Negative gearing question?

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#1220415 22-Jan-2015 21:56

joker97: I would suggest that passive income (collecting rent) is a gain, and so is not paying a cent on mortgage once you own 100% of the house is another form of passive gain

I would suggest either of the following methodologies:
- Compare what you're paying in rent versus the non capitalisable outgoings in an ownership scenario - i.e. everything except principle repayments.
- Compare all outgoings in an ownership scenario versus the same outgoings in a rental scenario consisting of rent paid plus balance invested.

Either of these approaches will give you a like-for-like comparison in regards to what, if any, asset you own at the end of the term.

afe66

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#1220417 22-Jan-2015 22:07

alasta:
afe66: My first house $380k 2004, total renovation 20k, sold 2013 $720k,

so thats' 340k - 20k, $320k profit for doing nothing all tax free over 9 years.

So the house, there's no way I would have bought the same house 9 years later...... so I think there's more going on than people spending all their money of "iphones".A.

Market related capital gains are a strange beast because people feel good about it, but in reality you only realise the gain if you sell up and don't buy another house. So, in most cases the gain is theoretical rather than real.

That's why I have ignored capital gains when performing my own analysis, however it's still important to factor in the inflation shield that goes along with propery ownership.

Or you move to a different part of the country which released the capital gain and bought a nicer house for cash and put the cash aside.

A.

One year after I sold that house, it was sold again for 130k more than I sold it for. So gone from 380k 2004 to 820K in 2014 with only 30 k renovations (which were tax deductible because I moved and rented it out)

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#1220435 22-Jan-2015 22:40

alasta:
joker97: I would suggest that passive income (collecting rent) is a gain, and so is not paying a cent on mortgage once you own 100% of the house is another form of passive gain

I would suggest either of the following methodologies:
- Compare what you're paying in rent versus the non capitalisable outgoings in an ownership scenario - i.e. everything except principle repayments.
- Compare all outgoings in an ownership scenario versus the same outgoings in a rental scenario consisting of rent paid plus balance invested.

Either of these approaches will give you a like-for-like comparison in regards to what, if any, asset you own at the end of the term.

all things being equal, you are left with
renting: balance invested and returns
owning: maintenance and capital gain

in AKL/CHCH previously owning wins hands down
in some region renting wins hands down
most places - depends on what the renter does with the balance - most likely bought depreciating stuff and what the owner bought eg a modern house with a vac every now and then and lots of rates

networkn

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#1220441 22-Jan-2015 23:02

Bobdn:
networkn: Another thing I see stupid money spent on : Weddings and Engagement rings. One youngish guy I know spent 20K on the ring and 30k on the wedding. He was complaining about house prices and I couldn't help but laugh out loud.

That really is funny. I hear similar stories all the time. It's like "high house prices" is just the excuse people need to blow serious cash on cars and holidays because, hey, houses are so expensive so why even try?

Edit: 20K on a ring is insane. On the Warehouse website today they have a lovely looking ring for $2400 reduced from $8000! He should have just gone for that one and use the change to put a deposit on a house in Wanganui.

http://www.thewarehouse.co.nz/red/catalog/product/1-Carat-Diamond-Solitaire-18ct-Gold-Diamond-Ring?SKU=1784413

When I proposed to my wife, I became even more certain she was the one when I took her to the ring shop in Noumea, and told her, you can have whatever you love, and she opted for a $1200 ring and told me she would rather add it to our mortgage :)

Our wedding in Fiji in a glass chapel surrounded by our family, cost $11K including our honeymoon. It was magical and the people who attended still talk about it from time to time.

My Ex boss spent $50K on the engagement ring, and over 100K on the wedding. 500 people, open bar, and we were the only people at our table who had personally met the bride or groom! True story. (they were friends of his parents).

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#1220443 22-Jan-2015 23:03

probably leases a porsche too?

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#1220447 22-Jan-2015 23:20

Something that rarely gets mentioned is that increase in property prices is also really good for business owners too.

Most small-medium businesses in NZ borrow funds against the equity in their homes. It's cheaper (usually at home loan rates rather than higher business rates), is better for cashflow (can be amortised over a longer period up to 25-30 years), and banks will much more than likely lend to you if there's mortgage security behind a loan.

Without the increase in property prices a lot of businesses wouldn't have easy access to capital to fund their startup business or fund their business expansion.

Geektastic

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#1220450 22-Jan-2015 23:49

Bobdn:
networkn: Another thing I see stupid money spent on : Weddings and Engagement rings. One youngish guy I know spent 20K on the ring and 30k on the wedding. He was complaining about house prices and I couldn't help but laugh out loud.

That really is funny. I hear similar stories all the time. It's like "high house prices" is just the excuse people need to blow serious cash on cars and holidays because, hey, houses are so expensive so why even try?

Edit: 20K on a ring is insane. On the Warehouse website today they have a lovely looking ring for $2400 reduced from $8000! He should have just gone for that one and use the change to put a deposit on a house in Wanganui.

http://www.thewarehouse.co.nz/red/catalog/product/1-Carat-Diamond-Solitaire-18ct-Gold-Diamond-Ring?SKU=1784413

I agree - people do some odd things.

Houses are not even THAT expensive. We are planning to move to Auckland shortly and need a place with at least 1Ha. This means we are looking south or west because my wife needs access to the rail network.

We found plenty of choice at prices that were not notably more than similar properties in South Wairarapa. Sure, a big house in Ponsonby or somewhere will cost plenty, but name one decent international city where that would not be the case.

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heylinb4nz

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#1220580 23-Jan-2015 09:43

logo: Something that rarely gets mentioned is that increase in property prices is also really good for business owners too.

Most small-medium businesses in NZ borrow funds against the equity in their homes. It's cheaper (usually at home loan rates rather than higher business rates), is better for cashflow (can be amortised over a longer period up to 25-30 years), and banks will much more than likely lend to you if there's mortgage security behind a loan.

Without the increase in property prices a lot of businesses wouldn't have easy access to capital to fund their startup business or fund their business expansion.

and if prices fall back massively alot of those owners will fold when the value of the home + equity do not cover the amount of money borrowed. Rapid growth can also be followed by rapid recession, making the landing oh so much harder.

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#1220821 23-Jan-2015 14:42

heylinb4nz:
logo: Something that rarely gets mentioned is that increase in property prices is also really good for business owners too.

Most small-medium businesses in NZ borrow funds against the equity in their homes. It's cheaper (usually at home loan rates rather than higher business rates), is better for cashflow (can be amortised over a longer period up to 25-30 years), and banks will much more than likely lend to you if there's mortgage security behind a loan.

Without the increase in property prices a lot of businesses wouldn't have easy access to capital to fund their startup business or fund their business expansion.

and if prices fall back massively alot of those owners will fold when the value of the home + equity do not cover the amount of money borrowed. Rapid growth can also be followed by rapid recession, making the landing oh so much harder.

That's where you're wrong. The banks won't demand a reduction in a loan if your property price falls as long as you meet the repayments.

The same applies to salaried and waged home owners. How many cases have you heard of the bank demanding a reduction of your loan because property prices have fallen. The only examples I can think of are large corporate deals involving commercial property finance with specific covenants that the lvr (or liquidity or any other condition) must be xxx%.

If your property falls in value, it's only a paper loss until you sell. My house dropped in value in the gfc. It had no effect on me aside from a psychological feeling of being less wealthy. I still paid my loan repayments on time. If the value of my house dropped to less than what was owing I suppose I could have walked away from it but I would still be liable for the debt as we don't do non recourse debt in NZ (unlike the states where that type of lending encourages people to hand in their keys)

This could change in the future given how regulated the financial sector has become.

Ragnor

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#1223402 27-Jan-2015 17:16

heylinb4nz:

and if prices fall back massively alot of those owners will fold when the value of the home + equity do not cover the amount of money borrowed. Rapid growth can also be followed by rapid recession, making the landing oh so much harder.

If prices crash due to a recession it will actually be good for kiwi first home buyers. Speculative overseas investors will be scared off and there will be lots of tasty mortgagee sales.

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#1223403 27-Jan-2015 17:18

logo:

That's where you're wrong. The banks won't demand a reduction in a loan if your property price falls as long as you meet the repayments.

Depends on the size of the drop.

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#1223515 27-Jan-2015 20:16

Ragnor:
logo:

That's where you're wrong. The banks won't demand a reduction in a loan if your property price falls as long as you meet the repayments.

Depends on the size of the drop.

What size are you talking about? Any specific examples you can refer to? (I'm talking about residential not commercial which is a different kettle of fish)

richms

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#1223545 27-Jan-2015 20:29

IMO the first ones they go after if there is a drop is the perpetual refinancers who keep topping up as they get more equity.

Richard rich.ms

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#1224789 29-Jan-2015 15:57

Bottom line is that if houses prices were really too high, people couldn't buy them and prices would fall to meet the market. They only sell for these high prices because people are prepared to buy them.

We got an offer on our house over xmas for 250k more than it's new valuation and considerably more than we paid for it 8 years ago, and it's not even on the market nor had we expressed interest with any agents.

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#1224795 29-Jan-2015 16:10

nathan: some loon?

you want to negative gear against your salary because you don't want to pay tax? Tax that pays for hospitals, schools, police, dole bludgers and defence? who's going to protect you when the plebs with no money and houses need food and come raid you property? Build bigger gated walled communities to hide behind and pay for private police.

You mean like microsoft nz ?

http://www.stuff.co.nz/business/industries/65499276/microsoft-nz-ownership-transferred-from-us-to-luxembourg

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