NZ Herald 30 January 2021

AI 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.

P.S. Here’s a challenge to good landlords: offer your tenants long-term leases, for ten or twenty 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.

P.P.S. I do encourage older people into home ownership where feasible. Read on.

ATo 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 ten-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 and nothing to show for it.

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.

AFirstly, 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 receive to cover not only your mortgage payments, but also insurance, rates and maintenance costs. 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.

ASelling 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 New Zealand 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.