NZ 1st homebuyers are ScReWeD...

[fungus pudding]

Funguspudding,

My point was instead of paying $100k in interest over the next twelve months I will be paying approx $70k ... that means I'm $30k better off. To be $30k better off thru normal employment I'd need to earn about $45k ... then get taxed back to $30k ... I just view the $30k as "tax free". Just my simplistic way of looking at it.

But it is wrong. You are now better off by $30,000 either as increased profit - or a decrease in losses, so the $30,000 is taxable, therefore it has improved your income only by $20,000, (using the same 33 % in your 45 to 30k example) To gain 30,000 in your pocket, your interest savings would need to be 45,000; It's no different than if you had worked for it. The taxman doesn't care how you got it. He still wants his bit. Still, it's a long way better than a kick in the butt (or working for it) !

[minimoke]

But it is wrong.

Unless expenditure exceeds income. If the interest bill was $100,000 and rentals income was $70,000 then the landlord has to earn another $50k gross approx to bring in the cash to pay the $30k shortfall. If interest drops $30k then that $50k gross goes straight to the back pocket as $30k after tax.

[minimoke]

Well Shrewdy I’ve just checked out Section Prices – see the different thread. Perhaps you could build your first home on a section. Trouble is you’ve missed the boat on this one as well. Back in Jan 07 when you posted median prices were $165,000. They are now UP 9% at $180,000. That’s another $15,000 you’ll have needed to save on top of that extra deposit you now need.

[minimoke]

Yet another good article from Brian Gaynor........

http://www.nzherald.co.nz/business/n...ectid=10561595

Well claiming in his first paragraph that the economic crisis is due to over investment in housing is a nonsense.
The number one cause, in my view is not over investment in housing, it is simply greed.
First it was greedy lenders who were playing games by lending to greedy people who wanted what they could not afford.

Then it was the greedy Smiths who wanted to keep up with the Jones so they demanded more and more of what the Jones had which lead to higher prices / values and more lending by the Greedy bankers who were happy to create more cash and lend even more. And then it was the greedy developers who were happy to nurture that greed by providing more and more of what people wanted at prices higher than things were worth.

In America it was sub-prime mortgages – that situation was never sustainable. Even the greedy Madhoffs of this world and their greedy Ponzi scheme investors come unstuck eventually.

An investment isn’t buying into something that is over-valued – that’s just greed. We’ve seen it here in NZ – with people buying apartments off the plans, Blue Chip type schemes where property values are inflated and developing subdivisions where the demand is not sustainable. And we had people buy rentals with diminishing yields and doing it for the income – yeah right! It was all just greed. The problems facing people today are caused by greed – not investment in property. Property is simply the guise people have used this time around. Last time around it was Tech Stock in the 90’s next time around it will be something else.

So its impossible to over-invest in something that is over –valued. That’s just throwing money at something on the blind expectation it will keep rising in value – and punting you can flick it to a bigger mug.

[Mick100]

Maybe your right about greed minimoke but the fact is that none of this would have been possible without the easy credit provided by the bankers

now lets get back on topic
the reccession is just beginning to bite in NZ
the true property believers are still keen buyers (i noticed a number of properties, in my area, which had been on the market for around 6 months all sold in feb). Soon there are going to be mortagee sales left, right and centre while all the true belivers have already bought - what's going to happen then?

[minimoke]

Soon there are going to be mortagee sales left, right and centre while all the true belivers have already bought - what's going to happen then?

There’s really only one thing that will cause mortgagee sales – and that is the borrowers inability to repay the interest component of the loan – after the bank has exhausted other techniques like repayment holidays.

Landlords who could afford to borrow a year ago will be even better off now with dropped interest rates making repayments easier – so we won’t see them as mortgagees.

Home owners are OK – again for the same reason.

The exception of course is those that have lost their job with no hope of finding cash to make the repayments. But at the moment the redundancies are mainly low skill / low paid and not likely to be property owners. (landloeds be warned!) And the home owners will still need somewhere to live so they will move from their own owned home to a house owned by a landlord – one house sold = one house bought!

So who does this leave – mortgage holders of properties people don’t want because the value isn’t there. Like apartments; new town developments, holiday home suburbs and the like. Sure you could pick up some bargains – but why would you want to buy?

People do not give up to the mortgagee sale easily. We aren’t like the States. If you owe the bank they want all their money back, the house sale may pay some of the debt but perhaps not all – a person will still owe the balance. And as a result people are going to find real good ways of avoiding this situation. Next we will hear the gloomsayers that bankruptcies will cripple society!

[The Great Gold Guru]

Funguspudding ... I can depreciate the value of my houses by far more than $30k each year ... tax free increase in cashflow ... is that a better way to put it ??

[neopoleII]

has anyone thought about the mountain of state cash dished out to benificaries every year in the form of housing suppliment payments?
with a serious recession loaming, will the govt be able to fund these payments?
as its these payments that prop up the landlords rental income.... and his investment value.

i see property sliding for sometime yet.

[The Great Gold Guru]

Looking to buy 8 more rentals ... falling prices ... "come to papa" !!

[fungus pudding]

Unless expenditure exceeds income. If the interest bill was $100,000 and rentals income was $70,000 then the landlord has to earn another $50k gross approx to bring in the cash to pay the $30k shortfall. If interest drops $30k then that $50k gross goes straight to the back pocket as $30k after tax.

Wrong. The 50,000 gross will be taxed, with the balance going to the pocket.If expenditure exceeds income then the losses are reduced by 30k. Increasing tax liability by the tax on that 30k. interest rate reduction is no different from increasing rent, or working overtime for that matter.