Sadly for kiwi home owners, leaky homes are a well-documented feature of the property market. Many owners of monolithic (plaster) clad properties built during the early 1990s to mid 2000s have since discovered weather tightness issues that mean their homes may need to be re-clad at significant expense, causing considerable stress.
Naturally, the sale of a leaky home requires an even greater level of disclosure than usual. For a fresh perspective on how to handle this kind of property, we spoke to Rebecca McCallum, a mortgage adviser at Loan Market who has negotiated the sale of many a leaky home for both sellers and buyers.
The Property Market: What advice do you offer to buyers and sellers of leaky properties?
Rebecca McCallum: Managing the sale of a leaky building requires all parties to exercise the utmost care, diligence and transparency. If you’re involved in a leaky home transaction, here are my thoughts:
As a seller…
- Obtain a building inspection from a bank-approved building inspection company before you put your property on the market. This should identify any known defects upfront and will help would-be buyers understand the scope of the re-clad process ahead.
- Get an estimate to remedy the defects (and bring the property up to current code). This will give potential purchasers a working figure to factor into their calculations. Again, they can take these documents to their bank, if required.
- Obtain a registered valuation for the property in its ‘current condition’, which you can provide to the purchaser and they can provide to their bank. The valuation could also include the ‘upon completion’(re-clad) value, if appropriate.
- Clean the property and make it as easy as possible for a building inspector or re-clad expert to access spaces like the roof cavity or the area underneath the house to assess the damage. In some instances, the inspection company may be required to undertake ‘invasive’ testing on the dwelling. This could mean holes in the walls where the inspections took place. Get an understanding from the inspection company of the possible damage to your dwelling before they commence.
- If the defects are too great to re-clad, look at renting the property out until land values improve to a level where they offset the cost of re-building.
As a buyer …
In all likelihood, whether or not you’re successful in buying a leaky home will come down to how the purchase stacks up for your bank. As with any loan, your bank is going to scrutinize the detail – but in these cases they’ll look even more closely at it, so they can fully understand your ability to service the loan and the associated risks.
At a practical level, if the vendor hasn’t already provided one, properties built between 1994 and 2004 will require a building inspection report. As the buyer, your bank will want to understand whether there are there any known weather tightness issues, or if the property is currently presenting high moisture readings. They will also want to know if weather tightness issues are noted in the LIM or whether there are any weather tightness claims registered with Council.
Leaky home lending is done on a case-by-case basis and there is a range providers in the market who will take on leaky home projects. These providers generally require the buyer to have a clear plan for the property, and for the remedial costs to be known at the outset.
Depending on the damage and the buyer, some banks may only lend up to 80% of the land value, with the value of the dwelling not taken into account. Typically this type of property is being purchased from a builder or developer where they can offset the risk against the skill of the buyer.
Having said that, depending on the buyer’s background and ability to service debt, we know of at least one provider in the market who will lend up to 75% (including funding for remedial work) of the value at completion (not the current value), and they may also allow the buyer to capitalise the interest and the fees.
Bottom line – to get a leaky home sale over the line is going to require the services of a team experienced in dealing with these kinds of properties. Getting the right agent and broker on board will increase your chances of success significantly, so get help early and don’t be tempted to go it alone!
The Loan Market’s Disclaimer: This is our understanding of bank policies on these matters as at today’s date. Each bank will have their own policy around the monolithic/ mono-clad building and therefore each application will be considered on its own merits.
How to Choose and Purchase a Suitable Property to Subdivide
With the demand for housing in Auckland at peak levels and even smaller-scale properties showing substantial profit margins when sold, subdividing a lot into two or more sections has huge earning potential. Those with the means and capabilities to purchase land for the purpose of subdividing are almost certain to see a large return-on-investment, that is of course, as long as it is done correctly.
Choosing a property to subdivide while exploring real estate options requires the assessment of a multitude of factors. Whether or not a property is capable of being subdivided will depend on its size, its location and the physical layout of the property. It’s not always as easy as choosing the biggest section out there and splitting it down the centre.
Considerations are not just restricted to feasibility either. Property investors taking this route should always keep profitability at front of mind. The effort put into the property needs to be reflected in resale value. At times, just because you can subdivide, doesn’t mean you should.
Factors to Consider When Looking to Purchase a Property with the Potential to be Subdivided
The Size of the Property
When it comes to subdividing, size definitely does matter. Generally, the larger the section the better the earning potential will be. On the other hand, it’s important to keep in mind that section size will also affect overheads. Larger sections typically incur higher costs while performing due diligence.
Level land is important, it will be easier to build on and will be more appealing when it’s back on the market. If a potential section is uneven or has landscape issues, it can make property development more difficult. Choosing a property that is already level will allow a smoother process.
Steps should also be taken to assess how easy it will be for multiple households to live on the lot. Consider issues like driveway creation, road and utility access, and street frontage. These factors will affect council consent and appeal once you’ve placed your subdivided property on the market.
The Zoning Rules of the Area
How the area the property is located in is zoned will restrict the type of housing you are able to create and can even cancel out any plans to subdivide. Before purchasing a property, it is crucial to research council zoning restrictions and consider how they will dictate your subdivision plans. Choosing to work with a subdivision consultant will help you navigate this process if you aren’t sure about taking it on yourself.
Subdividing is one of the most profitable actions a property owner can take. The ability to sell two lots from the purchase of one can exponentially boost your earnings from your investment. Council restrictions and market appeal will have an impact on how your subdivision journey will play out. However, with these considerations taken into account while you search, it is entirely possible to choose a property that will offer worthwhile returns.
Another date NZ property investors are dreading
How scary is the new ring-fencing legislation?
Well, just ask any property investor, most of whom are ma and pa investors with less than three rental properties and they’ll tell you it’s outright frightening.
They are the investors, most likely to be among the 116,000 already declaring a loss on their properties and times look set to get tougher for them where selling up may be the only way out.
Ma & Pa Investors Are Not Greedy Landlords
Ma and Pa investors are not your ‘greedy landlords’ with huge portfolios. They’re middle aged workers (GenX, Baby Boomers) and retirees, motivated by the need to provide their own financial security in retirement.
For years the message from those in the know has been: we’re living longer and the Government pension will not be enough to live on.
Taking matters into their own hands, ma and pa investors have heeded this advice and parked some savings in one or two rental properties. However times have been tough in recent years and the not so greedy landlords have seen any profits they had eroded.
Weekly rental increases have been modest for months. Some may balk at this but yes, the evidence is on the Trade Me Rental Price Index and on this blog too.
Property investors have been sideswiped with increases in running costs, which they have had no choice but to absorb initially, before passing them on in the form of incremental rent increases and now there’s another law to halt that with only one increase permitted every 12 months!
See this news item on Stuff, 116,000 rental property owners declared a loss for the year ending March 2017, and it was during the lead up to, and including, this financial year, that legislation changes really started to bite and property expenses started to far exceeded income.
On blogs, property accounting and finance professionals like GRA have provided their interpretation and opinion on legislation changes and forums like our PropertyTalk give a voice to investors and their sentiment.
The ring fencing law will stress out many property investors further, and some to the point of no return. Yes, landlords will sell, so more properties will come onto the market and many first home buyers will happily snap them up. For those amongst us that are politically motivative, they’ll only see the upside.
However there’s a downside too, that’s not been mentioned much.
Rentals typically house more people that first home buyer (FHB) homes. So for every rental property subsequently bought by a FHB, two people are left without somewhere to live.
Housing has been a hot political potato for so long it’s been one step forward and two steps back irrespective of which party or parties are in power and so there’s no end in sight to this housing crisis madness.
Not Just Local
Targeting the rental property owner has been popular not just locally, it’s been a justifiable fear for landlords in the UK, America, and Australia. Check out the links below.
So is there a country getting housing right? Let us know your opinion in the comments below or in a blog post on PropertyTalk or of course in our discussion forums.
Would You Be a Landlord in 2018?
Investing in residential property has well and truly lost it’s shine in 2018, especially in the state of Victoria and New Zealand.
In the UK, Landlords are more philosophical about changes to tenancy laws.
A recent survey suggested around half are actually positive about Land-lording even with the obvious challenges ahead namely Brexit and the political climate.
As aforementioned, can not be said down-under where landlords feel they’re wrongly in the line of sight of politicians for political gain and thus the law changes are not balanced and swing too far in tenants favour.
So the question is would you be a new Landlord in 2018?
Hindsight is a wonderful thing as the saying goes, and many property investors who have been in the property investment industry for some time still love it and already do well by the tenants which really is just commonsense.
However going in now with your eyes wide open and in the knowledge of the recent law changes, increases in everything from insurances to rates and the talk of tougher times ahead – is property investing a good move? For long term investment – why not?
Speculative property investing (though it’s hardly investing) has always been cyclical and when it’s grouped under ‘property investing’ it gives long term buy and hold Landlords a bad name.
Speculators will come and go as the property market moves through it’s cycle and their activity is considered a business and incurs Capital Gains Tax.
Long term buy and hold investors know it’s always been about the numbers and making sure they add up and there is some fat left in for the unexpected expenses.
However the constant politicising and changing of the rules to suit political agendas is disruptive and it’s hard not to think there’s a conspiracy against Landlords and it’s not just in Victoria our New Zealand, it’s more far reaching and this must be putting off would be investors which will be problematic since private landlords supply most of the rental stock.
The UK Landlords must be made of tougher stuff though as 64 percent say they’ll carry on regardless, keeping their rental properties, focusing on the potential of long term profit. The idiom “soldier on” holds firm on the land of the white cliffs of Dover.
Back down under the confidence is not so high among the local property investors. It’s one thing after another and there’s been a lot of change thrown at Landlords in recent months.
The bright line test, LVR rules, and more recently revision of the bright line test to five years and legislation around the quality of the properties.
Insulation, heating, moisture extraction, you name it New Zealand rental properties are getting a hammering from Government. But none more threatening than what might come from the Tax Working Group headed by Sir Michael Cullen.
There’s a lot on the table aimed at raising the tax grab, including Capital Gains Tax and more recently talk of a Property Value Income Tax. If you screwing up your eyes at this one, you’re not alone.
It’s creative for sure, and if implemented, it’s likely to be the tipping point for Landlords unsure if they’ll ‘soldier on’ or sell up and run for the hills.
What’s most perplexing Landlords, is why the sole focus on them and not a balanced effort to improve both the conditions of the suppliers of rental properties i.e. the landlords and it’s inhabitants, the tenants.
Surely the relationship is symbiotic and thus both are needed, now that ever before with homelessness increasing and home affordability out of reach for first home buyers everywhere you look.
Here are some great discussions on various topics affecting the viability of landlording today in New Zealand.
Management3 years ago
Home Insulation Requirements
Investment3 years ago
Another date NZ property investors are dreading
Accounting & Finance3 years ago
Low Interest Rates Winners and Losers
Build3 years ago
How to Choose and Purchase a Suitable Property to Subdivide
Management4 years ago
Attracting More Business Travellers To Your Auckland Airbnb Property
Tenants4 years ago
Coworking Countdown – 4 Things to Prepare Before You Move In
Renovations4 years ago
Five easy steps to boost the appeal of your home
Investment4 years ago
Would You Be a Landlord in 2018?