Money Matters: How handy ladies make a buck

By MARY HOLM


Q. In 12 years as a single mum I have moved from the DPB to fulltime employment, earning
$34,000. In a few years I will have a new career and greater earnings.

I have two teenagers who live with me and are dependent on me. In a few years they will be at university. Their father does not work.

In my home I have two passive incomes from a tenant and
student which cover my mortgage. This is $140,000, with
$110,000 equity.
I have $1800 in the bank, which I am increasing.

Later I would like to invest in some long-term investment scheme, possibly managed funds.

I know other women in similar situations. Reducing our
mortgages and planning for our future with families to support seems impossible without some creative hinking. We are all ``handy ladies'' and have secure
employment.

My idea is to group together, using equal amounts of equity in our properties, purchase a property from a mortgagee sale in a reasonable area, do it up and sell
it. I realise that buying the right property, and one within our scope, is essential, and that there are many other circumstances that we need to ensure we are covered for. I am interested in your thoughts. All us
fabulous single mums on average incomes with dependent
children need advice.


A. You are indeed fabulous, the way you've turned your
situation around. And your idea sounds pretty good to
me, as long as you proceed with care.
It's much more fun to do a project like this with
others. And you get multiple skills, as well as more
than one pair of hands, which can make a big difference
to many DIY tasks.

When you get your handy ladies together you could form
a company in which you all own shares. That would make it easier for people to come and go, says Kensington
Swan tax partner Barry Whale.

But if you want to keep things simple, you could just
buy the house as tenants in common.
Make sure that is stated on the title when you buy,
says Whale.

Otherwise you will be regarded as joint tenants. Then,
if one of you dies, the others will automatically get the dead person's share.

Another advantage of being tenants in common is that you could have unequal shares in the project if you wish, says Whale. That might work better if someone wasn't able to make as big a contribution to the
purchase or the renovating as the others.

Whale suggests you draw up a property-sharing agreement. You could have it formally done by a
lawyer or just do it yourselves.
It should record what each person has contributed and how you are going to share the proceeds. It could also cover such issues as what happens if one of you moves
away, wants to get out, becomes disabled or dies.

You might also discuss what you will do if one handy
lady isn't pulling her weight, or if other problems
arise. Your property-sharing agreement could, for stance, say that you would ask the Real Estate Institute to nominate an arbitrator.
As far as taxes are concerned, you will almost certainly have to pay tax on the profits you make,
because you're buying with the intention of reselling, says Whale.

While you're doing the place up, you won't be able to
tax deduct any expenses because you're not producing any assessable income. But keep track of all expenses,
including legal fees, buying and selling costs and mortgage interest.

When you sell, they can all be deducted from the price to come up with your taxable profit.

What about GST?

If you're just doing one house, probably the IRD would not consider you were caught in the GST net, says Whale. But if you do more you would probably have to register for GST. That makes life more complicated
but it shouldn't put you off.

One final warning from Whale: when you buy a house in a mortgagee sale, the seller is usually pretty unhappy about the situation. It is not uncommon for sellers
to damage the house before they leave, or to simply refuse to leave. Sometimes you need to get a court
order to get them out. There are other ways to get a
cheap house. Look out for properties belonging to eceased estates, couples breaking up, or people who
have bought elsewhere and are desperate to sell, says First National real estate salesman Grant
Ramsdale. As a property developer said at a recent seminar, ``Put in lots of ridiculous offers. You never
know who might accept.''
Go for an area where there's quite a lot of turnover in your price bracket, says Ramsdale, who has
bought, done up and sold several properties.

You're probably best to start modestly, in a suburb popular with buyers of first homes.

One quick way to get a feel for what's going in a suburb is to use the Website www.realenz.co.nz.

Ramsdale suggests you work backwards when deciding if a property is suitable. Find out what a similar fully renovated house in that area is selling for. Then sub
tract what it would cost to renovate the house you're interested in, plus lawyers' and real estate agents'
fees. If you can buy it for quite a lot less than that, you've got a winner.He also suggests you get a Lim
(land information memorandum) report from the city council, which gives you all sorts of information
about a property. It might include building plans,
what building consents have been issued, whether there have been any drainage problems, whether the property is in a flood zone, has contaminated soil or is on unstable ground. A Lim costs about $170, he says.
Alternatively, you can get the info for much less by going to the council and asking to see the property
file.

Once you've bought your house, you can make quite dramatic changes these days without spending a fortune, says Ramsdale.

New paint, wallpaper and carpeting can make a huge difference. And some kitset kitchens are low-priced. Or you can just put in a new rolled-edge benchtop for around $300 or $400, and new cupboard
faces on existing cupboards.

In the bathroom, inexpensive tiles can be much cheaper than new lino, and items such as new toilets don't cost much.

Transforming a yard is often a winner, too. Add decking, a barbecue area, and French doors leading
to it.

But don't expect to make a fortune, says Ramsdale.

In times past, when house prices were zooming up even without renovation, doer-uppers some
times doubled their investments in short periods. These days, your profit after expenses might be much less. Still, it could put a hole in your mortgages. And you might have a few laughs along the way.

Q. I always find the following reassuring, and irming that old advice remains good advice:``My ventures are not in one bottom trusted, Nor to one place; Nor is my whole estate upon the fortune of this present year.'' Antonio _ Merchant of Venice (Act 1, Scene 1)


A. Antonio's next line rounds it off rather well.

``Therefore,'' he says, ``my merchandise makes me not sad.'
'I bet more than a few sad investors in tech stocks this past week or two wish they had been as
well diversified as Shakespeare's merchant.

Not only did Antonio use more than one ``bottom'' - an
old word for a ship - but he also diversified geographically and over more than one time period. Well done.

Now I've got a question for you.

How come the Bard not only understood practically every aspect of human relationships, but also one of the most important rules of investment?

Thanks for adding a touch of culture to the column!

Q. Much is made of the savings you can make by bombining your day-to-day banking account with your mortgage. Some advertising implies that
you can knock several years off your mortgage term if you do this. Take my case. I am probably fairly typical. I have a separate mortgage and cheque account.

The mortgage is roughly $100,000, at 7.5 per cent. My
trusty slide rule tells me that I pay about $7,500 a year in interest, give or take.

My day-to-day account is sometimes in the red, sometimes in the black. Over a year it probably averages $2000 in the black. According to my slide rule, that would save me $150 a year if
it was added to my mortgage account.

Not bad, but not enough to pay off my mortgage years
ahead. Do I need new batteries for my slide rule?


A. No, your slide rule, and your mind, are just fine. What isn't fine is the advertising you refer to,
which does get a bit carried away.

To be fair, when you have a revolving credit mortgage, you usually put more than your day-to-day money into the pool. Many people keep a few thousand dollars in a bank account, short-term term deposit or similar, for use in an emergency.

If that money is also credited against their mortgage balance, it helps to bring down interest pay
ments and speed up the loan repayment.

People with revolving credit mortgages also tend to put off paying their bills for as long as possible.

They might pay by direct debit on the penalty date. Or, better still, they might pay their bills, and as
much else as possible, by credit card. Then they pay the credit card by direct debit on the penalty date.
That way, they hold on to their money as long as possible. And all that time it reduces their mortgage
balance.

Even with all these tactics, though, the only people who get much mileage out of these mort
gages are those who have quite large sums sitting in their bank account for a few months.

An example is a self-employed person who receives large payments infrequently, or who sets money aside to pay income tax and GST a few times a year.

If you're on a wage, salary or other regular income, though, revolving credit mortgages aren't nearly as effective as the characters who promote them would have you believe.

Got a question about money? Send it to Money Matters, Business Herald, PO Box 32, Auckland; or e-mail: maryh@journalist.com. Letters should not exceed 200 words. We won't publish your name, but please provide it and a (preferably daytime) phone number in case we need more information. We cannot answer all questions or correspond directly with readers.


Related Links


www.realenz.co.nz