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Are there any hidden costs associated with buying a holiday home?

Make sure you don’t underestimate the ongoing expenses and outgoings involved with the ownership of an investment property. These costs can include:
  • Body corporate levies and costs.
  • Letting and property management fees.
  • Insurance costs.
  • Caretaker, cleaning and maintenance costs.
  • Electricity, gas, water and council rates.
Consistent advertising to find tenants to rent the property, regular property maintenance, furniture replacement, and linen hire are other expenses to consider.

Expenses you may choose to incur in order to make the property more appealing to potential renters could include the provision of high quality furnishings, Sky TV, modern kitchens and appliances, air conditioning or heating units, barbeques and outdoor dining areas and even broadband internet connections.

Holiday homes can sit vacant for long periods.  As an investor, you should ensure that you have funds in reserve to cover mortgage repayments and fixed costs.   

How will my children react if we sell the family home?

Selling the family home can sometimes be an emotional experience for adult children as well as for parents. Your family home may be the only home that your kids have ever lived in, so seeing it sold can be difficult.

Make sure to speak to your family about your plans, prior to selling. Share your thoughts with them, and find out if they have any questions or concerns.  

What services can I expect when renting a holiday home?

Services provided with the bach rental will differ from property to property. If there is anything that you are unsure of, contact the holiday home owner or agent before signing any written agreement. Things you may want to clarify include:
  • Does the owner have the right to enter the property while you are living there? If so under what circumstances?
  • Is the holiday home accommodation rated in accordance with any classification system (e.g. Tourism New Zealand’s Qualmark)?
  • Is the holiday home accommodation serviced, and if so how often and when?
  • Will the electricity be on when you arrive at the property? Is it included in the rental price, or does it operate on a coin meter basis or similar?
  • Is there anything in the property that cannot be used or are there any facilities that are shared with other properties / tenants?
  • Is the holiday home accommodation fully furnished including cutlery, bedding, and kitchen equipment?
  • How close is the bach or holiday home to local points of interest and transport?
  • If there are any disputes, how will these be settled?  Does any formal dispute resolution system exist?
  • Will there be manuals and instructions for using appliances available in the property when you arrive?
  • Who do you call in the event of a problem or an emergency relating to the property?

What is a Tenancy Agreement?

A Tenancy Agreement is a legal agreement between a tenant and landlord that covers the obligations for both parties and is governed by New Zealand law.

The most common type of tenancy in New Zealand is a periodic rental.  In this case, you agree to rent the property on an ongoing basis.  The agreement specifies the minimum number of weeks' notice that either the landlord or tenant must give in order to terminate the agreement.  Less common are fixed term rental agreements, where a specified period of time (such as 6 months, or 1 year) is agreed to.  In this instance, the tenant agrees to pay rent for the agreed term of the lease taken.

Tenancy Agreement forms (blank) are available from the Department of Building and Housing website.  Some of the items a Tenancy Agreement must cover are:
  • The names and contact addresses of the landlord and tenant
  • The address of the property being rented
  • The date the Tenancy Agreement is signed by both parties
  • The date the tenancy is to begin at the property
  • Addresses for service for both the landlord and the tenant
  • Whether the tenant is under the age of 18 (and may therefore need a guarantor or parent signature for the agreement)
  • The rent amount being charged, and frequency of rent payments to be paid.
  • The amount of any bond being paid by the tenant to the landlord. Under New Zealand law these bond funds must then be sent with to the Department of Building and Housing within 23 days of receipt of the funds by the landlord
  • The place or bank account number where the rent is to be paid
  • Any letting agent or solicitor fees to be paid by the tenant or landlord (if applicable)
  • A list of any chattels (like furniture, curtains and other fittings) provided by the landlord, as part of the tenancy.  Normally the condition of these chattels is also noted in the agreement
A Tenancy Agreement may also include other information, such as the (maximum) number of people that are allowed to live in the flat or house, whether sub-letting is allowed, whether smoking is allowed on the property, or car parking details etc.

What do I need to look out for when investing in property?

Choosing an investment property is very different to choosing a home to live in.  Keep our tips in mind when considering properties to invest in:
  • Match the property to your long term real estate strategy.  Consider whether you want to buy commercial, industrial, or residential real estate.  Decide whether you want properties that are ready to move into, or would prefer cheaper properties that require improvements. 
  • Understand all the costs of property ownership. Aside from buying the property, there will be other expenses such as real estate fees, Council rates, property inspections and property management fees.
  • Think about protecting yourself with Landlord Insurance. This will cover things like unexpected repairs, lost income if you need to evict your tenants, or damage if your tenants turn out to be the wrong type for your property.
  • Calculate how long you will be able to cover the mortgage repayments for if the property is vacant, and factor this into your overall budget.
  • Shop around for the right loan, and make sure the one you select suits your strategy. For example, if you’re looking for short term capital gains, an interest only loan may help as this will lower repayments and increase your cash flow.
  • Keep up to date on the latest property trends. Contact First National to receive our Property Market Outlook, which includes tips, trends and predictions.

Can we make an offer on our next property, subject to the sale of our first?

Yes, you can make conditional offers on property, by including conditional purchase conditions into your New Zealand Property Sales and Purchase Agreement. These terms are reasonably common in New Zealand, although there are some downsides:
  • If your sale falls through, or takes longer than expected to settle, you may have to watch your dream home go to someone else.
  • If you’ve put in a conditional purchase offer, this may place pressure on you to sell faster, and for less money, than you might have otherwise sold for.
  • Some sellers, particularly in competitive markets, may be less willing to accept conditional offers. A lower offer from a competing buyer without any conditions may be more appealing because it offers a quicker sale and greater likelihood of the sale completing for the vendor.
  • If you haven’t sold your current property yet, you won’t have as much certainty about how much you can afford.  This can lead to you overextending financially, and it also limits your opportunities to bid successfully at auctions.

Should I invest in an apartment or a house?

  • Research the local real estate market and find out whether houses or apartments are in higher demand.  Market conditions change regularly.
  • Talk to a First National Real Estate agent to find out what’s popular in different regions and different parts of the city you wish to invest in.
  • If you already know where you plan to invest, focus your research there and determine which type of property is in demand and which is in shortest supply.
  • If you’re aiming for a portfolio of properties, then a mixture of houses and apartments is a good way to diversify and minimise risk.
  • Apartments are usually less expensive so the answer may lie in affordability.
    However, houses tend to maintain and improve their value more consistently.
  • Some property investors believe apartments are too similar to one another and that houses offer more potential to differentiate and add value.
  • With a house, you’ll be bearing 100% of the costs of maintenance whereas in some apartments, body corporate fees may cover certain expenses.

What is an option fee?

To make sure you’re serious when applying for a tenancy, a landlord may require that you pay an option fee. An option fee is a payment (deposit) of no more than one week’s rent that must be refunded or used as rent if you take the rental property. The option fee must be mentioned in your Tenancy Agreement.  When the landlord receives your option fee, they will usually stop marketing the property to other tenants, with the expectation that you will soon move in to the property.

If you change your mind and decide not to rent the place after paying the option fee, the Landlord is entitled to keep it.  Therefore you should only pay option fees on those rental properties that you fully intend to move into.

Is there anything else to consider once I’ve secured a holiday home booking?

When paying the rent or deposit to secure the holiday home, ensure that you receive a detailed receipt for the amount paid showing what the payment is for. Ask the agent or the landlord how and when your security deposit will be refunded to you. 

Before moving into the holiday home, you should conduct an inspection of the property. In some cases the inspection will be carried out in the presence of the owner or agent. During the inspection you should note down any existing damage, the items contained within the property and note any missing or faulty appliances. 

It's important to write your comments down and highlight the matter with the owner or agent prior to the commencement of your tenancy in order to protect your interests. This will help to avoid any disputes when you complete your stay. 

You will be responsible for any damage to the property or its equipment, fixtures and fittings if it is caused through your negligence. You are not responsible for fair wear and tear of the items.

We have too much stuff to move. What should we keep and what should we get rid of?

Getting rid of furniture, clothing, artwork or other bits and pieces that you’ve collected over the years can be a difficult and sometimes emotional process. The simpler your possessions are when you move, the better.  Our advice for de-cluttering is below:
  • Keep a few items for sentimental value or family importance
     
  • Be ruthless when considering less important and less significant items. Focus on what you’ll need and use on a regular basis in your new home and get rid of everything else.  If you haven't used an item for six months, you're less likely to use it again. Using this rule, it's normally easy to find unnecessary clothing, old books, garden tools, toys and kitchen appliances
     
  • To help reduce your clutter, you can offer family members and friends any items you no longer need.  Alternatively, you can hold a garage sale.  This will help you get rid of items and raise some money at the same time
     
  • Go through old paperwork and get rid of any files you no longer need. Keep only the information that should be kept for statutory / tax record reasons
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