4 ways to Reduce Property Ownership Costs
- Reduce your council rates bill.
- Reduce what you pay to the bank.
- Reduce your insurance costs.
- Reduce your maintenance costs.
How to Reduce your Auckland Council Rates Bill
Council rates are a tax every property owner has to pay, it is made up of three components:
- a Uniform Annual General Charge – UAGC (fixed charge)
- a general rate
- targeted rates.
The UAGC is a fixed charge that is the same for all properties of the same purpose – for homes it is $414. The general rate is calculated using the council valuation of your property. It is calculated by multiplying your valuation by 0.00183316. For example $2,000,000 * 0.00183316 = $3,666.32 of general rates due.
Targeted rates can vary according to the suburb you live in and the property you own. The current targetted rates are:
- natural environment
- water quality
- accommodation provider targeted rate
- rubbish, recycling food scrap, and inorganic collections
- repayment of financial assistance (e.g. the Retrofit Your Home scheme)
- swimming pool, local or business targeted rates.
Targetted rates can be a fixed fee or calculated using your CV. The Waste Management – Base Service is currently $101.39 per property, whereas Water Quality Targeted Rate – non business is CV * 0.00006076, for example For example $2,000,000 * 0.00006076 = $121.52.
Reducing your Council Valuation
As several rates are calculated by using your CV – the only way to reduce your rates bill is by reducing your CV. The Auckland Council has a method for Objecting to their valuation of your property. You typically need to do it within 6 weeks of getting an increase.
Find your property valuation here, then click ‘object to our valuation of your property’.
What you need to include when objecting:
- the objection reference number from your valuation notice
- the address of the property
- your estimate of what the capital value, land value and improvement value should be
- your reason for objecting
- your name, postal address, and contact telephone number
- the capacity in which you are objecting (as owner, ratepayer, agent)
- if you are an agent, the name of the person you are representing.
In addition to objecting after the council increases your properties valuation, you can file a ‘late objection’, as with typical objections you need a reason the main reason for doing so is for weather tightness issues.
The council values these buildings on a case by case basis and considers; sales evidence, property information, and costs to rectify. They place these building into two categories; 1, building where they have received specific information about weather tightness defects and 2, buildings that have been constructed and designed in a way commonly associated with homes with weather tightness issues.
CAUTION! Potential purchasers of your property may be put off if you have a lower CV. This, in turn, may translate to a lower valuation of your property, which may reduce your borrowing options with the bank.
How to reduce what you pay to the bank
A mortgage is a great leveraging strategy for property investment, however, you don’t want to pay more than you need to. There are two ways to save money without changing any of your mortgage structure:
- Get a lower interest rate
- Get regular cash back incentives from the bank
A lower interest rate will save you money every time your interest bill is calculated – it is pretty self-explanatory – but perhaps more important than you realise. If you are planning to pay off a $650,000 mortgage over 30 years, getting your rate reduced by 0.5% from 5% to 4.5% will save you $70,519 of interest. Most banks most of the time in recent years incentivise new customers by offering cash back bonuses, which is an amount of cash often thousands of dollars for a new customer. Some savvy investors change banks every 3-5 years so over a 30 year time period can earn $25,000+ just from cash back incentives.
Once you have built those two steps into your plan you can begin to lower repayments by changing your mortgage structure:
- Extend your loan term so each payment pays less principal
- Switch to interest-only payments for a period of time.
Extending your loan term or switching to interest only will not make your mortgage cheaper, as it extends the life of your loan you will pay more interest over the duration of your mortgage – but it will lower your ownership costs in the short term.
Or if you want to lower the total amount of interest paid whilst paying off your mortgage you can try these two techniques:
- Shorten your loan term so each payment pays more principal. By shortening your mortgage of $650,000 with a 5% interest rate from 25 years to 20 years you will save $110,420 of interest.
- Utilise offset accounts, where all of your savings and regular income is offset against your mortgage balance so three is less ‘loan’ getting charged interest. Over a 25 year mortgage with a 4.5% interest rate, if you maintain an average of $25,000 cash ‘offsetting’ your mortgage it will save you $20,000 of interest.
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How to reduce your insurance bills
Building costs and remedial work can quickly spiral out of control if you have a string of bad luck; for example, tenants who damage your property, a car crashing through the fence, or a natural disaster. The way most intelligent investors manage these costs is by using insurance to keep costs of remedial and unexpected work down. Yes, insurance premiums cost money and this needs to be balanced by the huge costs of damage repair bills. Here is an explanation from the experts at PIC, an independent brokerage which is good for you because everything they do is tailored to your needs. They are totally tuned into all the things that can affect your property and we find they are genuine advocates for us, our clients and our business – we are confident to recommend them.
“Insurance plays an important part in owning property, it is about protecting your assets and your financial wealth. It gives you security if something happens to you or your property whether it is your first home or investment property.
What would happen if you couldn’t work for more than 6 months or permanently lost the ability to earn an income, could you still protect your current lifestyle?
What would happen if an unexpected event occurred and left your property in a state of needing repairs, could you afford them?
Could you afford to rent and pay your mortgage if your property cannot be lived in?
These are the questions you need to ask yourself. Not only is protecting the physical property such as your house important, but also ensuring that your ability to earn an income is protected.
Insurance can be seen as costly and certainly not all insurances are equal, often cheap policies can leave you uninsured for certain events leaving you in financial trouble. The right insurance and advice protects this from happening. There are ways to reduce the cost of your insurance by asking yourself how much you can afford to lose or self-insuring for smaller losses.
Some of these ways are through:
- Excess options – Selecting a higher excess can reduce your premium, as an example you may choose a $1000 excess on your home reducing your premium. This means that any damage under $1000 you would cover without insurance until it exceeds your excess.
- Product choice – Choosing the right product and understanding the cover therefor only paying insurance for what you need.
- Stand down periods – Understanding how long you can continue your daily life without an income before needing insurance.”
Reduce your maintenance costs
We suggest three methods for reducing maintenance costs.
Know What You Are Buying
When you are purchasing a property, ensure you take a step back with a cool head, tell the real estate agent to stop trying to make you emotional and think about the materials. Is it a lovely cedar exterior that will need continual oiling? If it is, you will have to oil it continuously or it will start to become damaged and then need replacing earlier in it’s life than it should. Invest in properties with the knowledge of how much maintenance will be required and cost.
The same theory applies when buying chattels and fittings, a great example is buying light bulbs you can either buy incandescent bulbs or you can pay more for LED bulbs and enjoy a much longer life. This doesn’t just change the cost of the bulb but also the cost of time replacing bulbs.
Do Regular Property Inspections
Whether you are a landlord or you live in your own home, if you build a habit of working through a list of issues consistently every 3 months, it will help you keep on top of maintenance and catch any issues early – before they become more expensive.
Do Preventive Maintenance
“A sign at the top of the cliff is a lot cheaper than an ambulance at the bottom”, you can replace a rusty pipe when you pick up on it during an inspection – or you could wait for it fail and flood your basement and then replace both the pipe and the basement.
Something that is going to fail, is going to need replacing. You can try to put it off but eventually, you will need to replace it – the cost to replace it will remain exactly the same. However the risk of it failing and causing extra costs increases. So replace everything when it needs replacing.