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  1. #181
    Join Date
    Sep 2004


    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

  2. #182
    Join Date
    Dec 2003
    Hawkes Bay


    Are Investors paying their fair share?

    One of the biggest misconceptions about property investors is that they are all wealthy. While some are, 99% of them are not; they have full time jobs and struggle to make ends meet like any other families. If a tenant doesn’t pay rent or unplanned maintenance needs doing, that money needs to come from somewhere. Sure it is usually tax deductible but you get to claim 1/3 of that back the following year.

    The majority of property investors only have one or two properties as rentals. They pay tax on anything left over after the mortgage and all maintenance, rates and insurance which is usually very little - if anything. It usually takes many, many, years of investing in residential property before any real money is made. I know more investors that have gone bankrupt than I know that have been successful over a long period of time.
    No investor I’ve ever met has wanted to be an investor so they could pay less tax. They go into it because they want to have a couple of properties freehold when they retire and not have to rely on the government supporting them (other tax payers).

    I’ve been investing for about 30 years and started saving (starting with nothing) as much as I could in my early 20’s for a couple of years to buy my first rental. I bought a property with virtually no knowledge after saving $25,000 which was more than a year’s wages as a mechanic for me at that time. Seven years later, I sold the property for a $40,000 loss and ended up with no money once again (I also had a solicitor loan of $10,000 that was paid back as well as a few thousand dollars of principal on the mortgage that had been paid back).
    However I did learn a lot from it and rather than giving up, I put what I’d learnt to use.
    Now 20 years later, it is a lot easier because of what I learnt. Over the years I also learnt how to buy, renovate and sell properties so have completed hundreds of these over the years, as well as now having 80 long term rentals.
    So GST as well as income tax is paid on the ones that we renovate and income tax on the rentals.

    Combined, last year I paid several hundred thousand dollars in tax, and over the last 20 years I would have paid more tax than 90% of people would earn in their lifetime. For many people, that’s still nowhere near enough though. When people say pay your fair share, what is someone’s fair share? Tax them until it’s not worth doing any more? That is what I think will happen if yet more taxes, regulations, rules etc are bought in, not only with property investors, but with business owners as well.

    If taxes are increased too much, you start losing tax revenue as people are driven out of the market. Government interference and wanting to do good for the very people they have made poor, makes them worse off in the end. With all the changes they’ve already put in place, many investors have sold up and if things continue, many more will do as well. Now there’s a waiting list of 10,000 people that have nowhere to live that the government is paying to have them live in motels, spending millions of dollars a week on accommodation for them. The very people that can rent them homes are the ones they are driving out of the market.
    The government spends approximately $80 million every day, 7 days a week on Social security, welfare and the pension.
    This is of course only a part of what they spend daily.
    As mentioned the problem is getting worse with about 10,000 people now on waiting lists, our tax payer money paying for these people to live in motels.
    The more regulations, rules and taxes they introduce will not help any of these people, the problem will just get bigger and bigger until they realise that you just can’t tax a country into prosperity.

    Home ownership rates?

    If more investors are pushed out of the market, there will of course be even less homes for people to rent; and the emergency housing list of 10,000 people will keep growing.
    What happens when someone sells a rental? One of two things, another investor buys it, or a person or family to live in buys it. If another investor buys it, nothing really changes. However if a first home buyer, or buyer returning from overseas buys it, it takes another rental property away from being able to house a family.
    So where does the person or family come from before they buy this home? It could be that they had another home and are upsizing or downsizing, or they could have been renting. These situations again will not change anything, as it hasn’t taken another property out of the available houses to rent. However if they have been living with their parents or in a flatting type situation, this will affect the overall houses available to rent. Often a group of young people will flat together and when one of them is able to buy a home, they will move out, leaving the other flatmates. So in some scenarios, depending on where the buyer comes from will depend whether another rental is taken away from the available properties to rent.

    If tomorrow I sold my 80 properties, there would be a variation of who the buyers are, but it would take away a portion of the overall properties in NZ that are available to be rented. The more that investors are regulated, controlled, told what they can and can’t do, and taxed, the more they will think it’s just not worth it and sell.
    The government is in no position to supply 500,000 of the approx 1.5 million homes in NZ for everyone, if all the landlords decided to sell up, nor would many people want that.
    About 35% of the population in NZ rent, which has slightly increased over the last 40 years but not hugely.
    Another recent thing that has taken a lot of properties out of the pool of houses available to rent is people using their homes as Airbnb. The income is often a lot more than they would get letting them casually, as they would if they were rented to families on a permanent basis.
    There are also a lot of RSC workers that come from overseas to pick fruit for five months of the year and they need accommodation. These again are a group of people that take up some of the available properties to rent.

    There’s a Perception that investors are greedy.

    I think it comes from a few things, ignorance being one of them.
    Another is people’s own perception, or idea of money. The other perceptions originate from the media and the government.
    When the government continues to tell the public that what is needed in the economy - ‘is to transfer money from people who are rich to people who are poor’, people over time get the idea that wealthy people are bad.

    However, if it wasn’t for investors buying properties or business owners employing people, the country would be in a real mess. The media can often sensationalise headlines and people get a distorted view of the article just by a headline. How do I know that? In various articles I’ve been involved with and talked about topics, people jump to so many false conclusions without even reading further than the headline, then commenting.

    There are a lot of people that think investors are greedy, pay no tax and contribute nothing to society. If you ask people to write down what is the first thing that comes to their mind when you mention the word ‘Money’, it will usually consist of a list something like this – ‘struggle, broke, hard to get, rich pricks, bills’ etc. To these people, their mindset is that money is bad, so people with money must also be bad! These are often the people that buy lotto tickets hoping to win a million dollars or more. The problem is, when people with a poor association of what ‘money’ is do win lotto, it is often gone within a short period of time. Why? Because they believe money is bad and so they have to repel it, or get it away from them. Wealthy people have a different association to money, so they attract it, not push it away.

    When I employed people for a franchise I was in for 10 years, we had incentive targets for the employees. As a result of these incentives, they would often get a pay rise of $10 or so a week (probably $20 in today’s money). Each time this happened, the week after they got another $10, I asked if they now had an extra $10 left over to save. They always kind of looked at me weird and said - No, why??

    How long does in normally turn investing into something profitable?

    The first 7 years I lost all the money I’d put in. After that, I’d learnt enough to start again.

    This was done in 3 ways:-

    1. Buy and holds which are a long term investment, and the purpose is to pay the mortgages off over 20 - 25 years and then have the income. Until then, there is often not a lot of profit if any. Many investors will still be running at a loss many years later and the majority never get as far as actually paying their properties off and having the income.
    For me, with buy and holds, out of the 80 or so from memory 17 have no mortgage on them and within the next 8 years or so, about 40 of them will have no mortgage. The rest will be paid off in full over the following 8 - 10 years.

    2. Trading i.e. buying below market and selling, or buying, renovating and then selling. This can be profitable, however there are a lot more skills needed to do this well consistently. In the last couple of years, we’ve bought and sold about 50 properties. These are taxed at a higher rate than income tax, as we pay GST as well. Many investors don’t see the point in risking money doing this type of property investing, as a huge portion is paid in tax.

    3. Wraps or more commonly known as rent to buys. About 20 years ago, I helped about 40 HB families into their own homes with me giving them a mortgage. I would buy the properties at a good price, about 10% below what would be considered their ‘market’ value and then sell them to people who only had around $2,000 as a deposit. A few I also did on no deposit. So I had a mortgage with the bank for say a 7% interest rate and would sell them on at market price to the first home buyer for around 8.5%.
    They would also pay rates and insurance to me weekly which was included in their mortgage payment. This worked well mostly as it gave me about $50 a week cash-flow for each property for setting it all up, plus it got people into their own homes.
    They could refinance at any time with a bank when they had enough equity, which in many cases was only 2 - 3 years. The problem was, two things happened. The banks decided they didn’t like it, and also the IRD wasn’t that favourable towards them. Some of it justified (because of investors doing things that weren’t ethical or made any sense) and some not. The government made up new rules as well with such things as the credit contracts act, and it just again became not worth the hassle of it all, so I stopped doing them.

    Is there an adversarial relationship between tenants and property owners?

    Sometimes yes, sometimes no. Sometimes justified and sometimes not.
    We have ours managed so the tenants deal with our property managers who are great at what they do. Often landlords who manage their own properties will get themselves into conflicts with their tenants. Either the landlord is way too fussy how they want the property kept, or just don’t have the money for costly repairs. Now it’s getting worse of course with all the new rules with insulation, heating, ventilation as well as other things they keep bringing out. Many rental properties are better places to live than the investors’ own homes now, they just don’t have the funds to do the same things to the home they’re living in. This again is another reason more and more investors will leave the market, not being able to afford all the new government regulations. And of course on top of all that, they now want to tax capital gains.
    Last edited by orion; 12-03-2019 at 08:00 AM.
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