Kathy's Blog

In last month’s blog I covered the proposed tax changes and possible outcomes.  The results of these tax changes will be known after 20 May 2010. This month I will cover another not so sexy topic which I have often been asked about - insurance on investment properties - how much do I need to take and what type of insurance do I need as an investor?

Insurance: Is it necessary?
When purchasing a property in New Zealand with a mortgage one of the lender's criteria is to have building insurance prior to releasing the funds to settle the property.  For me this has been a mad rush just prior to settlement to call up the insurer and get this arranged. Should you be purchasing for cash, insurance is not a requirement but I would not be without it, especially in New Zealand if you purchasing any of our good sturdy ex-State houses.  These homes are constructed of native timber and can burn down very easily and yes, this does happen!

ex-State house

Minimising Fire Risk
Don’t be put off, the old solid  ex-state houses are well built and indestructible,  these are good investments. So, here are some tips on ensuring that you do what is necessary to prevent a fire.

• Have working smoke alarms: Your property manager can check this as part of the inspection process and a good system would be to have a new one or new batteries installed every year on a regular date like the change to summer time savings.
• Fire places: Either open fireplaces, free standing wood burners, in built wood burners or multi fuel burners etc. Firstly, it is important to ensure there is a permit on the council file, in particular if the burner was installed after the house was built, which is often the case, and secondly that the fireplace is inspected annually by a chimney sweep specialist.  Again your property manager can arrange the chimney sweep. I have heard that should the fire place not be inspected regularly and is the cause of a property burning down, the insurer might not pay out.
• Good heating:  This is essential in the South Island and in most towns south of Auckland, in particular to attract good tenants.  In the smaller towns tenants often prefer a wood burner as this is perceived as cheaper to run compared to electric heating such as a heat pump (air conditioner).

Building and Landlord Insurance
I remember attending a local property meeting a few years ago and one of the investors was telling us about a house of theirs that had burnt down in West Auckland.  As the investor had both building and landlord insurance, the process whas a stress free experience with no loss of income. The building insurance mainly covered the replacement cost of the building, however while the claim was being assessed and a new house was being built, there was a loss of rental income.  Fortunately the loss of rental income was covered by the investor's landlord insurance and they ended up with a new house and no loss of income.

New Insurance coming on the market
I won’t go into what the different insurances cover as this is not my area of expertise but I have heard about a new insurance product that I am investigating for my own properties that is a combination of both building and landlord insurance.  This is said to be at a similar cost to building insurance alone.

I asked Tina Webb, a mortgage broker who specialises in investment property finance and who introduced me to the product, to provide some additional information.  See below:

 Investment property insurance

There is a new option for landlord protection insurance available! The cost is for both the property and landlords protection combined and is around the same (or less) as only property insurance without the rental protection with other providers.

Did you know that in the unlikely event of a tenant dying in your property (almost happened to me, luckily she had shifted out a month before) you won't be able to get a new tenant until the police etc have sorted the affairs of the deceased. This could cost you considerably.

Gradual damage is covered up to $5000 instead of the usual $3000.  Loss of rent due to the tenant doing a runner is also covered plus many other features

Both are very impressive policies. One is a bit cheaper for the smaller sized properties, both have slight differences which you would need to consider for your particular situation. One of these policies were previously only available through property managers but can now be accessed by individual property owners.

Both options have attached a Tenancy Advice package provided by the Tenancy Practice Service (TPS)

Consisting of:
1.  60 minutes free extensive Tenancy Practice Service advice by Scotney Williams LLB

2.    A copy of the manual plus a flowchart for managing rent arrears, containing 15 years of most commonly occurring issues.

3.    A flowchart for managing rent arrears, essential for both the Property Manager and the Landlord to understand the complexities of following the correct procedures. Failing to follow this procedure may result at a rejection by the Tenancy Tribunal of the claim

4.    This package is conservatively valued at $300

Two insurers are used, both covers are rated "very good"   China Taiping Insurance (NZ) Ltd. rated B++ (Very Good) A,M, Best 1st December 2009 & Lloyds of London A+ (Very Good) rated with Standard and Poors Dec 2009

For a no obligation quote please email insurance@ehomelink.co.nz

"It is well worth getting a quote to make sure you have the best available on the market. I have been very impressed"

Tina Webb, Homelink Enterprises www.ehomelink.co.nz

With winter soon approaching this is a good time to ensure those smoke alarms are working and your insurance is sufficient and premiums are paid up to date. Next month I will be covering a sexier topic of Registered Valuations and how these are essential in recycling your deposit and obtaining further lending.

Kathy Engelbrecht
www.houses4you.co.nz
 

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