It always works out — so best stay put
Continuing to invest through thick and thin a winning strategy
the ups and downs of a roller coaster ride. In investing, you don’t have to pay anything extra for the thrills!
If you’re drip feeding money into KiwiSaver or another investment, celebrate the fact that when the market falls, you are buying in at low prices. In the long run, continuing to invest through thick and thin is a winning strategy.
One more point: While it doesn’t cost anything to switch between high and low- risk KiwiSaver funds, it does in most other investments. If you’re moving in and out of direct shares or — perish the thought — properties, you’ll also be paying expenses, which should include taxes on your gains. It’s just another argument against trying to time markets.
You’re right that there’s nothing inherently wrong with buying a house on land that you lease from someone. It’s much cheaper than other property, and could suit some people.
The biggest problems usually stem from the fact that a rent review takes place only every 20 years or so. And if the rent increase is based on how much the land value has risen, the rent might well be multiplied.
As I said last week, an Auckland woman in 2013 abandoned her property after lease payments zoomed from $ 8300 to more than $ 70,000 a year.
Much more frequent reviews, perhaps annually, would remove such shocks. Even so, when land values soar — as they have done recently in Auckland and now elsewhere — annual lease payment increases could still be steep.
I wouldn’t like to see a retiree taking on such an arrangement unless they could cope with that. It’s not wise to just say, “If the lease payments rise too fast, I’ll sell.” In those circumstances, there might be no buyers.
Landlords, too, need to know what they might be in for. In 2013, a landlord wrote to this column: “Currently I have a leaking apartment that requires $ 120,000 of repair work, plus because it is on leasehold land the ground rent increases have destroyed its value as an investment.”
As I also said last week, “This is a game for someone who can afford to lose at it — maybe someone who buys 10 cheap leasehold properties and some turn out well because they were so cheap, making up for the disasters.”
There’s an irony here, though. If property prices plummet — which some people are predicting — owners of leasehold houses might do quite well. Their lease payments might even fall if they are reviewed frequently.
But anyone entering any major financial commitment should always think through how they would handle a worst- case scenario. With most property buyers that would be a big mortgage interest rise. With buyers of leasehold property, it should also include a big lease increase.
Arohanui to you, too. It’s much easier to be caught in an error by someone who signs off that way, and makes such a kind comment about the column! ( I usually edit out compliments, but decided not to this time.) You’re quite right. Somewhere in the back of my mind I’ve blended $ 87 — the correct monthly amount — and $ 1043, and come up with $ 83. Very slack of me.
I wasn’t wrong with the other figure, though. It was weekly, not fortnightly, and I correctly said “You might want to set up an automatic contribution from your bank account of $ 20 a week.”
It’s true that $ 20 times 52 is only $ 1040, but that’s so close to $ 1042.86, the maximum credit before rounding, that it doesn’t matter.
Besides, $ 20 a week is easy to remember. And because there are 52 weeks and one day in each year — plus one more day in leap years — a weekly $ 20 contribution will bring your total to $ 1060 in some years.
The weird $ 1042.86 total is actually based on $ 20 a week. If you divide $ 20 by 7 to get a daily amount, and multiply that by 365 days, you get $ 1042.8571.
Thanks for pointing out the error. And apologies to anyone who has set up a monthly $ 83 contribution. You might want to change it to $ 87, to pick up $ 23.43 more tax credit each year. It all helps. The $ 20- a- weekers might even want to change to $ 21. The difference in your tax credit in some years — a whole $ 1.43 — might buy you a third of a cup of coffee.
Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd ( FSCL), a seminar presenter and a 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.