Don't dwell on the past - concentrate on today and tomorrow's needs when assessing options
I was interested in the letter in your column a while back from the couple who bought a townhouse as a rental property and are now having difficulty paying the mortgage (which was 100 per cent at the time of purchase).
I am in a similar position, but I am a superannuitant and on my own since my husband passed away a few years ago.
I did very well on one property I bought and sold off the plan, but didn't have the sense to call it a day and promptly invested in another apartment in the popular holiday spot where I live (my own home is freehold).
The bank was happy to give me a 100 per cent interest-only mortgage, and of course I hoped to make a profit in the future by selling it.
Three years down the track I still have the apartment, which fortunately has been continuously rented out, but the rent has never covered the mortgage. In fact at one stage it covered only about a third of the mortgage, so I was bleeding capital.
When interest rates dropped I was fortunate to reset at a much lower rate. Even so it is a pain in the butt because the value of the property has dropped by about $80,000. I also pay a body corporate fee of around $2000 per year.
I have considered various scenarios. The most obvious is to sell my house, pay off the mortgage on the apartment and move in. It is not quite what I would have chosen, but it does have three bedrooms and two bathrooms and is on the top floor of the building. There are 40 apartments in the block, many of which are rentals - which I consider to be the only drawback.
The other scenario is to continue letting the apartment, sell my house, invest the proceeds and go renting myself, but that doesn't seem so practical.
My instinct is to do the former with the hope that eventually the apartment will reach the price I paid for it. I know I can get a price for my house that I would be happy with. Maybe you have another alternative.
In the meantime, I think I should stop listening to friends who are horrified the moment I suggest selling my house, and do what is best for me. What do you think?
I certainly won't argue with your last paragraph. Well-meaning friends aren't always wise.
And, reading between the lines, it sounds as if you might quite like to move out of your home - perhaps to something smaller and easier.
If such a move would also ease your worries, so much the better.
It's not clear, though, that you should hold on to your apartment - regardless of whether you live in it or keep renting it out.
A better idea might be to sell both your home and the apartment, and use the proceeds to buy a new - or new to you - mortgage-free home.
Why? Firstly, it sounds as if your long-term plan is to sell the apartment once it reaches your purchase price and buy elsewhere then.
But the value of your apartment won't necessarily rise more in the next few years than a new home would. You might as well accept $80,000 less for the apartment now and buy a new place for $80,000 less than it will cost later.
It's common to get caught in the "I can't sell until I get what I paid for it" trap.
Once you have bought something, don't dwell on its price. Concentrate on your current and future situations.
Secondly, you can choose a place that suits you better than the apartment would. Why not live as you want to - to the extent you can afford it?
Finally - and importantly - if you get rid of the apartment you will no longer worry about whether its value is increasing; whether mortgage interest, body corporate fees, rates or any other expenses will rise; whether you might have a period without tenants; or whether you might run out of savings to subsidise it. Who needs sleepless nights?
A few more points:
* Don't be too hard on yourself for going back for seconds. I'm sure you have plenty of company.
* Fire your bank. They were incredibly irresponsible to put a retiree in such a risky position.
* You should be able to do a deal with a real estate agent if you are listing two properties with them - and then plan to buy another. Approach several and ask them to reduce their commissions.
* I suggest you don't even look at places to buy until you have signed deals to sell both your places. Then you'll know how much money you have. Alternatively, you could make any offer to buy a home conditional on the proceeds of your two sales being at least a certain amount. Don't get trapped into forced sales because you've committed to a purchase. That's when people sometimes lose lots.
* Under the law, you should have paid tax on the proceeds of the first apartment, as you bought it with the intention of selling it at a profit - but many people don't. If you did pay that tax, you should be able to deduct your loss on the second apartment. You might want to discuss this with an accountant or tax adviser.
I am 71 and still working in an effort to save for my retirement after years of believing successive governments that promoted "don't worry about your retirement, we will look after you". Now that I have seen the light, even though still working I am told that I don't qualify for KiwiSaver because I am past retirement age. And if I do manage to put a small deposit aside they take a big chunk of any interest earned off me as well!
Why shouldn't those still working be able to join KiwiSaver for when they do retire?
I'm not sure about the Government's "we will look after you" message. Several readers have lately written to say they invested in rental properties because governments have told them they need to save for retirement, and others have said they invested in finance companies or shares for the same reason. Could this be a case of everyone hearing the message they want to hear?
Anyway, on to your main point - on which you are not alone. When KiwiSaver started some over-65s were considering making a complaint about age discrimination, although I've heard no more about that.
You seem to be suggesting that only people over 65 who are still working should be eligible to join KiwiSaver. Why not non-working over-65s? After all, younger workers and non-workers alike can join. I don't think discriminating against retired over-65s - many of whom are unable to work for health reasons - would go down well.
That leaves us opening up KiwiSaver to everyone over 65. And given that the Government already gives that age group much more than it gives KiwiSaver members each year - in the form of NZ Super - does it make sense to give them more? Where would the money come from? Mostly younger New Zealanders. And I'm not sure that's fair. For another perspective, read on.
I suggest the reason younger people might not wish to be part of KiwiSaver is because of a propensity to do what's best for our country and not ourselves. An odd concept I know!
Recessionary pressures have increased unemployment, which together with tax cuts have reduced government income.
Therefore government obligations to fund KiwiSaver with 100 per cent tax-free bonuses have to be paid from a smaller pot requiring ever-increasing offshore borrowing.
These loans then have to be repaid by all taxpayers, KiwiSaver members or not.
Furthermore, such schemes can only make their retired member payments by partially borrowing from the years behind that haven't yet retired.
Hence the system becomes more and more ineffectual and indebted.
So because some of us don't wish to willingly help paddle our national waka over the falls of financial calamity, we choose to fend for ourselves in other ways.
Food for thought for all of us older folks who sometimes run down The Youth Of Today.
But are you being too nice? For one thing, KiwiSaver doesn't pay retired members by borrowing from younger people.
Each KiwiSaver retiree gets only the money they - plus the Government and their employer - saved. It's not like NZ Super, which does come from tax dollars.
Beyond that, we could argue that KiwiSaver is good for New Zealand because:
* We want everyone to retire with enough money.
Nobody wants to see the elderly in poverty. And wealthier retirees spend money, which keeps the economy running.
* A fair proportion of KiwiSaver money is invested in New Zealand's capital markets. That extra money makes the markets more efficient and helps fund growth. Still, if you are confident you can fund your retirement outside KiwiSaver - and save the taxpayer some money - good on you.
I read the recent Herald article that focused on KiwiSaver fees. I felt this would encourage some savers to make decisions solely on the basis of fees, when other issues - in particular that of projected risk-adjusted returns - are just as, if not more, important.
The examples given included a 30-year fee total of $10,840 for a low-risk fund, up to $42,040 for a high-risk fund. Thirty years is a long time - time enough to ride out the ebb and flow of the sharemarkets - and the likelihood is that over that time a better return will be received from a share fund than from a low-risk fund, which will be just cash and bonds.
People with a long savings time horizon should look beyond the fee structure and harder at the type of fund likely to give them the biggest savings at the end of the savings period.
And an excellent point it is, too. I encourage people who are in KiwiSaver for decades to invest in higher-risk funds. Your account balances will sometimes fall considerably but, over 20 or 30 years, you could well end up with twice as much as in a conservative fund.
However, once you've decided on the right risk level for you, it's a good idea to make low fees an important criterion when picking your provider and fund. Fees also make a big difference to fund growth over long periods.
Mary Holm is a part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss 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. Mary cannot answer all questions, correspond directly with readers, or give financial advice.
