sharetrader
Page 1 of 2 12 LastLast
Results 1 to 10 of 15
  1. #1
    Member
    Join Date
    Sep 2007
    Posts
    400

    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
    Guru
    Join Date
    Aug 2012
    Posts
    4,659

    Default

    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
    Join Date
    Sep 2002
    Location
    Central Otago
    Posts
    8,477

    Default

    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 09:14 PM.
    "With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future." — Carlos Slim Helu

  4. #4
    Guru
    Join Date
    Apr 2003
    Location
    Wellington, New Zealand
    Posts
    4,876

    Default

    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
    Join Date
    Mar 2005
    Location
    Christchurch, New Zealand.
    Posts
    6,502

    Default

    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.

  6. #6
    Member
    Join Date
    Sep 2007
    Posts
    400

    Default

    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
    Join Date
    Mar 2005
    Location
    Christchurch, New Zealand.
    Posts
    6,502

    Default

    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.

  8. #8
    Legend
    Join Date
    Apr 2008
    Location
    Sth Island. New Zealand.
    Posts
    6,428

    Default

    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
    Join Date
    Mar 2005
    Location
    Christchurch, New Zealand.
    Posts
    6,502

    Default

    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
    Member
    Join Date
    Aug 2015
    Posts
    284

    Default

    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).

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •