Property Investor Costs

To be viable rents should meet all the ownership costs.

Find out here what all those costs include.

Costs

Landlords will have

  • Cost of Administration
  • Cost of Tenant Damage
  • Cost of Trading
  • Cost of Unpaid Rent
  • Interest Costs
  • Office Costs
  • Weekly Costs
  • Building Replacement Costs
  • Bathroom Renovation Costs
  • Roof Replacement Costs
  • Cost of Operating Vehicle

Ownership Costs

Interest (separated from capital repayments) you pay on the on your mortgage

Interest on your equity
Include furnishings, heat pumps and appliances.

Rates & Insurance
These are clear to all

Repairs and Maintenance
Rent should pay for a professionals (painters, decorators, builders, and materials) to keep your unit in good condition. If it’s DYO, then the rent must pay you for your time input . Remember rental units usually cost much more to maintain than your own home.

Administration
The rent should cover the cost for a property manager, and/or your wages for your time plus advertising, setting up new tenancies, stationery checking regular rent payments, making inspections, running your vehicle, collecting missed rents, accounting costs, computer costs, communicating with tenants, contractors, & officials, and occasional tribunals.

Administration Costs
The rent should cover the cost for its share of facilities used to administer the rental property. This can be calculated as a proportion of your home running expenses and include rates, insurance, phone, mortgage interest or rent and maintenance. The “proportion” factor can be established by calculating the proportion of area of your house used for property investment work The IRD or your accountant can help you ass this cost this as there are legal guidelines available for tax assessment too

Unpaid rent
Most landlords and adjudicators accept that about two weeks rent on average is not paid every year usually due to changing tenancies. Then there are dishonest tenants who take advantage of their tenancy change by cancelling their payments too early.

Buying & Selling Costs
The costs to buy & sell a property includes wages for your time looking for a purchase, preparing the unit to sell (albeit 20 yrs in the future), setting up the new property to your expectations, solicitor’s fees, agents fees and taxes etc.

Serious damage by tenants or their friends.
Unfortunately rents need to pay for these and the formula can be found by speaking with other experienced investors. (eg $3,000 per unit every 10 years = $6 weekly)

Building replacement
Eventually your building will have to be replaced. Ask any relevant professional and you will hear about 70 – 100 years is the best we can expect from the life of a building. This cost of this depreciation needs to be calculated with rental prices. (eg $100,000/100/50 = $20 weekly) but wait – there are more to add in!

Other regular replacements

While you own a property its parts, are constantly deteriorating making very large bills when they need replacing. Consider the weekly cost of each of these.

  • Roof every 40 yrs (e.g. $10,000/40/52= $3 pw)
  • Bathroom renovation 15yrs (e.g. $4,000/15/52= $15 pw)
  • Kitchen renovation 20yrs (e.g. $5,000/20/52= $10 pw)
  • Furnishings every 10yrs (e.g.$5,000/10/52= $10 pw)
  • Painting every 10yrs (e.g.$15,000/15/52= $25 pw)
  • Plumbing & wiring every 50yrs (e.g.$50,000/50/52= $20 pw)
  • Out sheds every 30yrs (e.g.$8,000/40/52= $4 pw)
  • Appliances every 8yrs (e.g.$5,000/8/52 = $8 pw)
  • Heat pump every 15yrs (e.g.$3,000/15/52= $4 pw)

These replacement examples add about $120 weekly to all the above costs

Calculation example
Most of the rental costs depend on individual circumstances for each rental and the quality standard it expects. Our calculator helps assess the real costs of owning rental. Click here

Note: You will need a computer with MS Excel spreadsheet for this calculator work for you.
Use our calculator to establish your actual costs.

Cost of Administration

These involve landlord’s wages, property managers fees and accountants fees for the time spent on the following

  • Making inspections
  • Recording and checking rents
  • Arranging contractors for repairs and maintenance
  • Interviewing applicants
  • Showing applicants through rentals
  • Writing letters
  • Arranging for tribunals
  • Paying accounts
  • Meeting tax obligations
  • Stationery: books, papers, envelopes, stamps, ink
  • Computer: (proportioned) operating and replacements
  • Printer; (proportioned) operating and replacements.

Quality long term tenancies cost less for administration and this will be reflected as more favorable rent reviews. in

Cost of Tenant Damage

Sadly many tenants fail to treat their rental home as their own and tend to be more careless in its care than people would be with their own home.

Walls carpets and furnishings are easily damaged
Less caring tenants often puncture and scratch walls with their furniture, kids draw on them, candles burn or stain them, mould rots them (when they are not cleaned regularly, the place is not ventilated or leaks not reported to the landlord), cigarette smoke destroys the paint. Pets can scratch the walls and foul the floors.

Outside walls, windows and pathways can be damaged by unchecked weeds, cricket balls, rocks, and kids drawing on them

Renters who care pay less rent over time as their rent reviews are more favorable and their rent falls below below market rents.

Cost of Trading

On average, every 10 years an investment is sold and traded for another. To sell a property there estate agents fee based on around 2% of the property sold. There are also lawyers fees and costs to set up mortgages $5,000

Interest Costs

  • Owners need interest on their investment in the property
  • Mortgagors need interest on their investment in the property

The interest rate for each contributor is the same in our calculations, however, in reality the owners carry a much greater risk.

Office Costs

Office costs include office rent/interest, staff wages, office furniture, phone, power, rates, insurance, maintenance, repairs, replacements etc.

These costs are divided by the number of rentals administered from the office.

Working from home landlords still faces these costs. In these cases calculate the home costs, then proportion the area of the office space relative to the area of the home. This proportion usually averages between 15% and 25%.

IRD staff will / are pleased to advise proportion calculations for individual landlords.

Cost of Unpaid Rent

On average, every 2 years a unit looses 2 weeks rent payment due to tenants leaving.

Instant On-line Assistance

SCPIA members can quickly access and personalise any of the growing number of forms, letters, brochures, knowledge, ideas and suggestions for the 10 critical stages of a rental business.

  1. Assessing the real cost of ownership
  2. Purchasing properties ideas & contacts
  3. Finding the a fair sustainable rent
  4. Sifting to find quality tenants
  5. Effective inspections
  6. Rent reviews
  7. Fixing breaches
  8. Terminating agreements
  9. Recovering debts
  10. Selling properties

Warnings about Bad Tenants

Landlords must trust their customers with assets valued at hundreds of thousands of dollars. Choosing suitable customer tenants takes VERY careful deliberation. The SCPIA members help each other by adding to and sharing a growing list of people who have proved themselves to be unlikely to honour rental agreements. Over 600 of these folk have already left members owing debts locally totalling hundreds of thousands of dollars.

Real Costs Unravelled

Estate agents use only rates & insurance to guide investors making returns look great. Rental property investors must understand ownership costs also include:-

  • Repairs & maintenance
  • Times without rental income
  • Interest on the current valuation of the property
  • Painting every 10 years
  • Replace carpets & furnishings every 12 years
  • Roofing every 40 years
  • Fencing every 30 years
  • Heating units every 15 years
  • Insulation every 20 years
  • Replacement of buildings every 90 years
  • Damage, cleaning and rubbish removal.

Best Services

Sharing ideas with other experienced local landlords, professionals and guest speakersopens access to the best availablegoods and services. Business is better for members who access the best:-

  • Places to purchase goods
  • Legal representatives
  • Accounting advisers
  • Estate agents
  • Property managers
  • Taxation advisers
  • Tradies
  • Investment development
  • Mortgages
  • Mentors

Debt Recovery Assistance

Tenancy debt recovery improves by using the debtors list and absorbing the great number of suggestions members and speakers discuss at meetings. Letters to debtor tenants are sent free of cost when new debtors are listed.

Better Financial Returns

Many investors soon discover their rental accommodation business is a financial disaster for them and they leave again because their real costs are always higher than the rents received.  The SCPIA provides members help and information to assist them maximise affordable rents and take good care of their good tenants.  Tax deductible membership subscription is far outweighed by the huge savings members obtain from just one of dozens of loss making situations.

South Canterbury Enterprise

Aims are to improve the renting experience for tenants and landlords.  Meetings are held every 1 or 2 months. They are friendly, and informal. Expert guest speakers provide ideas and suggestions that generate discussions on the many different aspects of rental property management. Members’ share their tenancy stories, make helpful contacts and discuss ideas to improve their rental businesses.

Check Our Website

Use the information available on our website to

  • Calculate the costs of your rental property
  • Find local market rents,
  • Look at past tribunal rulings
  • Explore tenancy law