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duncan macgregor
15-08-2009, 08:46 PM
NZ is a country where the small people invest in property for safe investment reasons, more than anything else. In other countries such as the UK, its councils and other institutions that buy property to rent out to the masses. The question I raise is, does it matter who owns, or rents over the property sector. If a person rents rather than buy, then I would sugest that that person is not inclined to be an investor in the first place. I would also suggest that the landlord of the property would be more inclined otherwise to invest in business ventures. I would go down the track further and suggest that encouraging property investment is a good thing rather than a bad thing for the masses of financial illiterates who otherwise would blow their savings. This might appear condescending but true non the less. I think NZ is fortunate that people look at owning property as a measure of success. Stop and think about it guys property ownership should be encouraged not condemned. Macdunk

Financially dependant
16-08-2009, 07:47 AM
I rent so I'm a failure......:o

Sold up a year and a half ago in Queenstown and moved to the garden city. Invested the money in a retirement village, oil and coal seam methane........will not be buying back in for another couple of years.

Buy a house for $450k or rent it for $400 per week.....:rolleyes:

STRAT
16-08-2009, 09:39 AM
Hi Macca,
Two things stand out for me.
My home, rightly or wrongly is a security blanket. I find comfort in the fact I own it.
I have made good money from real estate. By far my best investments ever. Perhaps not the best anual return but certainly effort required to achieve the result was minimal when compared to other things like the share market and it is one of the few places I have felt safe using leverage.

voltage
16-08-2009, 10:21 AM
The reason most people do well in property long term is because of leverage.

STRAT
16-08-2009, 10:43 AM
The reason most people do well in property long term is because of leverage.Yup. No debate there Voltage. Add to that that a large chunk of the expence is money that would otherwize be spent on rent ( 1st property owner occupier )

Capitalist
16-08-2009, 02:47 PM
Excellent post Macdunk. There is a lot of snobbery around over property - you know - only the great unwashed invest in it.

Property is the usually the only way Mr and Mrs Joe Average accumulate assets.

I for one am delighted the property permabears have been proven wrong.

minimoke
17-08-2009, 09:09 AM
If a person rents rather than buy, then I would sugest that that person is not inclined to be an investor in the first place.

On the whole I'm incliend to agree. But renting is a perfectly acceptable option providing the renter has made a decision that putting there cash somewhere else will get a better return further down the track.
I haven't been a renter for a whiel - last time was when I sold up before buying the next place which I didn't know where at the time. Being a cashed up renter / buyer was a good place to be!

Actually, in hindsight "return" might not be the best word. But what I reckon is that a person needs as many assets behind them as possible at retirement age and should certainly be building net assets before then. Therefore property investment and home ownership are perfectly acceptable forms for placing your cash.

duncan macgregor
17-08-2009, 12:40 PM
I would be inclined to think that the people who rent all their lives a high percentage become a burden on the community in later life. I know very few successfull people who dont own property of one type or another. Exception to every rule, some people have jobs that make it difficult to own property. The unfortunate ones get a house provided by their employer, giving them the opportunity to live a higher life style than would normally be the case. Human nature being the way it is, most people live a life style close to their incoming income. NZanders on average according to what i read have only enough savings to last only one month if their income stops. That is a sad stastistic
The Govt in the past has always encouraged home ownership with state advances cheap loans, plus advanced payment of family benefits for a deposit etc etc. This got people on their feet to prosperity getting them away from the state house bludge of the govt thinking. Its a wonder they never continued. I think the downtrend in thinking started when banks took over with fluctuating mortgage rates for much shorter terms. People are left thinking the rate might go up to an unaffordable level.
Some one has to own the house you live in, be it the landlord, the council, the Govt,or yourself. The cheapest and best owner is your self as far as the country and tax system goes. Its an asset that increases in value over time, plus a source of cheaper loans in business. Macdunk

Huang Chung
17-08-2009, 03:26 PM
I recall seening interviews with several couples before the GFC who decided that they were better off renting, and channel the funds that would otherwise go on mortgage repayments into the stockmarket.

I hope that had some put options in place or traded out of their positions before the downturn took hold.....

George
17-08-2009, 04:45 PM
Good point HC
I have to be honest and say that if my better half had not convinced
me to buy a little house a couple of yrs ago and we were stil renting,
that I probably would have lost all spare cash in 2008 and have to start
again - again.
Duncan makes another good point, about financial illiteracy, if you
don't know what you are doing that property is the safest investment for most.
But that raises another point - if you do know what you are doing you can invest
in anything apart from property - shares, gold, horses, sports, art etc. etc.
George

The GrandMaster
17-08-2009, 06:10 PM
I am a renter - and have no intention of ever living in my own 'home'. Which is not to say I will not own property at all, I am currently looking for investment property opportunities - though am still disappointed by the yields that are on offer. But that decision is more a desire to diversify my overall portfolio of investments, than any eagerness to get into property investment.

My decision to rent is both financial (I prefer to live in areas where owning doesn't stake up - my weekly rent is considerably less than what the weekly cost of buying would be) and non-financial. I like the relative freedom of renting - it is relatively easy for me to up and move somewhere else (and have done so). I also like to live a lifestyle free of the burden of significant mortgage repayment costs or tieing up my equity into a single investment.

So not surprisingly, I do find Macdunk's comments somewhat condescending - not that I mind/care. I find NZer's unbending belief in property ownership amusing, as well as lacking of any imagination - but I do not begrudge anyone's desire to own their own 'home'. Though I am often in disbelief at the price some people are willing to pay to obtain this.

I just do not have any emotional attachment to own a few bricks topped with a few tiles. However, contrary to Macdunk's opening post, along with having various equity investments, I am also involved with a start-up company, as well as holding down the "day job". I would think this is more enterprising than most property owners. Maybe of concern to us renters is that many property owners become a "burden on the community" as they find they have over-extended themselves to obtain the "kiwi dream".

I love the debate though.

stanace
17-08-2009, 06:51 PM
I am slightly bemused by the way this thread has become to rent or not. I would have thought that all things being roughly equal, that someone would have pointed out that it is clearly beneficial, taxwise, that if you owned property, that you should rent it out, and then rent oneself.
This way one gets all the tax benefits of owning a rental property, eg depreciation, interest costs, home office, car, etc etc, and one can live in an upmarket property that one could never afford if one took into account things like rates, interest, and maybe body corp fees if it was say, an apartment. All the time being in a position to get capital appreciation if it occurred.
Normally I am prepared to listen to another side of most arguments, perhaps excluding dopey religious ones, but to me, this particular discusion is a no brainer.
Forgive me in advance if it is the wine talking, but I have never understood arguments to the contrary, except that women want a nest that they can call their own.

The GrandMaster
17-08-2009, 07:17 PM
I am slightly bemused by the way this thread has become to rent or not. I would have thought that all things being roughly equal, that someone would have pointed out that it is clearly beneficial, taxwise, that if you owned property, that you should rent it out, and then rent oneself.
This way one gets all the tax benefits of owning a rental property, eg depreciation, interest costs, home office, car, etc etc, and one can live in an upmarket property that one could never afford if one took into account things like rates, interest, and maybe body corp fees if it was say, an apartment. All the time being in a position to get capital appreciation if it occurred.
Normally I am prepared to listen to another side of most arguments, perhaps excluding dopey religious ones, but to me, this particular discusion is a no brainer.
Forgive me in advance if it is the wine talking, but I have never understood arguments to the contrary, except that women want a nest that they can call their own.

I'll second all that (though I've got a big hoppy IPA and not a wine in my hand)

George
17-08-2009, 07:39 PM
You guys prove my points I think - you can do all that IF you
have the required financial education - most people do not and
theoretically would be better to lock their hard earned in bricks
and tiles rather than fritter it away as most surely do.

fungus pudding
17-08-2009, 07:44 PM
I am slightly bemused by the way this thread has become to rent or not. I would have thought that all things being roughly equal, that someone would have pointed out that it is clearly beneficial, taxwise, that if you owned property, that you should rent it out, and then rent oneself.
This way one gets all the tax benefits of owning a rental property, eg depreciation, interest costs, home office, car, etc etc, and one can live in an upmarket property that one could never afford if one took into account things like rates, interest, and maybe body corp fees if it was say, an apartment. All the time being in a position to get capital appreciation if it occurred.
Normally I am prepared to listen to another side of most arguments, perhaps excluding dopey religious ones, but to me, this particular discusion is a no brainer.
Forgive me in advance if it is the wine talking, but I have never understood arguments to the contrary, except that women want a nest that they can call their own.

You're right - upmarket properties are not worth owning as the rental always represents a bargain for the tenant. So own 3 dunger rentals and live in a palace, but only if living in a palace is important to you. But you need to have a reason in case the taxman asks why you're doing it. The laws of income tax state that any action taken for the sole purpose of avoiding tax (a scheme) can be overturned by the IRD.

The GrandMaster
17-08-2009, 07:52 PM
You guys prove my points I think - you can do all that IF you
have the required financial education - most people do not and
theoretically would be better to lock their hard earned in bricks
and tiles rather than fritter it away as most surely do.

I love frittering it away - it's fun. Can never understand the appeal of spending weekends and holidays "doing up the house".

Each to their own...

stanace
17-08-2009, 08:23 PM
You're right - upmarket properties are not worth owning as the rental always represents a bargain for the tenant. So own 3 dunger rentals and live in a palace, but only if living in a palace is important to you. But you need to have a reason in case the taxman asks why you're doing it. The laws of income tax state that any action taken for the sole purpose of avoiding tax (a scheme) can be overturned by the IRD.

There is no tax rule that says that you have to live in a property you own. And certainly you do not have to live in a property that is too small for you and your family. What I have suggested is not tax avoidance, the very opposite, if you have a rental property that is positively geared you will pay tax on the profit. And nobody pays tax by living in their own home, so there is nothing to avoid.

fungus pudding
17-08-2009, 08:50 PM
There is no tax rule that says that you have to live in a property you own. And certainly you do not have to live in a property that is too small for you and your family. What I have suggested is not tax avoidance, the very opposite, if you have a rental property that is positively geared you will pay tax on the profit. And nobody pays tax by living in their own home, so there is nothing to avoid.

True that you do not have to live in a property you own, and certainly not one that is too small, which is what I said - make sure you have a reason - real or imagined. The IRD have in the past disallowed expense claims where they have deemed the owner has arranged his accomodation affairs merely to avoid tax. It's a minor point though, because normally they would not be aware of such circumstances unless you wave a flag under their nose. Many years ago when I was foolish enough to invest in residential property I organised with a fellow landlord to swap houses and pay each other rent. My accountant talked me out of it because he thought it was devised for tax advantages - and looked like it; but looking back we should have done it anyway.

Huang Chung
18-08-2009, 06:59 PM
In my view, you are either into property investing or you're not (a bit like share investing). I was a landlord for 8 years and hated every moment of it. Even though I've lost a lot through the GFC, I love investing/trading shares, and would never go back to property, no matter how lucrative the deal.

Each to their own, as they say.

Ptolemy
20-08-2009, 10:13 AM
True that you do not have to live in a property you own, and certainly not one that is too small, which is what I said - make sure you have a reason - real or imagined. The IRD have in the past disallowed expense claims where they have deemed the owner has arranged his accomodation affairs merely to avoid tax. It's a minor point though, because normally they would not be aware of such circumstances unless you wave a flag under their nose. Many years ago when I was foolish enough to invest in residential property I organised with a fellow landlord to swap houses and pay each other rent. My accountant talked me out of it because he thought it was devised for tax advantages - and looked like it; but looking back we should have done it anyway.

Well that would mean that half of the national government would be avoiding tax! They wouldn't do that would they?

JBmurc
20-08-2009, 07:47 PM
I see owning my own property as much like having cash in the bank the banks certainly see the property as a store of value (cash) an will lend against it for any investment I myself have 150,000 invested in the sharemarket from the bank using my property as cover
A well built property should at least keepm with up with infaltion...3%-5% growth per ann etc but best of all it keeps a roof over your head without paying rent

steve fleming
20-08-2009, 08:40 PM
My decision to rent is both financial (I prefer to live in areas where owning doesn't stake up - my weekly rent is considerably less than what the weekly cost of buying would be) and non-financial. I like the relative freedom of renting - it is relatively easy for me to up and move somewhere else (and have done so). I also like to live a lifestyle free of the burden of significant mortgage repayment costs or tieing up my equity into a single investment.


Depends on your stage of life as well.

When I was single and doing lots of travelling, owning property was a bit of a hassle.

Now that i am married and with a kid on the way, living in our own home gives us a lot more security and control over our destiny, relative to renting.

minimoke
21-08-2009, 09:08 AM
.... I would have thought that all things being roughly equal, that someone would have pointed out that it is clearly beneficial, taxwise, that if you owned property, that you should rent it out, and then rent oneself.
This way one gets all the tax benefits of owning a rental property, eg depreciation, interest costs, home office, car, etc etc, and one can live in an upmarket property that one could never afford if one took into account things like rates, interest, and maybe...

Not necessarily. If we look at the cost of interst for example you can only claim this as a taxable expence if you have secured a mortgage with the intent of deriving an income from that debt. If you have borrowed to buy your own home and then rent your home out you can't claim the interest as part of your rental tax return.

minimoke
21-08-2009, 09:10 AM
I see owning my own property as much like having cash in the bank the banks certainly see the property as a store of value (cash) an will lend against it for any investment I myself have 150,000 invested in the sharemarket from the bank using my property as cover

And thats a really good reason to get into property. See how much you can borrow using your $150,000 in shares from the bank - it won't be nearly as much as having $150,000 worth of eqity in a property.

JBmurc
21-08-2009, 10:36 AM
And thats a really good reason to get into property. See how much you can borrow using your $150,000 in shares from the bank - it won't be nearly as much as having $150,000 worth of eqity in a property.

Yeah that is as long as you invest in a good freehold property units-apartment etc I wouldn't touch got to own the land aswell IMHO has been the main driver of property value overall here down south

Casa del Energia
21-08-2009, 04:28 PM
Well, that's one way to start a heated debate - start a thread on property ownership.
Excellent stuff, McDunk. Made my life a little more interesting.

Thank you.

The GrandMaster
22-08-2009, 11:11 AM
Depends on your stage of life as well.

When I was single and doing lots of travelling, owning property was a bit of a hassle.

Now that i am married and with a kid on the way, living in our own home gives us a lot more security and control over our destiny, relative to renting.

And I guess this is the point. Home ownership is all about an emotional decision and nothing about a financial one.

Except of course for those who put themselves into a large amount of debt to force a type of savings discipline on them. Though I have always found this argument a little bizarre, that the best course of action for those who lack financial control is to put what will be a lifetime of savings into the single investment.