Q: I am a residential property investor and read your page in the Herald most Saturdays. It is unfortunate that when advising people on the merits of buying property versus renting, you often cite as a negative for renting that "the landlord could kick you out".
I find this phrase gratuitous. Landlords cannot "kick someone out". Landlords may require the tenants to vacate the property so the landlord can live in it or if they wish to sell. It is rare for a landlord to ask a good tenant to vacate without reason. They can only give notice under the provisions of the Residential Tenancies Act.
Using emotionally charged language such as "kick someone out" adds fuel to the anti-landlord sentiment being encouraged by the Government. I have worked for both Housing New Zealand and private property management companies. In my experience, older people renting always exhibited a high degree of anxiety about housing security. Older single women often felt particularly vulnerable.
For an older person, the prospect of having to find a new home to rent, pay a bond and move can be daunting, particularly if they have health issues or lack support. I would appreciate if in the future you could use less emotive language when referring to a landlord giving notice to a tenant. For older people considering home ownership, please encourage them if at all possible. The peace of mind of knowing your home is yours is very valuable.
A: I understand your point about language. But I'm not sure what other words to use.
If I say, "the landlord could ask you to leave", that suggests the tenant can say no. Perhaps it should be "the landlord could make you leave" or, as you suggest, "... require you to vacate".
But the fact is that perfectly good tenants are forced to leave properties because, as you say, the landlord wants to sell or to live there, or put family in. And — as you also say — this can be particularly hard on older people.
Many would feel "kicked out" regardless of what the process is called. No amount of soft wording in my column will change the worry, or the impact of being forced to move.
On anti-landlord feeling, I pondered that over the break. Why does there seem to be more antagonism towards people who own investment property than to, say, share investors? Some thoughts:
• The fact that a landlord can make a good tenant leave at any time — albeit with notice — doesn't just cause insecurity. It limits the tenant's long-term planning. Who wants to start a garden, or build close relationships with neighbours, when not just the rug but the floor beneath it might be pulled from under you?
• Landlords have a fair bit of power in other ways too. When they select tenants, they learn about their finances and personal lives. And they control how tenants behave to some extent. This is about a tenant's home — their shelter and their secure place — but someone else has a say.
• Most landlords also own their own home. When there's a shortage of housing, those who own no home may resent those with more than one home.
Before I'm swamped with protest letters, I know many landlords are great, and have provided tenants with excellent housing for decades. And every landlord I ever talk to assures me they charge lower-than-market rent. In the couple of times I've briefly been a landlord I was the same.
But plenty of landlords are clearly driven largely by the profit motive, and it's not uncommon for them to gloat over how well they've done.
Despite your comments about the Government, anti-landlord feeling is nothing new. For generations, landlords have hardly been heroes. Can anyone come up with a novel or a song in which the landlord is a good guy?
When weighing up whether to invest in a rental or shares or bonds, I suggest would-be landlords take into account that their investment probably won't boost their popularity.
PS. Here's a challenge to good landlords: offer your tenants long-term leases, for 10 or 20 years — perhaps after a one-year trial period. I'm sure it could be done in a way that doesn't prevent you from selling if you find you have to, provided the new owner will keep the tenant.
That could make a real difference to older tenants in particular, and might boost landlords' reputations.
PPS. I do encourage older people into home ownership where feasible. Read on.
Safe as houses?
Q: In your last column last year, you answered a 59-year-old reader who had sold her house before the housing boom, had $200,000, and wanted to get back into housing.
Among other suggestions you said: "Stay renting, but buy a rental property in a relatively cheap area, so you are still in the property market.
"'With a good-sized deposit of $200,000 you would be able to buy something where the rent completely covers the mortgage,' says mortgage adviser Bruce Patten of NZFSG. 'And depending on how much rent you are paying, you might be able to pay it down quicker.'
"In the meantime, your KiwiSaver account will be growing, with 10 per cent contributions — good on you! By the time you've paid off the rental, you may have enough to buy a small place where you want to live."
My question: Does that translate into "invest into a leveraged single asset class investment" because property investing is currently as safe as houses and equates to the low-risk strategy you were suggesting?
A: To put this in context, my other suggestions to the reader — briefly — were:
• Try to get a 15-year mortgage to buy a home for herself. Because of the reader's age, her bank was offering only a 10-year loan with huge payments, but a longer term would make her payments a bit more manageable.
• Pair up with someone in a similar situation and buy a house together.
• Use KiwiSaver help for previous homeowners.
Turning to your question, I certainly don't think property investing is "as safe as houses". Someone who borrows to buy now and finds they have to sell at a time when prices have fallen could end up facing a loss, perhaps leaving them with a mortgage debt.
I'm not saying prices will fall. But after such huge price rises it wouldn't be all that surprising.
Leveraging — a.k.a. borrowing to invest — and putting all your savings into one type of asset are both risky strategies.
However, in the reader's case, she would be selling her rental property to buy a place of her own. Both transactions would be at much the same time, so it wouldn't matter whether prices had risen or fallen.
True, house price trends vary with regions, so she might have to be flexible about where she ends up living. It's not a perfect solution, but hopefully a helpful idea.
Shares v property
Q: I am almost 57 years old, a single woman. I own a home in central Wellington worth $1.3 million, with a $45,000 mortgage. No other savings or debts (as I put all my savings towards my mortgage), but $120,000 in KiwiSaver.
I have a permanent job paying $105,000 per annum. I intend to work as long as I can!
Do you recommend that I purchase an investment property, or invest in stocks and bonds? If you recommend an investment property, what's the maximum I should spend?
A: First, see the above Q&As. Can you cope with possible anti-landlord feeling? And what about having to sell in a down market?
The latter is probably unlikely. I recommend that landlords without considerable savings sell their rental property in retirement so they can spend the money. But your KiwiSaver savings, which will probably grow further before you retire, can supplement NZ Super for quite a few years. So you could pick a property boom time to sell your rental.
All of that assumes, though, that you don't borrow too much.
If you buy a rental property, you will have to add considerably to your mortgage debt.
You've got plenty of equity in your home to borrow against. But don't get carried away.
I suggest you ask a mortgage adviser to help you work out how much you should spend on a property, and where. You want the rent you get to cover not only mortgage payments, but also insurance, rates and maintenance. And don't forget to allow for some periods of no rent between tenants.
Why this limitation? While you plan to keep working for years, you never know when you could lose your job and struggle to get another. You don't want to be putting extra money into the rental, only to find you can no longer do that and must sell in a hurry.
Other worries about rental property:
• You may have to cope with difficult or slow-paying tenants. You can hand those problems over to a property management firm, but that would eat into your profits.
• There are more and more rules about how landlords must treat tenants — good for the tenants but not so easy on landlords. Read up about tenant rights before deciding whether to buy.
Investing in shares and bonds is much easier — although it might be best to concentrate on getting rid of your mortgage first.
Could you do as well in shares as in property? After all, the world and New Zealand sharemarkets have done really well lately too.
Over the long term, shares tend to grow a bit faster than property. But you won't borrow to invest in shares, so you won't get growth on the borrowed money as well as your own, which is what happens when property investment goes well.
So while property is more hassle, you stand to gain more — if the markets keep performing as they have lately.
Trouble is, that's a big "if". The very fact that many people have made extraordinary gains in property recently makes big future gains less — rather than more — likely.
How is your tolerance for risk? If you're feeling brave, maybe go the rental route. But I don't think I would in your shoes. If you do go ahead, please keep that borrowing down.
Selling on a high
Q: Should you sell your shares when the market reaches all-time highs? Or is better to hold the shares?
A: Selling now certainly beats the disastrous move of selling your shares — or moving to a lower-risk KiwiSaver fund — in a downturn, as too many did last March and April.
Since then, share prices have grown strongly, as noted above. And — just as with NZ property — nobody knows what will happen next, but further huge long-term growth feels unlikely. So is now the time to sell?
That depends on what you will do with the proceeds. If you've been planning to move your money to bonds or a lower-risk fund, because the time for spending it is getting closer, this might be a good time to do that.
Even so, I recommend doing it in a few lots — perhaps a third now, a third in two months and a third in four months. That way, you don't miss out entirely on any further gains over the next little while.
If that's not what's going on, and you just want to time the market by getting out now and re-entering later at a lower price, give it a miss.
As I've said many times before, research keeps on showing that people who try to time markets are highly likely to do worse than those who get in and stay in.
- Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to email@example.com. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.