Investors looking for relatively hassle-free properties could consider Housing New Zealand (HNZC) leases.
You buy the house and lease it to HNZC, which puts "state" tenants in. Housing NZ effectively becomes your tenant and pays market rent 52 weeks of the year.
It sub-lets to its clients and manages that relationship, including inspections and reinstating tenant damage at its cost.
Accountant Mark Withers, partner at Withers Tsang & Co accountants, has many clients who have leased properties to HNZC over the past decade or more and like the hands-off investment.
One client who bought a property direct from the developer with a HNZC lease attached, held it for 10 years before selling and never visited the property.
HNZC often has specific requirements for its properties. It tends to look for properties in areas of high demand for affordable rental housing.
The government agency refused to answer questions for this article, however its Lease Team told one landlord it was currently only looking at new builds in Auckland.
The author of the email said HNZC would prefer to be involved early with the owner in the planning stage of the build prior to lodging the resource consent "so we can ensure most of our design standards are met".
Houses with existing HNZC leases attached sometimes come up for sale on the
secondary market. Buyers take on the HNZC as tenant and the remainder of the lease.
Ray White Hamilton agent Kevin Benge has sold a number of such properties. Typically, he says, owners don't sell them unless they have a specific reason to.
For example he sold a property at 1/17 Beattie St in Hamilton where the owner was returning to Australia for family reasons.
He has another property on the market at 10/201 Massey St, Frankton. That owner is freeing up capital to buy a business.
The two-bedroom, one-bathroom, brick and tile Massey St property is on the market at an asking price of $369,000 and is leased to HNZC until 2021.
Benge says the monthly net rental is $1375 after HNZC management fees are deducted. It has an annual rates bill of $1733.61 and body corporate levy of $1189.73, which covers building insurance and external repairs and maintenance.
The great thing about HNZC leases, says Benge, is that the landlord is paid month-in, month-out whether or not there is a tenant in situ.
HNZC usually has the right of renewal on leases for another five years after the original term. While the leases cannot usually be broken by the landlord, there are situations where the lease can be terminated by HNZC, Herald Homes was told.
For example, if a property was uninhabitable following a fire or natural disaster, the corporation might be able to break the lease in some circumstances.
Barfoot & Thompson Royal Heights agent James Ryall has two HNZC properties on the market at 17 and 19 Regents Park Place, Massey.
There is a HNZC lease in place until October 2022. Ryall says both properties are sublet to elderly state tenants who treat the homes as if they were their own.
HNZC also leases apartments from landlords and those sometimes come up for sale.
A property at 11C/15 City Rd Auckland is on the market for $119,000. The leasehold apartment, on the market with Kane Taylor of Mike Pero Real Estate, earns $17,892 rent per annum with ground rent, operating levy and rates of $10,628 a year.
Owners need to be aware, says Withers, that there have been several versions of the HNZC lease over the years and that the terms and conditions on one property may differ from another.
Leasing to HNZC isn't 100 per cent hands-off. If maintenance needs doing thanks to normal wear and tear, the landlord must pay for the repairs. Damage caused by tenants is repaired by HNZC.
Housing New Zealand leases have come in for criticism over the years from landlords who say HNZC hasn't done annual rent reviews and/or it doesn't pay market rents as promised.
In the early days landlords complained that they were billed for "wear and tear" whereas it was clearly damage by the tenant.
Some landlords also fear HNZC inspections are not as thorough as private inspections and tenants could be smoking or manufacturing methamphetamine on the property.
That's also a risk for private rentals, but landlords can't do their own inspections with HNZC leased properties or choose the property manager.
It was reported HNZC reworked its leases in 2013 to try to stem some of the complaints.
It reduced the terms of some leases, starting at five years, compared to the old 10-15 year leases, and moved to carrying out repairs up to $5000 so there were fewer arguments over what was fair wear and tear.