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  1. #1
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    Default Are rentals now worth it?

    After processing tax summaries for my rental properties I wonder now with future capital gains tax on the horizon and slowing capital gains is it worth the hassle. Your financial reward comes from capital gain not the rent. Maintenance is always an underestimated cost. With a very low yield of 2-3% there is no reward for the risk. Maybe property shares or blue chip dividend stocks are the way to go.

  2. #2
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    Quote Originally Posted by voltage View Post
    After processing tax summaries for my rental properties I wonder now with future capital gains tax on the horizon and slowing capital gains is it worth the hassle. Your financial reward comes from capital gain not the rent. Maintenance is always an underestimated cost. With a very low yield of 2-3% there is no reward for the risk. Maybe property shares or blue chip dividend stocks are the way to go.
    For an historical comparison:
    Over the time you have held your properties, calculate what the taxable return was and compare that with the estimated capital gain on your equity invested.

    Compare that with the capital gain and taxable income on a similar investment over the same period in (say) the listed kiwi Properties (KPG) or any other blue chip listed company.

    As for the future - any capital gains tax that may be introduced may also be applied to an investment in a listed company.

  3. #3
    FEAR n GREED JBmurc's Avatar
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    Quote Originally Posted by Bjauck View Post
    For an historical comparison:
    Over the time you have held your properties, calculate what the taxable return was and compare that with the estimated capital gain on your equity invested.

    Compare that with the capital gain and taxable income on a similar investment over the same period in (say) the listed kiwi Properties (KPG) or any other blue chip listed company.

    As for the future - any capital gains tax that may be introduced may also be applied to an investment in a listed company.
    Yes, If you believe the next 10-30 years will be the same as the last 10-30yrs.. not so likely IMHO Huge credit fuel property booms tough lending standards gave away to easy lending interest only 5-10% dep ...... we are all turning Japanese going to zero to negative core rates... consumers can only handle so much debt per household ....how much longer can the same consumers keep paying each other more and more for the same houses
    .
    No western Govt wants higher rates ... well, not if they want to be elected again.. I see Trump is calling for rate cuts and some FED members want more QE .. so much for balancing the books..
    Last edited by JBmurc; 10-04-2019 at 10:14 PM.
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  4. #4
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    Quote Originally Posted by voltage View Post
    After processing tax summaries for my rental properties I wonder now with future capital gains tax on the horizon and slowing capital gains is it worth the hassle. Your financial reward comes from capital gain not the rent. Maintenance is always an underestimated cost. With a very low yield of 2-3% there is no reward for the risk. Maybe property shares or blue chip dividend stocks are the way to go.
    I have wondered that too doing tax returns for our rentals the last few years. We did decide to sell one last year but it did not sell for what we wanted. But as far as profits go and then divide that by the valuation of the property, you are not looking at much of a return on capital at all. We do not have mortgages on them anymore but even then rates, maintenance and insurance as well as management costs really eat into the rents. So we may look to liquidate some soon. The big question then is what do you do with the money? Markets look top heavy, bank interest is non existent so the best option may well be to keep the properties. Dilemmas.

  5. #5
    Legend minimoke's Avatar
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    I used to be into rentals until my stock was wiped out. Over the past few years I have been looking for reasons to get back into this market. For the yield (in what I see as a relatively flat property market with more down side than upside) I cant get the numbers to add up to make it worth while. Risky as our apparently fully priced sharemarket is I have put my money there. Returns so far much better.

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    This is an issue. I too have nearly paid off the mortgages on 3 rentals. Maintenance is the killer. The costs to get any jobs done is now more expensive. So what is left is not much for the return on what the capital is worth.

  7. #7
    Legend minimoke's Avatar
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    Quote Originally Posted by voltage View Post
    This is an issue. I too have nearly paid off the mortgages on 3 rentals. Maintenance is the killer. The costs to get any jobs done is now more expensive. So what is left is not much for the return on what the capital is worth.
    I alos look at out-of-control councils who keep increasing rates way above rates of inflation - there appears to be no appetite to reigning them in.

    Then there is teh insurance companies - look for significantly increased premiums over the years to ensure they have full cover for our natural disaster risks - of which there are many.

    And a government that seems hell bent on having the quality of rentals at a higher level than many who actually own their homes. Costs associated with heating/insulation for example.

    Add the costs of any mould removal due to tennants not properly ventilating the property and ongoing repairs and maintenance. It all adds up.

    Then there is the imbalance of power. A tenant only needs to give 21 days notice a landlord 90.

    Which might be OK if you have a tennatn that can afford the rent and pays regularly. Another risk a landlord has to bear.

    So much easier to own property stocks on the sharemarket.

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    Quote Originally Posted by minimoke View Post
    I alos look at out-of-control councils who keep increasing rates way above rates of inflation - there appears to be no appetite to reigning them in.

    Then there is teh insurance companies - look for significantly increased premiums over the years to ensure they have full cover for our natural disaster risks - of which there are many.

    And a government that seems hell bent on having the quality of rentals at a higher level than many who actually own their homes. Costs associated with heating/insulation for example.

    Add the costs of any mould removal due to tennants not properly ventilating the property and ongoing repairs and maintenance. It all adds up.

    Then there is the imbalance of power. A tenant only needs to give 21 days notice a landlord 90.

    Which might be OK if you have a tennatn that can afford the rent and pays regularly. Another risk a landlord has to bear.

    So much easier to own property stocks on the sharemarket.
    Or a commercial building.

  9. #9
    Legend minimoke's Avatar
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    Quote Originally Posted by fungus pudding View Post
    Or a commercial building.
    That is something I have ever done. May be I should (but in the meantime remain happy to hold the likes of AIA long term)

  10. #10
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    I have rentals and by far they have returned well. HOWEVER, that is because I held them for a long time and got an ‘advantage’ I.e. one, when purchased was not subdividable, but now can hold 14 units. All properties are in great locations and target professionals, or are affordable to those who have good jobs. The rents have grown significantly in most of the locations. Although, Invercargill has been more modest, that said, the yield has been good enough to pay down the mortgage and maintain the house.

    The question is now: would I buy more residential or commercial property? ONLY if I wanted leverage, otherwise the hassle is not worth it, especially when there are listed property companies on the NZ and international markets.

    IF my project goes well (14 units), I could be tempted to do a quality development again but that is because the margin gain is circa 25% but it is a risk.

    Overall, my shares have returned a higher yield (when leverage is excluded) but working the two together has been great e.g. buy usd10k worth of PFE in 2011, sell full value in 2013 for usd17k, return funds to nzd (exchange rate was similar to buy rate), and cut down mortgage. Rinse and repeat a handful of times, then I could leverage up nicely again and I bought in 2014 in Dunedin when no one else wanted to. I did try to manage my risk by doing this in small lump sums and it worked very nicely back then. Now that my LVR is 30% overall, I am not doing it any more.

    I would not purchased a low value home in NZ to use as a residential rental property now unless, I could add good value to it and bring my yield to north of 7% and I would not bank on capital gain at all....it is nice when it arrives but it could be sure as heck nasty when it disappears (I have seen people bankrupted).

  11. #11
    Antiquated & irrational t.rexjr's Avatar
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    I've 1 rental left after having 5 or so properties over the last 20 years. The first 5-10 years was time and cash poor building the portfolio on the smell of an oily rag. If I include a value on that time then the return on investment is only vaguely satisfactory. Yes I'm left with a chunk of cash but on reflection I would've gone a different route. I certainly can't see why you'd bother now.

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    FEAR n GREED JBmurc's Avatar
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    If I had a good chunk of free cash or free equity I'd be looking to BUY another commercial property with long term lease (all outgoings paid for dealing with businesses much more straight forward) .. low interest rates book in 4.39% x5yr ... have seen a few potential great investments returning 7%+ net yields
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  13. #13
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    Depending on your situation, I'm still a fan of REIT's (at an appropriate price). Quarterly distribution, most run DRPs, much better liquidity, under professional management, diversification across a number of properties/business sectors etc - largely set and forget. I for instance don't have the experience, means or risk appetite to put all my eggs into 1 commercial property - but the downside is that can't leverage quite so much or so easily.

    For instance, in the last year could have bought Argosy for around $1.01, now $1.27, with quarterly distributions of 1.563c imputed.

  14. #14
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    Quote Originally Posted by Sideshow Bob View Post
    Depending on your situation, I'm still a fan of REIT's (at an appropriate price). Quarterly distribution, most run DRPs, much better liquidity, under professional management, diversification across a number of properties/business sectors etc - largely set and forget. I for instance don't have the experience, means or risk appetite to put all my eggs into 1 commercial property - but the downside is that can't leverage quite so much or so easily.

    For instance, in the last year could have bought Argosy for around $1.01, now $1.27, with quarterly distributions of 1.563c imputed.
    In addition most are PIES so a big tax advantage to those on marginal rate of 33%.

  15. #15
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    There is a signiificant hassle factor with rentals already and more waiting in the wings. It's getting very complex and very expensive. It is not just about yield, capital gain etc.

    To anyone looking to buy a rental these days I would say - first check out what may be coming down the pike. Potentially large costs for Healthy Homes Act upgrades, fines up to $4000 for not meeting insulation standards payable to the tenant, ringfencing of rental losses*, more rights for renters (like termination notices only permitting some specific reasons, automatic right of renewal). All these are government or Labour policy.

    If that doesn't provide enough to deter, spend an hour or two looking over Tenancy Tribunal decisions. That should finish the job.


    OTOH, landlords are selling up for the above reasons, and also not buying another or building new at anything like the rate of 3 years or so ago. (Feb 2019, new residential lending to investors is now a third of mid 2016 - down thousands or rentals a month, Reserve Bank figures). So >> shortages, and with new compliances and costs shortages allow the pick of good tenants and getting the tenants to pay for the upgrades.

    *Ring-fencing of rental losses is quite major for those buying or building new rentals. Currently the Bill is in Select Committee with a start date of 1 April 2019. If it passes into law (likely) new rentals making the usual loss in the first 5 or 10 years will not be able to offset losses against other income (already the case with some ownership structures but capturing everyone if it becomes law).

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