COMMENT: Whether or not you agree with the proposal of a Warrant of Fitness for investment properties made by Greens MP Chloe Swarbrick, the fact remains that all private rentals must now comply with the Healthy Homes standard when a new tenancy begins or an existing tenancy renews.
The cost to bring various investment properties up to the standard required will vary. Between the putting in insulation and installing a heat pump, it could conceivably be $10,000. Not all landlords will have $10,000 immediately to hand, which is why at least two banks have created a product to assist investors to complete the renovations with minimal cost to themselves.
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These products offer a loan to make your investment property compliant and are interest-free - i.e. 0% p.a. - and the terms range from four to five years. While zero percent interest is, obviously, an amazing offer there are still reasonable-sized payments because the term is so short.
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In real numbers, a $10,000 loan over four years at zero percent interest rate is around $48 per week reducing to around $38.50 if paid over five years. The same lending at normal mortgage rates (2.5%) would actually only be around $3 per week more. In other words, the principal payments on a 4-year loan are sizeable. Still, over the whole loan, you’ll effectively save about $520 in interest because of the zero percent rate which is nothing to be sneezed at.
Borrowers will likely need to provide a quote or invoice from the supplier to prove the loan is being used as intended and, although tempting, don’t use the loan to pay for other things like a car. The bank will have little sympathy for borrowers who have taken out the Healthy Homes loan and used the money for other purposes.
In terms of benefits for the landlord, it’s questionable whether the addition of insulation and a heat pump will allow them to increase their rent. Investment property renovation decisions are usually based on a cost/benefit calculation - e.g. if I add another room it will cost $100,000 but will add $10,000 to my rental income.
With the Healthy Homes renovations, you are bringing your property up to a minimum level so you will likely still only receive market rent (although we may see market rent increase as the cost of being a landlord increases over the next four years).
What is more probable is the problems you will have renting a property that doesn’t meet the new standards and the loss that results from that vacancy.
- Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.
