Hardly a day goes by without someone moaning about the cost of renting a house. But owning a rental property isn’t just sunshine and rainbows. Here’s why…
Guest post by Peter Lewis
Hardly a day goes past without someone moaning about the cost of renting a house. So what, exactly, does a Kiwi tenant get when they enter into a residential renting agreement?
The obvious answer, of course, is that they get shelter. A roof to keep off the rain and four walls to keep out the winter winds. We all need shelter, we all need a secure place to keep ourselves, our families and our stuff.
However, the reality is that a tenant gets much more than that.
Paying rent isn’t a waste of money. The tenant actually gets a whole raft of goods and services, many of which are hidden and most of which are not apparent or appreciated until eventually they buy their own piece of paradise and economic reality strikes.
Owning a property has never been cheap, but the costs of rates, insurance and maintenance have all risen faster than inflation, putting pressure on all property owners.
Many good tenants could buy a home, but don’t. These folks are renters by choice. There is a growing population of them.
They choose to rent because they don’t want to have to deal with taking care of a house, they may have too many other things to do, or perhaps may be physically unable to handle home repairs.
Ownership of a house usually entails ownership of the piece of land that the house sits on. However, even if you have that piece of land fully paid for and mortgage free, you are still stuck with the costs involved in owning it.
The biggest and one of the fastest growing of these costs are local council rates. Historically a small impost, these have grown substantially over recent times and can now amount every year to thousands of dollars per property.
These are in truth a tax on the land, and were originally imposed to pay for the essential services we all use – roads, rubbish, and (the elimination of) rats.
Of course, over time, we have had various well-organised pressure groups agitate for funding from this honeypot for their own ends and now a substantial proportion of the rates money goes to more vacuous and vanity projects like sister cities, economic development and (the latest) funding child care for the elected council members.
Then we move on to the building itself. One of the big benefits of renting over owning your own home is that your landlord is responsible for maintaining the building.
When the toilet starts flooding or the plumbing breaks down in the dead of winter and requires a $1,500 repair, it doesn’t come out of the tenant’s pocket. It is all included in the rent they pay.
As well as all the myriad of things that can – and will – block up or break up, under the Residential Tenancies Act the landlord is liable for costs incurred in maintaining the property and must replace any items that will expire over time.
So if the element on the stove burns out or the kitchen tap leaks, guess who pays?
Of course, like any physical item, every property needs ongoing day-to-day maintenance. Mowing the lawns, tending the garden, cleaning out the gutters, weeding the garden, replacing any filters in the heating or ventilation – the list goes on and on.
Sure, you can say the tenant will do things, but in my long experience that is wishful thinking. Even getting the lawn mown seems to be a big ask.
There is always a litany of excuses. They have run out of petrol, lost the spark plug, it is too wet/dry/hot/cold, the All Blacks match is on. It all becomes such a hassle that the landlord takes the easier course, hires someone to do it and yes that’s a bit more in the rent.
When a tenant sees a cockroach or a mouse in their rental, they just call the landlord. When you own your own house, there’s no one there to hear your screams.
Dealing with ants, cockroaches, mice, rats or the latest pest craze – bed bugs, costs a lot of money. Money, once again, included in the rent.
Then we come to another hidden biggie. Insurance.
I have come across tenants who actually have no idea that you need to insure a property. Never having owned property themselves, that concept has never occurred to them. Yet insurance has loomed larger and larger in property owner’s nightmares over recent years.
In some areas of the country you cannot even get insurance and in others you can, but only at the most exorbitant cost.
For many landlords, just saying the word ‘Osaki‘ can induce rapid breathing, dizziness and nausea.
Quite why tenants should be protected from being financially ruined if they accidentally damage the place they live in but remain wide open to such ruin if they damage the house next door, or someone else’s car, remains one of those unexplained mysteries of life.
Regardless, for those of us operating as landlords within the private rental market, being able to insure our properties is essential. Indeed, you cannot even buy a property with the help of a mortgage without it. No insurance equals no mortgage.
Quite understandably the bank wants the asset behind its money secure. The cost, once again quite substantial, is another charge built into the rent we charge.
Then we come to a really curly one…
Included in your rent is a really handy, cost-free, short-term ATM.
If you don’t pay your credit card on time, you must pay interest on the overdue balance. If you don’t pay a mortgage or various other accounts on time, interest is charged. Yet if you are a bit cash short and delay your rent payment for a day or three, your landlord is powerless.
He may rant, he may complain, but he is legally prevented from charging any late payment penalty at all on your overdue rent. Why this should apply to rent, and only to rent, is again quite unknown, but really handy for those who need to access a few extra dollars for a few extra days.
All of this rent package puts another burden on the property owner: Time.
It costs someone a lot of time. Time sorting out paperwork. Time checking rent payments. Time communicating with tradespeople. Time lodging insurance claims and arguing about the responses. Time just keeping the whole ship running.
One hour per week per property? Sounds about right to me, so that’s another 50 hours a year that someone, somewhere, has to pay.
So, in light of all of the above, the rent may well be a raving bargain.
The true cost of home ownership is higher than many anticipate. So often we see someone quoted as saying, “Wow, we’ve just bought our own home and the mortgage is no more than we were paying in rent”. Well, good on those buyers for taking the plunge and I hope it all turns out well for them, but I know they are in for quite a shock when the true cost of property ownership actually sinks in.
For many rental properties, the rent received is actually quite a bit less than the ownership cost. The much-derided landlord is subsidising the living expenses of their tenants each and every month, often to the tune of hundreds of dollars.
If it costs $700 per week to own the property and the tenant is only paying $500, that means someone else, somewhere else, is paying the difference.
Owning a house isn’t just sunshine and rainbows.
This is a guest blog from APIA member Peter Lewis. Guest blogs are a way for contributors to share their views and experiences with our audience and do not necessarily reflect the views and position of NBCO.
This content is provided for general information only and should not be relied upon or used as a basis for making any investment or financial decision. To the extent that any information or recommendations in this content constitute financial advice, they do not take into account any person’s particular financial situation or goals. As individual circumstances differ, we strongly recommend you seek independent legal and/or financial advice prior to acting in relation to any of the matters discussed herein. Neither Newland Burling & Co Ltd nor Provincia Property Fund Management Ltd nor any person involved in this content accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this content.