition measures up to the competition.  It's no good having your tenants move out and being unable to get the same rent you asked them for from anyone else as it is too run down.

Doing maintenance at the property to keep it in good condition makes it easier to do rent reviews.  You don't need to specify that is the reason you are increasing the rent, tenants will accept that you have outgoings which need to be covered.  If they like living in a quality property, they will pay for it.

You can increase the rent with the consent of the tenant if you make substantial improvements to the property which amount to a material benefit to the tenant, or you vary the terms of the tenancy to the benefit of the tenant.  So for instance, you could agree to install more efficient heating if the tenant pays more rent per week.  Or you could take over the tenants lawn mowing duties.  You can also increase the rent for unforeseen expenses.  For example, after the Christchurch earthquakes, insurance costs all over the country increased drastically, especially for apartments.  This cost could have been passed onto tenants, even if the last increase was less than 180 days ago.  You may need to get a Tribunal order to do so, but check out Section 28, 28A & 28B of the RTA for more information on this.

Should you haggle with tenants over rent?  I never agree to lowering the asking rent when advertising a property.  You know, the prospective tenant who says  "I'll be a good long term tenant, knock $50 off!".  My response is along the lines of "If I market it at $50 pw less, I'm going to have a queue around the block of tenants to pick from who want to stay long term.  Why should I choose you over all of them?".  This usually ends the debate, and they either agree to pay the asking price, or they go and bother someone else.  Either way, it's a win for me.  Trust me, the ones who negotiate a longer lease for lower rent end up breaking their lease early, or causing you pain in other ways.  It's a law of the universe or something.  It isn't personal, it's just negotiation.

If it's a current tenant who negotiates when I'm increasing the rent, there are a few techniques that can help make everyone happy.  For example, when a tenant says "but I'm a good tenant, why are you increasing the rent by so much?".  My answer is "I took that into account when looking at your rent increase, so I kept it as low as I could.  Imagine how much more it would be if I didn't appreciate you so much".  Or for a tenant who always wants to haggle, put it up more than you were hoping to get, and let them negotiate you down.  If you want another $10 per week, ask for $20, then be willing to yield to your desired increase.  What's the worst case scenario?  You get more rent than you hoped to.  Gee, that's terrible.  Just be sure your rent is still within the realms of market rent.  You don't want to do an ugly rent rise on a painful tenant only to have them take you to Tribunal over it and win as it was way out of the ballpark.  If you really want a bad tenant to leave, give them notice to do so.

What happens if you change your mind, or made a mistake on the notice?  You can withdraw your notice, or correct it as long as it was a genuine mistake.  So, you transposed some numbers or got the date wrong, no drama, just send an amended document as soon as possible with the correct information on it, and a note stating why this notice is different.  See Section 24(4) of the RTA for more on this.

A little known rent increase technique is to always vary the rent on the same day of the year.  I don't recommend this.  Nor do I recommend specifying in advance of the formal notice of rent review the maximum or actual rent you will be seeking, for instance, don't say in your tenancy agreement "the maximum rent increase will be $30 per week at each six monthly review".  You don't know what the future holds (Christchurch taught us that), but I'm pretty sure you don't want the future to hold a bank foreclosure on your property because you couldn't increase the rent to what it should be.  It might seem a pretty decent increase now, but what if the tenant stays there for the next 20 years?  $30 per week might be peanuts then, not worth your paperwork, so never be specific.  If tenants are concerned about rent increases in their tenancy, assure them rent must be within market levels and if it isn't, they can apply to Tenancy Tribunal for an assessment.  I'm proud to tell tenants that in all my years as a landlord with thousands of tenancies, I've never needed to go there for a rent review matter.  That generally sorts out any residual concerns.

If you think you are not getting the rent you should be, ask us for an appraisal.  We've made property management stress free and essentially cost free for many investors, simply by taking great care of their properties for them and increasing the rents to what they should be, in many cases, keeping great tenants happy in the process.  It is an art form, and we are happy to share it with you.

Twenty tips for renovating while a tenant is in your property:

Some tips for renovating while a tenant is in your property:

1. Make sure your tenant wants the renovation.  If they don’t, they won’t be so happy to tolerate the mess and inconvenience of it.  You might be better to have them move out first if they are happy with the status quo, or have other needs that will make a renovation difficult for them (e.g. asthma, young children).
2. Tell your insurance company what you are planning on doing and make sure you have cover in place.
3. Get consent where needed from the Council.
4. Keep all members of your team informed – don’t forget to tell your property manager and other parties the plans.  Listen to good advice!
5. See if the renovation can be done when your tenants are away on holiday.
6. Allow plenty of time for overruns.  If you think it will take 5 weeks maximum, tell your tenant it will be 8 weeks or more.  Better to be finished early than late.
7. Have any agreements with your tenant in writing.  Include what you are going to pay for power usage and any rent adjustments during and after the renovation.  Be clear on when those rent changes will occur - it could be a date, or an event like 'the painters have finished'.
8. Have a good budget for contingencies.  You don’t want to cut back on what you promised your tenant as unforeseen things cost more than you planned.
9. Ensure all facilities are working at the end of each day if the tenant remains in residence.
10. Have good contractors who understand the importance of a good relationship with the tenants, and won’t go off to some other job before yours is done.
11. Talk to all your contractors before the job begins to find out what their preferred timelines are, and what they need done before they come on site, and who else can or can’t be there at the same time.  Get a project manager if needed.
12. Do what you can to smooth the waters between the tenant and the contractors.  Take all concerns seriously.  Offer incentives to all parties to keep things sweet, such as rent discounts while work is going on.
13. Be prepared to spend money to get the job done faster, rather than soldier on doing it yourself.  You will save you money on compensation to the tenant later.  Don’t work late into the night if the tenant is in residence, be mindful of their need for peace and privacy.
14. Make the effort to do things that stop dust and mess spreading, and clean up at the end of each day.  Use your own cleaning tools, never the tenants.
15. Keep the workplace safe at all times – think about where the building materials will go, and any rubbish being removed.  Have suitable warning signs and barriers (and better yet, don’t do this in any households where small children are present).  Keep your building and building materials secure – you don’t want someone throwing your paint around where it isn’t wanted.  Consider installing a shed on the property temporarily to store your stuff – don’t take over more of the tenants property than absolutely needed.
16. Don’t leave them cold through Winter.  If possible, do major renovations when the weather is warm and calm.  If you’ve opened something up and the weather turns cold, a previously agreeable tenant will change their mind, to your cost.
17. Keep in mind, ‘what’s in it for them?’ – you getting a better valued property doesn’t matter to your tenant.  Them getting more comfort and cheaper living costs may be more appealing, so act accordingly.
18. Have a planned stop point.  It’s tempting to let one thing lead to another, but it can wait, really.  Plan where you will stop and stick to it.  You can always start another renovation in the future.
19. Either stick to what you have agreed with your tenant, or better the deal for them, but don’t allow yourself to be blackmailed by unreasonable demands.  If things go badly and you need to defend your actions, you will be all right in the end if you can show you had an agreement, and when unforeseen things happened, you acted quickly to make things better.
20. Keep the paperwork for 7 years.  You will forget the paint colour, or the details of the agreement with the tenant, or the contractor who offered the guarantee, so hold on to the paperwork until there is no other issues that could possibly arise from the renovation.