COMMENT: The compliance struggle
Wednesday 26 June 2019
For many property investors, the end goal is setting themselves up for retirement – but new requirements are making that harder. Investor Dale Young explains how his retirement project is turning into a compliance nightmare...
Eighteen years ago my wife and I started worrying that we weren’t saving enough for our retirement.
After reading some books about investment properties, we decided to take a gamble and take on some rental properties in locations close to our home.
Over 18 years we purchased nine properties in Manurewa and Takanini and rented them out to families and couples.
We manage the properties ourselves and we get to know our tenants very well. We have been pleased to see several of them move on to buy their own homes.
Five of our properties have had the same tenants for over five years, and one couple has been with us for more than 15 years.
Through the years we have spent many weekends cleaning, painting, landscaping and doing general maintenance while tenants are in place or between tenancies.
Our properties are two and three bedroom “Universal” type homes: hardiplank or brick with decramastic roofs, about 30 years old.
Our current rents are $360 to $450 per week and our total income in rents is just enough to cover mortgage repayments, rates, insurance and some minor maintenance.
When it comes to paying for big ticket items - like new stoves, carpets, fencing and kitchen rebuilds - we pay for these out of our own savings from our day jobs, not the rent.
We have had security window catches fitted on all of our properties, so that they can be safely ventilated.
And our tenants seem very happy living in our affordable, warm and dry homes in South Auckland.
Now, our homes were all insulated when constructed with 75mm to 100mm blown cellulose fibre (recycled paper).
This is globally recognised as an eco-option that is highly effective, with R value of 2.6 per 100 mm thickness, just fractionally under the new level required which is R2.9 for ceiling insulation in Auckland.
They all also had foil underfloor insulation where possible. This provides suitable R value insulation but is no longer in favour due to potential electrical short issues.
But the Government’s new Healthy Homes minimum standards require that ceiling insulation be at least 120mm thick. This means that all of our previously compliant homes needed reinsulating.
We had to sell one of our homes so that we could remedy the rest, which cost between $2,400 and $3,700 per house.
To add insult to injury, we are told that we are not allowed to claim the cost of the insulation work as an expense against our income. This beggars belief!
Clearly the additional expense is only incurred because we are in the business of renting homes.
This government mandated expenditure for a small change in insulation value is an unavoidable cost of being in the business of renting, so surely it must be deductible?
The additional work only provides minimal extra insulation and doesn’t increase the value or resale ability of the properties. To my way of thinking it achieves very little for the $24,000 that we have spent.
Recently we were contacted by MBIE demanding that we send a copy of our Tenancy Agreement and of our Insulation Statement for a recently tenanted property.
We were threatened with significant fines if we couldn’t comply. We sent through our documentation and received back a terse critique with further threats of fines.
We are now facing more costs due to the need to install kitchen and bathroom ventilation as well as significant capacity fixed heating into our already warm, dry safe houses.
The cost of this is estimated at $6,000 to $8,000 per house, so we’ll need to sell another house to fund these upgrades.
We have less than two years to get this work done for what will be our seven remaining homes with their 20 - 25-year mortgages.
If 60% of Aucklanders are living in rental accommodation, then it follows that they all have to rent from someone.
While there are undoubtedly some landlords who break the rules and take advantage of vulnerable people, I’d suggest that the vast majority of landlords are simply hard-working members of the community trying to save for their retirements and for their families.
The almost daily landlord-bashing stories in the news media leave us feeling like the scourge of society. And the ongoing governmental interference in our relationships with our tenants is pushing us to sell all of our properties and get out of the business.
Our existing tenants can’t afford to buy their own homes – so where will they live once we exit the market?
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