THE WEST AUCKLAND RESIDENTIAL LANDLORD NEWSLETTER No. 20

Hello,        

Welcome to the twentieth edition of the West Auckland monthly Residential Landlords Newsletter.

I am a landlord myself and have been for over 30 years. I currently own rental properties in South Auckland, the North Shore and of course West Auckland. Being a high preforming Real Estate Agent (top 1% in New Zealand) for over 26 years and always working in West Auckland I know the real estate market and the rental market very well.  

In this and future newsletters I hope to provide ongoing up to date information relevant to landlords who own rental properties in West Auckland.  

Regular features will include: 

• Current sale prices
• Current mortgage rates
• Current rents
• A monthly suburb spotlight review
• A relevant feature article each month 

Source REINZ

Source – J Goodrum – Internet search

Source NZ Government building & housing

Source NZ department of statistics

 Renovations Or Do-Ups – Does It Pay?

The purpose of buying a rental property is:

1. To obtain rent and also a cash flow return on your investment.
2. To hopefully enjoy the capital gain when the property prices increase.

As often stated in my earlier newsletters I regard 2 as the most important. With such a strong market it is very difficult to say the least to find a property today in West Auckland that is even close to cash flow neutral, where the rent will match the outgoings of mortgage payments, rates, insurance, maintenance and perhaps property management costs, let alone be cash flow positive.

One way of rectifying this problem in the short term is to buy a run-down property that requires renovation and if renovated properly can make the property cash flow neutral or even positive by increasing the rent that can be obtained. This quickly increases the value of the property well above the cost of the renovations which means an instant capital gain.

There are a number of important points to bear in mind with this strategy however:

1. Unless you have particular expertise avoid any do up or renovation that involves structural work or work requiring council consent. This can be both a lengthy and expensive process and can thereby lose rent for the period of the work which may be considerable. The improvement may not add much to the market value.
2. Because tenants will be harder on your rental property than most owner occupiers any renovations and improvements will not last nearly as long as you may hope before repeat renovations are required. For this reason renovations should be done with durability in mind and perhaps to a lower level and so less expensive standard of finish and/or workmanship than if putting the property on the market for sale where the prospective buyer may want to live in the property and may well be more discerning. Carpet and flooring is a good example, for a rental choose a durable but inexpensive carpet rather than a luxury carpet as you may find it needs to be replaced again in only a few years. Clean, tidy and durable is what is required. 
3. Again unless you have particular expertise avoid buying monolithic homes with the hope of recladding or fixing any leaky problems. This is a real gamble unless you know exactly what you are doing and can buy at a large discount below what a non-monolithic sound house would sell for. In general terms a full reclad is removing the monolithic plaster type cladding and replacing it with for example weatherboards is not as simple as it may seem. This work frequently triggers council requirements to bring the whole property up to the latest building code, often meaning more thermal insulation, double glazing and much more. I say again unless you are an expert in this work it is best left alone.
4. Avoid leasehold (not to be confused with freehold cross lease) property – full stop!
5. Sweat equity – you can add equity by doing a lot of the cleaning, decorating and minor repairs yourself. Don’t attempt work beyond your skills, get a tradesman to do that but shop around for quotes. Ask your property manager for a list of good trade’s people. These tradespeople won’t want to lose the property managers work and so are likely to do a good job at a reasonable price for you if you say your property manager recommended them.

By following these basic rules it is certainly possible to add 10% or even as much as 20% to the value of a property quite quickly. If it costs you $20,000 for renovations and decoration and you add in your sweat labour it is possible to add as much as $100,000 to the value of a property. Thereby converting a cash flow negative to a higher value, higher rent earning cash flow neutral or even cash flow positive property.

If you can get access to the property (if it is empty) before settlement by having a access clause in the agreement you may get most or even all of the work done prior to settlement, saving you lost rent and mortgage payments. Of course you need to know your numbers before you buy a do up property. What you will need to do to it, what will it cost, how long will it take, what will it be worth when the work is done and what will be the increase in rent the renovations will generate?

Done correctly buying a do-up especially if you are able to invest sweat equity ie you time and effort can be very worthwhile. 

Until next time, 

Best wishes, 

John Goodrum

Licensee Agent REAA 2008

021945140, 09 838 8895