Landlord Crisis! What is the solution?

Increasing interest rates have been hemorrhaging residential landlords’ pockets for almost 2 years now, when you factor in true cost and opportunity loss – I have not met a single landlord who is profiting from their rental investment. The average landlord is losing $20k-$30k per year in true cashflow and when factor in opportunity loss/cost, that true loss can double or triple. Considering there are around 450,000 privately owned rentals in NZ, this is a very, very big problem that no one has addressed or even acknowledged.

Yes, in the lifetimes past, there were steady long-term capital gains (mostly fuelled by falling interest rates and inflation). We are in a very different economic environment now, and the prospect of losing money weekly on a rental that has lost significant value recently and may not see a positive recovery for a long period of time is not an attractive one.

When you look at rental income, and deduct all expenses (rates, insurance, maintenance, mortgage costs, depreciation of aspects, management costs, etc) you quickly realise that there is a significant loss. “But I don’t have a mortgage” – Congratulations if you have worked hard and are in a privileged financial position, but don’t forget, if you don’t have a mortgage, your entire property value is a giant bundle of cash sitting there, and that money should be making you something. For example, if your rental is worth $700k and is freehold, you need to factor in your opportunity loss. If you had $700k in a term deposit at 5%, then you would be getting $35k/pa gross income, with none of the cost of owning a rental. If your rental was losing $20k/pa, then you could be $55k better off every year.

This is a MAJOR crisis that all residential landlords are facing and there is no solution. Sure, tax deductibility on interest rates will help a tiny bit. But the issue is far, far greater than that. How can we financially incentivise landlords to stay landlords? The country needs landlords, rentals are essential parts of society. But losing $55k a year to be a landlord? Something needs to change. This will hopefully be addressed by political parties who may be looking for the landlord vote. If you are a landlord and want to sit down for a strategy review OR if you got a great idea that could solve this problem – I would absolutely love to hear from you. My door is always open for any Real Estate discussion. Have a great week everyone.