Q: With regards to your first letter last week about long-term renting, another option is to buy a rental outside of your preferred area.
Our daughter lives in Auckland and can't leave due to shared custody arrangements, but has managed to buy — with a decent deposit — a good investment home a few hours north of Auckland. All expenses are covered by the rental income.
She gets to rent what works best for her family, and when her circumstances change, in 10 years say, she can choose to move to her property in a great growing area with good capital gain.
A: Sounds good, but I wouldn't count on a big gain continuing. While it's highly unlikely a house value will fall over 10 years, it seems clear that prices won't keep growing at the ridiculous pace of the last 10 years.
They are already slipping. While average house prices across the country grew 18.6 per cent over the year ending March, to just a squeak over $1 million, if we look at just the three months ending March, the average price fell 0.6 per cent, says QV.
Of course, price changes won't matter so much if your daughter decides to live in the house. But many "renter landlords", as they are sometimes called, plan to sell the tenanted property down the track at a big enough gain to buy in Auckland or wherever they couldn't afford to buy earlier on.
The argument is that they are "in the market" in the meantime. Trouble is, there isn't just one housing market in New Zealand. Trends vary widely. For example, in the first three months of this year Westland house prices grew 11.2 per cent, while Hutt City prices fell 5.2 per cent, says QV.
Other possible problems with being a renter landlord:
• You'll probably miss out on KiwiSaver first home help — both the grants and the ability to withdraw your money. You can't use the grants or withdrawals to buy a rental property. And if you want to buy your own home later, you won't be eligible for the KiwiSaver help because you already own a home. If you sell the rental first, you could apply as a previous home owner who no longer owns property. But in that situation you are asset-tested. If you've sold the rental at a gain, you probably won't be eligible.
• You will need a higher percentage deposit to buy a rental than your own home. Still, 40 per cent of $500,000 ($200,000) is less than 20 per cent of $1.5 million ($300,000).
• Check how the bright-line rules will affect you. If you buy from now on, and sell your rental within 10 years of purchase, your gain will be taxed. Those who already own a rental property should check their situation at tinyurl.com/BrightLineNZ
• Being a long-distance landlord can be tricky. How do you deal with a 2 am call to say the house is flooded? You will probably need to pay for a local property manager — and hope they do the job well.
• Our correspondent says their daughter's expenses are covered by the rent she receives. But what if she suddenly finds the roof needs replacing? Or she has no tenants for several weeks? Or ... the usual list.
All in all, it might be better — and certainly easier and less stressful — to keep saving lots in KiwiSaver. True, you don't benefit from gearing — getting gains on the bank's money as well as your own. But gearing can work against you if house prices fall. You can end up after a property sale with a debt to the bank.
In KiwiSaver, as you approach house-purchase time, you can switch to a low-risk fund so you're not affected if the sharemarket plunges.
Sorry to be so negative. Despite the list above, many renter landlords have done well in recent years. And no doubt some will continue to do so. There's a lot of luck in it. Here's hoping your daughter gets her share of the luck.
By the way:
• In the various conversations about tenants versus landlords, it would be good to include a group of renter landlords, who must have both perspectives.
• Some people call renter landlords "rentvestors". Doesn't really roll off the tongue, does it!
Home ownership safer?
Q: Your answer to the first question last week, about whether to buy a home or keep renting, should have noted it may be difficult for the 50-year-old to get a home loan in a few years.
The risk of renting is you have limited control over how much rent you will be paying in 10, 20 or 30 years. Home ownership is a safer bet in my opinion. It's unlikely interest rates will return to the rates we were paying in the 80s.
A: It's true that it's harder to get a mortgage as you get older. However, if the renter does as I suggest, and saves the difference between their rent and all the costs of home ownership, they should have an impressive deposit after, say, 10 years, which will help with borrowing.
In any case, my main point last week was that it can work well to rent for your whole life. And to my surprise, in a country enamoured of home ownership, you are the only person who has written to disagree with my argument!
On control over how much rent you pay, a homeowner has less control over mortgage interest, insurance and rates. After all, you can move if your landlord ups the rent too much. Also, home owners never know when they will need to do big spending on maintenance.
Home ownership brings many benefits, as I outlined last week. But safety — in terms of knowing what your future costs might be — is not one of them.
Students & shares
Q: I read your recent article about the school teacher and the share club for their students.
I really applaud the intention since I agree that there is a lack of financial literacy amongst many young people.
However, I actually think that the skills required for share investing are quite different from the skills required for financial literacy for a normal life.
I believe that the teacher would achieve a better result if they focused on things such as living below your means, saving wisely (two savings accounts — long-term retirement and consumer/emergency), don't get into consumer debt etc.
An idea for this teacher is that with my children I went through the junk mail and calculated and then compared the cost of things they wanted (cellphone, TV etc) from different retailers. The results were amazing. Prices for a 55inch TV ranged from $700 to over $5000 through an instalment payment scheme.
This price relativity continued for cellphones, washing machines, dryers etc. The home shopping trucks were even more expensive but the calculation was really complicated. The kids could bring their own junk mail from home and the class could do the real-life calculations. And they could make the "what would you do with your money?" or "if you saved and waited to buy then you could spend $4000 less" decisions.
I tried to get this sort of real-life calculation added to several agencies' teaching, but they all said they had their own programme. (This included the Ministry of Education, local schools, national budget advisory groups). I gave up in the end.
A: It's so common to hear people declaring that schools should teach more about money.
But you've taken action on it. Good on you! And I like your practical teaching idea.
As you've discovered, though, there's already lots going on in financial education in schools — certainly way more than when we were kids. See for example Sorted in Schools.
The Sorted website bills it as:
• "Financial capability teaching and learning programme
• "Government funded and free for all secondary schools
• "Designed by teachers for teachers
• "Available for both English Medium and Māori Medium Education."
The resources cover topics like debt, money management, KiwiSaver and insurance. And "80 per cent of schools and kura throughout New Zealand have signed up for the Sorted in Schools programme," says Nick Thomson of the Retirement Commission, which runs Sorted.
Schools don't teach it as a mainstream subject, he says. "However, the Sorted in Schools programme can be taught in core subjects such as maths, English, social sciences and health." Great start. Here's hoping the 80 per cent becomes 100 per cent. And that all students learn it.
Still, I don't agree that it would work for our teacher correspondent to cover these sorts of topics in a student club that meets at intervals and lunchtime. That material has got to be sexier — like investing in shares.
Investing's no game
Q: It is great to see there are teachers who understand the value of financial literacy and our need to start these discussions early. However, it concerns me that they refer to investing as "playing". While many have used apps to trade and play the market, that doesn't bode well for the long term.
Your comments on the challenges of picking stocks are right. Over the past two decades, approximately three out of four NZX stocks underperformed the market average. It is hard to pick winners and not a 50/50 game!
Unfortunately, a lot of the advice given is to invest only what you can afford to lose. That isn't a great message; you should be investing (not trading) and building meaningful wealth.
Common advice given to new investors is also to invest in the brands you use and love. Netflix is the latest example where that can be really bad advice, down 69 per cent from its 52-week high!
Financial literacy is severely lacking in our educational system, and learning to invest is a great starting point to encourage engagement.
But I hope your teacher supports this with a discussion on speculation versus trading, understanding debt, tax, why saving is important, planning for the unknown etc.
A: Oops. You might not like my comment, above, about share investing being sexy! Sounds too playful.
I do agree with your list of topics that it would be good for the teacher to cover. They are wise additions to my list of four "untruths" of two weeks ago.
Interesting about three out of four local shares performing worse than the market average. That must mean the other quarter did really well. If only we knew in advance which ones they were!
Bonus Bonds delay
Q: I noted your comment on Bonus Bonds in the NZ Herald this weekend.
My mother visited for a few weeks over the school holidays and brought her paperwork for me to help her with — including Bonus Bonds letters.
ANZ has set up a dedicated phone line to take any questions on Bonus Bonds, and the paperwork clearly says not to ask questions of branch staff but rather to use this dedicated line.
Well, I phoned a number of times but could never get through. The wait time was simply too long (averaging 1.5 hours to 2 hours), and there was no option for call-back.
If 90 per cent of the bonds have been redeemed, why is it so hard for the remaining 10 per cent of us to get in touch with ANZ? Maybe they need to consider having more staff to (wo)man the phones!
A: Gosh, those are horribly long waiting times.
It seems that because of a recent advertising campaign, ANZ has had "an unprecedented number of people contacting us to update their details in order to receive their distributions", says a spokeswoman for the bank.
"We understand the longer wait times are frustrating for people. We sincerely apologise for the delay and would like to reassure people we'll be collecting account details for at least the next two months and possibly longer, so there's still plenty of time to get in touch with us.
"Our team are working hard during this busy period and we encourage people to call back if they aren't able to speak with us on their first try." Maybe try calling at different times of the day. Or wait a couple of weeks. Good luck with it. Your mum is lucky to have your help.
- Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions 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 email@example.com. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.