A landlord’s dilemma: ‘If rent does not go up, we will sell up’
READER REPORT: We have been investing slowly in property for about 20 years and have half a dozen properties.
We have great tenants and are undercharging rent compared to the market in Wellington, where a five bedroom can rent for about $860 a week, a three bedroom about $680 and a four bedroom about $790.
They are all tidy properties. Our rates are now approximately $110 a week per property and insurance is near $100 a week. Now this old debt cannot be used for future interest deduction for tax purposes, this has added massive costs to successfully run these rental properties.
As an example, for one property our interest costs are $485 a week. We calculated that our tax bill on a $360,000 loan, at 7%, is going to require $210 a week more once we reach 100% non-deductibility. So the total costs of holding this property will be $905 a week, and I haven’t included maintenance or capital repayment of the loan.
The rent is no longer covering the costs to hold this property, so if rent does not go up, we will sell up.
As a rule, we like to put 8% of the rent aside for maintenance, but this is not going to happen now. We do allow the tenants to have cats in our properties, which does shorten the life of the carpet, but overall, our tenants are very respectful.
Ross Giblin/Stuff
Landlords Tim and Katherine Horsbrugh are undercharging rent compared to the rest of the market in Wellington.
The biggest challenges we have being landlords, are, firstly, this new tax is making us rethink our retirement strategy and sell down. I know other landlords are thinking the same thing, which is very scary news for the future supply of rental properties. Rents, unfortunately, will have to go up to keep our heads above water. This seems like it was a very ill thought out tax policy, which will cause tenant hardship.
Secondly, Residential Tenancies Act changes have made it harder to be a landlord, especially when you get a problem tenant. 97% of tenants are excellent, but the current laws seem to want to protect the 3% ratbags. We need to reinstate fixed term tenancies, which are good for both the tenant and the landlord, and reinstate 90-day notice periods, which provide protection in case you get a ratbag tenant.
Building new builds for long term rentals, like the Government wanted, is fantasy land, unless you have free land and a very cheap builder. It’s a sure way to lose money. Maybe when interest rates were at 3%, this appeared a good idea, but not when they are over 7%.
