Last month UHY Haines Norton, in conjunction with Quinovic, Mortgage Link and MAINTAIN TO PROFIT, held an information seminar entitled ‘The Keys to Successful Property Investment’. Property investment continues to be popular with New Zealanders looking to boost their income and provide additional financial security for their futures.
Our first speaker was Brendon Stuckey, Principal of property management company Quinovic West Auckland, who presented several strategies for successfully tenanting properties, including:
- Always conduct reference checks on tenants. Any potential tenant who has difficulty providing referees who are not family or friends could be cause for concern.
- Always conduct credit checks on tenants. Although this sounds obvious, many landlords simply do not get around to doing this – to their own detriment.
- Take a photographic catalogue of your property. This protects both the landlord and the tenant from claims of damage that are unsubstantiated.
- Clearly outline the expectations set out in the tenancy agreement to avoid any ambiguity.
- Opting for a fixed-term tenancy rather than a periodic tenancy offers a measure of protection against tenants who may give notice at undesirable times, such as December/January, when properties are harder to let.
Brendon then went on to discuss the critical issue of meth contamination in New Zealand rental properties. He explained that, contrary to popular belief, it is not just a lower demographic issue – many meth cooks and dealers have good cash flow and high-end lifestyles. With over 70% of meth labs being found in rental properties, this is a huge concern for landlords. If contaminated, it is not just the expense of replacing all contaminated furnishings and wall linings, but the record remains on the council property file forever and can seriously affect the capital value of your property.
Mortgages and Financial Structures
Next Stuart Wills from Mortgage Link explained the impact of a property’s mortgage and financial structure on an investment property. Stuart believes selecting your mortgage – likely to be your largest debt – is just as important as selecting your property. Finance needs to be structured so that as the owner you are in control rather than the bank manager.
Stuart highlighted other financial considerations, such as avoiding linking the security properties wherever possible to protect them and minimise costs. Having capacity to build your portfolio is also important, and with the number of banks and mortgage lenders available, a lack of capacity should not prevent investing now for the future.
Aucklanders in particular are acutely aware of escalating house prices, and Stuart recommends building your investment portfolio as soon as possible. Delaying a purchase while saving up an adequate deposit can be counter-productive if housing prices also rise during that time, and it is worth shopping around the various lenders – or seeking the expert help of specialists such as Mortgage Link.
As Head of Tax at UHY Haines Norton, Jim Martin’s area of expertise was advising on maximising tax benefits from property investment. This is a highly technical area and Jim presented a business case to illustrate the cash position of rental income versus expenses for an investment property, as well as examples of depreciation and deductible expenses. While land and buildings are not deductible, depreciation on land improvements and chattels is deductible and it is worth seeking expert advice to maximise depreciation deductions.
Jim explained there are various structuring options available for investment properties, namely as an individual, partnership, close company, look-through company or trust, and different structures will suit different investment circumstances. Additionally, it is important to be aware of who can taint your holding structure’s rental properties and cause capital gains to become taxable. Being associated with land dealers, land developers or builders can all result in tainting and have tax implications. Capital Gains Tax is particularly topical at the moment with the possibility of its introduction into New Zealand post-election, and Jim detailed some examples of where a CGT event might be triggered and the important role that structuring will play. An economist from a main New Zealand bank has calculated that a 15% CGT would reduce the value to an investor of a given property by 23%.
Proposed Building Warrant of Fitness
Our final speaker was Mark Trafford, owner of MAINTAIN TO PROFIT, a company which specialises in renovation and maintenance of rental properties. Mark explained that a recent warrant of fitness trial was undertaken on rental properties with the shocking result of over 90% failing. Housing advocates and politicians are calling for compulsory minimum standards to be introduced to protect the health and safety of tenants in the form of a “Building Warrant of Fitness”. If introduced, a Building WOF is likely to be a comprehensive checklist of standards for all internal and external aspects of your property. Although its purpose will be to give tenants a measure of protection, the silver lining for landlords will be well-maintained and cared for properties, positively impacting their capital value. Mark has seen first-hand, countless examples of neglected properties which are barely inhabitable, and as such is a staunch advocator of protecting your property and ultimately your investment.
If you are interested in attending a Property Investment seminar, UHY Haines Norton will be hosting it again – we will advise the date once finalised. If you would like to discuss any of the topics raised here, please contact Brendon Stuckey at firstname.lastname@example.org, Stuart Wills at email@example.com, Jim Martin at firstname.lastname@example.org or Mark Trafford at email@example.com.