I agree blackcap. I do hold residential rental property as part of my portfolio and will continue to do so (unless this Government continues to make it harder) but it would be much easier and equally successful long term just to have it in shares.
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My uncle in Australia has invested heavily in real estate for about 40 years and used the same model of borrowing maximum with use of negative gearing, and with no intention of ever paying the mortgages off as every so many years he went out and bought more properties. Now, or since the psat 10 or so years Australia imposed stamp duty on real estate investments. He says there are no significant gains and all he does is just work for the bank. He's also too frighten to sell any of his properties because of CGT and hindsight, he tells me he would of been better off invested into the sharemarket. Of course this is Australia. In NZ we have an entirely different can of beans and i'm not seeing the Kiwi Savers having more than the real estate investors. Of course there are exceptions but I keep hamming the same issue; unlike Australia, NZ has a clear tax advantage in residential properties.
Another uncle is trying to sell his house in Australia for which he said had made x 3 times capital gain for holding around 30+ years. The offer was accepted but since he lives in NZ, he NZ lawyer and the Australian lawyer have got their hands in the pot. He would most certain have to pay CGT but the other issue is, Australia's tax dept may take a closer look and query about the rental income he's earned off it for the whole time he's owned the property. On top of this you have NZ's AML and CRS regulations. Again, Australia is not like NZ where you can have tax free ie 'home stay' income. I told him hindsight, he would been far better off buying Auckland real estate instead.
Yes fully understood ...strange why the article on I.O over I.P didn't put this into the perspective of income to debt ratio ... which banks are they using ??
But I've seen the same promotion on the NZ propertytalk forum .. the idea to property wealth is as basic as BUY and HOLD then RENO revalue -repeat and don't stress about yield as the ongoing Capital Gain will make you rich Negative Yield no stress .... the no money down 20 properties in a year hype etc
In NZ, tax free capital gain on the sale of residential houses. There are so many ways one could game the system; via being a slumlord or doing fixer uppers, holding the properties in multiple names within the family. The gaming of being tax free is so significant that IRD does not have the tools to monitor it. VERY different to in Canada where lawyers and real estate agents are held accountable by the tax dept for not crossing the Ts and dotting the Is. In NZ if a real estate agent is caught not confirming with AML, well they just lose their job. In Canada, up to 1/3rd (IRC) of the value of the house must be held in a retainer and is not released until the CRA gives the OK.
So when you compare to Kiwi Saver, an investment scheme where you can't leverage and the gains are taxed annualy, it doesn't take long to realise that "cumulative" gains are not really there despite employer matching contributions. FYI, this was all addressed in Canada when they introduced RRSPs. Small matching % of contributions are ineffective as many managed funds take more than 2 or 3% in admin / mgt frees (especially during the 80s and 90s era). So they made a maximum of 18% limit for matching contributions. In additions, UNUSED contributions in previous years could be carried forward indefinitely. Meaning on years where you contributed nothing to your pension, the CRA would allow that portion credit to applied in the next year (essentially doubling your contribution amount). This flexibility is critical as stock market rise and fall and so should the investor be able to choose WHEN they want to be in the market or not.
You must be blind because i'm seeing everyone (well not everyone but a ton of people) gaming IRD. Accountants know themselves advising clients how to buy residential properties and NOT fall in the trap that IRD will tax their investment upon the sale of the house. Such as keeping the house well long enough before selling, and not selling more than 1 house within a short period of time. Why? Because IRD rules are, holding houses long enough = tax free capital gain. This is entirely different to IRD's view on share investments where you hold them for 1 day or for 10 years, the gains are taxed annually.