Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm: A home afloat - and no mowing

11 comments
Auckland's housing crisis easily solved by one reader
It's not uncommon to see houseboats on waterways in some of the great capitals of the world. Photo / Getty Images
It's not uncommon to see houseboats on waterways in some of the great capitals of the world. Photo / Getty Images

Visit London or Amsterdam and you find folk of all ages living in boats on waterways in the centre of the city. The cost beats both home ownership and renting, yet in New Zealand most folk who live on their own boats have grey hair.

For Aucklanders, there is rapid access to the city centre by ferry from some marinas. The cost is less than renting for two people and the up-front cost can be just $70,000 to $80,000 for marina licence and boat (together with secure parking).

It allows either a "lock up and leave" lifestyle or the opportunity to learn about your floating home while preparing it for cruising through the South Pacific. With no lawns to mow.

We don't have the ice and snow of Europe or North America and we have the benefit of safe and supportive marina facilities.

Our gulf is unique as a low-cost playground with beautiful scenery, great sailing, fishing and diving.

But young folk today are seemingly too preoccupied with mortgages and interest rates to recognise the opportunity.

If anyone expresses an interest in this scenario, I would be happy to point them in the direction of reputable folk who can help them find out the details.

Thanks for an original idea.

To take advantage of your offer, readers can email me and I will forward their messages -- although of course I'm not in a position to judge the quality of your advice.

Gift tax -- or not

I recently read a Herald story with the headline "Young landlord's 11 rentals in 5 years" of a young guy given $200,000 in June 2010 by his dad as a wedding gift.

What are the tax implications of such a gift? I'm sure this would be of interest to parents trying to assist their children onto the property ladder.

There are no tax implications. Since October 2011, gifts are "no longer liable for gift duty and you no longer need to file any documents with us", says Inland Revenue. So well-off parents can go ahead and help their lucky children.

However, I have two other comments about that story:

• This young landlord has been very successful -- so far at least. He says his property portfolio is valued at $6.5 million, and it earns about $275,000 in gross rent each year. He also says he's not worried if property prices fall, as that would enable him to buy more properties.

But you can't grow wealth that fast without taking big risks. And, while those who succeed tend to put it down to skill, there's always an element of luck too.

Anyone thinking of setting out on a similar path should be aware that there are also many people who try to build a property empire fast, but crash. But we don't hear about them.

• The young man plans to raise his rents soon. "I'm not a slum landlord -- I want to charge above-market rents by keeping my places better than the market average," he says. "A tenant will have 20 bucks less, perhaps. But which business in the world actually subsidises its customers?"

I'll probably cop some angry letters for saying this. But that's the kind of attitude that makes some people hate landlords. Selling accommodation -- people's homes -- is not the same as selling ice cream.

On the radio recently, a working mother of two said she earns $380 a week and pays $260 in rent. A $20 rent rise could easily force that family to move. And moving kids is a big deal.

Not everyone gets $200,000 for a wedding present. Couldn't someone so lucky consider giving his tenants a break? How about being proud of charging below-market rents for above-market places?

Furthermore, this anti-subsidy young man should be aware that arguably he himself is being subsidised by the rest of us taxpayers. The Government pays accommodation supplements to many beneficiaries and low- and middle-income workers. This, in turn, must enable landlords to charge more rent than they otherwise could.

Bonus bonds

I remember some time back a University of Auckland mathematics teacher said he had calculated the odds of winning Bonus Bonds. Those who bought them hoping to win he called "mathematically uneducated gamblers", which he shortened to Mugs.

You're referring to the first Q&A in my final column last year, in which a couple asked whether they should put all their $50,000 retirement savings into Bonus Bonds.

I said "No", because they don't pay any interest. And the average return from Bonus Bond prizes has tended to be less than on bank term deposits -- even after taking into account that the prizes are tax-free. Given that Bonus Bond returns are much less certain, we would expect the returns to be higher to compensate for the higher risk.

The professor was probably thinking along those lines. But for another view, read on.

More on Bonus Bonds

While I agree that your correspondent should not put their total $50,000 into Bonus Bonds, I think you are a little harsh in your overall assessment of Bonus Bonds.

I have always viewed a Bonus Bond investment as part of my "on call" cash allocation where I earn, on average, something close to interest on a transaction cash account at the bank, but with a very small chance of a big return.

Since I have spare cash, I have always invested sufficient into Bonus Bonds such that, on average, I win at least one prize a month, usually $20. This used to require a $12,000 investment, but now requires about $20,000, because of the lower interest available to everyone, including the Bonus Bond fund.

On average, I win slightly better than one prize a month and, over 12 years, I have earned on average about 2.5 per cent tax-free. I am perfectly happy with that return.

Your experience is similar to that of another reader, who invested $100,000 into Bonus Bonds in August 2013. His monthly prizes have ranged from $20 to $170, and his tax-free return has been 2.6 per cent.

"It is certainly not part of my investment portfolio, as a growth and income earning investment," he says. "It must be looked at as available cash in emergency with the chance of a large win, so is not an option unless you can afford to do it and may only receive low returns."

A third reader has earned 1 per cent over seven months -- but that's too short a period to judge. Interestingly, though, he invested $50,000 -- the same amount as the couple were planning to invest in retirement. And he won three to five small prizes each month -- although when he dropped the amount to $25,000 he won nothing for three months.

All of this suggests that I was rather too negative when I asked the couple, "How much fun will it be when you realise your investment has made a zero return for several years?" It seems they would almost certainly win something each year.

Still, I stand by my opinion that Bonus Bonds are not the best place for their savings.

However, you two readers have persuaded me that perhaps they're not a bad spot for on-call cash -- if you want to hold a considerable sum in cash. And, who knows, you could get lucky!

It's not clear, though, that it's better than keeping, say, $500 to $1000 on call, and putting the rest in 30 or 60-day term deposits, earning interest.

You can then use a credit card for emergencies, paying that off when a term deposit matures.

Leasehold land

In your item late last year on property ownership, the advice of Anne Gibson -- always try to buy freehold fee-simple titles -- was overly simplistic and limited.

We bought a property on leasehold land that we could not have afforded to buy freehold. It's close to the inner suburbs and has direct access and wide views over Cornwall Park. And the rent does not suddenly increase. It remains the same for 21 years, very different from body corporate fees, which can continue to increase from year to year and in some cases are more than the annual rent on leasehold land.

It is a great place to live and we enjoy living here, although unfortunately we will not benefit from the increase in the land value. We understood that when we bought and planned accordingly.

It's super that you're happy with your property. I just hope you fully appreciate your situation. Not only do you not benefit from increases in land value, but you may also be hit hard by those increases.

When someone buys a leasehold property, the rent for the land is fixed for a period, in your case 21 years. But then it's reviewed. And the new rent is often, say, 5 or 7 per cent of the unimproved land value -- the land minus the house.

Of course, land values can multiply over 21 years. As Anne Gibson said, rent of $2000 or $20,000 a year can become $100,000. That's when disputes often arise, ending up in the Land Valuation Tribunal.

What's more, you're sitting on a property that will be harder to sell than a freehold property when the time comes -- especially if the rent has soared in the meantime, or is likely to soar soon.

I hate to say it, but there's a reason your property was cheaper than if it had been freehold. I suggest you keep in mind how you would handle a big rent rise. And try not to get into a situation in which you need to sell in a hurry.

Sorry to be a wet blanket. But it's better to be damp than dumbfounded.

- NZ Herald

Mary Holm is a freelance journalist, member of the Financial Markets Authority board, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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Mary Holm is a personal finance columnist for the NZ Herald.

Mary Holm is a columnist, best-selling author and seminar presenter on personal finance. She is also a director of the Financial Markets Authority and holds an MBA in finance. Previously she was business editor of the Auckland Sun and Auckland Star, and has worked for the NZ Listener, Australian Financial Review and Chicago Tribune. She has been called “The nation’s favourite investment agony aunt.”

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