KEY POINTS:
Q. I am a woman alone in my mid-50s now and have $40,000 invested in my savings account.
I rent a little studio apartment, as I still cannot afford to buy a property. The place I rent is $240 a week, which includes my rent, power and water,
which is very good considering the area.
However, this does not stop me worrying about my future, and I am becoming very concerned about this money in the bank. Mary, I do not know what to do.
Listed below are some of my thoughts:
* Try to buy an apartment in the city. Realistically I would only be able to afford $150,000. I have a full-time job earning just over $500 a week.
* Invest my money with somebody like the Fisher Funds for the long haul.
* I have a friend with similar money. She suggested we could buy, do up and sell properties.
* Buy a place cheap down the line. I love Waihi. Rent it out, near the township.
* I have a great son who is 26. He said he might be able to help me if I knew what I want to do. (I don't know.)
* I'm going to get your book today, Get Rich Slow. That's a good start, Mary.
PS I am also feeling very insecure and sad, because I do not have the security and certainty of owning my own place.
A. Your postscript is perhaps the most important part of your letter. One way or another, let's get you into a place of your own.
Of your suggestions, I like the first one the best - apart from buying my book, which of course I also like! All marketing aside, the book should be pretty helpful to you.
Let's say you buy a $150,000 apartment, with $40,000 down and a mortgage fixed for five years at 8 per cent.
It would be best to pay off the loan by the time you retire. This will be a stretch on your current pay. If you want to repay the loan in 12 years, you'll have to pay about $1190 a month.
Over 15 years it will be about $1050 a month - not a lot more than your current rent, but you would have to cover power and water as well.
Maybe you could start out with a 20-year loan, paying $920 a month, and then feed in any extra money over the years with the goal of reducing the repayment time.
If you buy, there's always the danger the mortgage interest rate will rise. But I reckon you would handle that somehow.
It sounds to me as if you're pretty motivated.
Some comments on your other ideas:
* You could indeed go into one of the Fisher Funds, which invest in New Zealand shares and have recorded impressive returns in recent years.
Still, that's been in a period when most NZ shares have performed well. If the market should stagnate or fall for a while, the fund might very well fall with it, or even perform worse than the market.
You probably have more than 10 years in hand before you retire. And it's pretty unlikely such an investment would lose value over a period that long.
But could you cope with volatility in the meantime, especially when we're really talking about your only chance to get into the housing market?
A relatively risky investment like that - or any investment in shares or a share fund - doesn't feel right for you.
* It sounds as if your friend has heard about others buying "do-ups" and selling them for big profits.
If you two are good at doing such work yourselves, and would enjoy it, that is a possibility. But you might well be better off putting that time into a second, part-time, job.
And if you hire others to do the work, that would eat into your profits.
In any case, I worry about how big the profits would be. In rising house price markets, as we've seen recently, such plans can work really well. But I don't know anyone outside the real estate industry who feels confident that large price rises will continue.
Don't forget, too, that Inland Revenue might well be interested in taxing your profits. Again, it's all rather risky in your situation.
* Buying a rental property outside Auckland might work, particularly if you would like to live in the house when you retire. But if you would rather stay in Auckland after retirement, there's quite a risk that city property values will grow faster than wherever the rental is.
Also, you might have trouble finding good long-term tenants.
And it's not easy running rental property from afar.
You would probably have to hire a property manager, making it pretty unlikely the net rental income would cover all expenses.
In summary, many of your ideas, while imaginative, are probably too risky for you.
To make the apartment-buying option work better, how about buying a place with your friend? If you want privacy, maybe you could get a property that includes two flats.
Alternatively, take in a boarder to help pay your mortgage.
Or your son might pay off part of the mortgage, perhaps in exchange for your leaving the property to him in your will.
Whatever you decide, good luck.
* * *
Q. I am in the position of having invested in a tech stock in Canada in 2002, at a cost of slightly over $60,000, as opposed to today's value of the stock of around $16,000.
As the original investment is over the $50,000 threshold, will I be hit again with this new tax or can I have the shares revalued at their market value on April 1, 2007 - which presumably will be well under the threshold unless there is a miracle between now and April 1 - and then be outside the new tax regime?
A. The $50,000 threshold is based on the original cost of offshore shares.
"This is so taxpayers can refer to the fixed actual cost when determining whether the threshold applies to them, rather than having to track changing market values over time," says Peter Frawley of Inland Revenue.
Unfortunately, in your case that means that your shares don't qualify for the threshold.
There's some compensation, though. As Frawley points out, when you calculate the tax, it will be based on the current market value.
* * *
Q. From reading the answers you got from Peter Frawley, I understand that the $50,000 threshold operates on the original cost of purchasing the shares.
We worked in Ireland for a number of years and received some shares as part of employee incentive schemes etc, ie. at no cost to us.
For the purposes of calculating the cost of these shares, would they be valued at zero (what we paid) or the market price of the shares?
A. Some not-so-good news from Frawley: "The person in this example is treated, for the purposes of the $50,000 threshold, as having acquired the shares for their market value at the time they received the shares under their employee incentive scheme."
