Mary Holm: Renting out a property not a joy for everyone

Many factors can hold up the sale of a house. Photo / Getty Images

Q. We currently live in a three-bedroom house in Hoon Hay, Christchurch, which we bought in April 2008 for $307,000, well below the GV of $350,000 and independently valued by a private company at $325,000.

Since we moved in, we have put in a second toilet, changed the flooring and put in full insulation from floor to ceiling as well as two heat pumps, spending about $25,000.

We have since found the house a little small for a growing family. We recently purchased another new four-bedroom house at $487,000.

We are now trying to sell the current three-bedroom house at $339,000 to no avail. We have a choice of keeping it as a rental property, which would give us a large mortgage.

We have conflicting advice from the financial broker and agent. One says to lower our price to achieve a sale, another says to hold on to both properties and rent the current till prices pick up, so we are not pressured to sell at a much lower price.

We are confused, anxious and stressed. I would appreciate your advice on this matter.

A. It comes down to this: do you want to be landlords - not just for a few months, but possibly for several years?

There are two reasons it might not be a short-term commitment. One is that it's not easy to find good tenants if they have to put up with would-be buyers looking at the place, and the possibility that they will be turfed out when the house sells. So you might have to stay out of the market for a year or two.

The other reason is that nobody knows when house prices will rise enough for you to be confident you will get a better price than now. Quite apart from the usual difficulties with predicting market trends, it seems likely the government will introduce tax changes that will make rental property less profitable. And that will probably put some downward pressure on house prices - so that they either fall or rise less than they otherwise would.

I say "probably" because prices are no doubt already lower because of this possibility. If the government announces milder changes than many expect, prices could actually rise as people say, "Phew, that wasn't so bad". But somehow that doesn't feel likely.

Which leads me to another factor for you to consider. Quite apart from affecting the house price, tax changes might also affect how well you do from renting out the property in the meantime.

All of this might not matter much if you had been seriously considering buying a rental property anyway. Many people seem to enjoy being landlords, and I doubt if the government will change things enough to make rental property totally unattractive.

On the other hand, landlording can be worrying, time-consuming and expensive. It's not a good idea to invest in something that's not "you" just because circumstances seem to steer you that way. And reading between the lines, that sounds like your situation.

All in all, then, I say "sell". Forget about what you paid for the house and what you've invested in it. That's history. Price to meet the market, as the real estate agents say. It doesn't sound as if you will lose nearly as much as many property sellers have. Be thankful for that.

Finally, I hate to say it, but next time you might want to heed the old warning: it's not wise to buy a new house before you sell your old one - unless your purchase is conditional on getting at least a certain price for the old house.

Q. I read your answer to the first question last week and agree wholeheartedly about index funds. However, you did not identify any.

The trouble I'm having here in New Zealand is finding international index funds (both shares and bonds) that we can invest in directly. Other than Smartshares' two Australian funds (MOZY and OZZY) I can't find any after looking on many websites.

I've looked at Vanguard in the US, which has all index funds, but the last time I looked, in order to invest from here I'd have to have $100,000, which I don't have.

I hope you can print something on this, as I imagine I am not the only one frustrated by the lack of choice.

A. A year ago, when I was doing research for my book The Complete KiwiSaver, I checked out all the passive KiwiSaver funds.

If you want to invest outside KiwiSaver, you'll find that many of the providers of passive KiwiSaver funds will also offer passive non-KiwiSaver funds. Check the providers' websites, looking for the words "index", "tracker" or "passive" in their fund names.

My book lists the following KiwiSaver providers that largely use passive management:

* ASB Group Investments' default scheme.
* Civic Assurance - all shares in its funds except 10 per cent of international shares, which are invested ethically.
* Smartshares - built around the Stock Exchange's index funds, so all the shares in its funds are passive.
* SuperLife - all its funds are passive except Gemino and Ethica.

The following are listed as using some passive management:

* ASB Group Investments' FirstChoice scheme - all funds with "tracker" in their name.
* Craigs Investment Partners' kiwiSTART Defined - about 50 per cent of international shares in their funds.
* Fidelity - all international shares.
* Grosvenor - 60 per cent of international shares.
* ING KiwiSaver - all international shares.
* Mercer KiwiSaver - for 30 per cent of the international shares in the Mercer KiwiSaver Conservative, Active Balanced and High Growth Funds, the manager uses an "enhanced index" approach. For more info, see the provider's website.
* Mercer Super Trust - the Passive Balanced Portfolio and all of the funds that hold international shares have a 30 per cent "enhanced index" management component. See website.

With Craigs Investment Partners' kiwiSTART Personalised scheme you can go entirely into passive investments, entirely into active, or a mixture.

If there are any other New Zealand-based providers of passive funds, let's hear from you.

Q. I read your article re passive funds. I have not been into investments and would like to try. How does one start to invest in passive funds and how much would be the minimum amount that can be invested to start with?

A. Start by checking the websites of the companies listed above, which should tell you how to sign on.

The minimum investments into KiwiSaver for the four largely passive providers are: ASB Group Investments, no minimum; Civic Assurance, $10 a week; Smartshares, $50 a month; SuperLife, no minimum.

Outside KiwiSaver the minimums may be higher, but they are still often reasonable. If the websites don't tell you, ask them.

Q. In a column late last year, you said that, with the Financial Advisers Act coming into force this year, there will be a dispute resolution system that will hopefully make the situation much easier in the future for people like the couple that have seen an approximate $400,000 loss of value in their $2 million preference share investments.

First, nitpicking, the act that requires dispute resolution schemes is the Financial Service Providers (Registration and Dispute Resolution) Act, (FSPA) not the Financial Advisers Act (FAA). Both acts will have to be implemented before such processes can be used to settle disputes.

Secondly, the size of the losses and the potential claim outlined in your column are such that it is almost certain that circumstances like this will not be covered by such a dispute resolution process.

Indications at this early stage are that such schemes will likely limit claims or maximum settlements to something in the order of $100,000 to $200,000.

It is clear that disputes at the level outlined in your column will continue to be dealt with via civil court proceedings, and the only advice that can be given is that anyone in a similar position should seek legal advice.

At least this couple still has sufficient financial resources to pursue such action, even if they have to sell some preference shares at a loss to fund an action.

A Good point. It's horrid when people's losses are so big they have no money left to fight with.

On the nitpicking, you're quite right about the acts. Sorry, I relied on an oversimplified summary - although it's not going to make much difference to the outcome.

The correct situation is this: under the FAA, all financial advisers will have to be registered under the FSPA - unless they work for what is being called a qualifying financial entity and offer only a narrow range of services, in which case it's the entity that will have to be registered.

And to get registration, any financial adviser offering services to the public will have two options: be a member of a dispute resolution scheme or be employed by a company that is a member of a scheme. Likewise, any company that employs financial advisers will have to be a member of a scheme before offering services to the public.

Got all that, everyone? The main point is that by the end of this year, most people - including small organisations and businesses with fewer than 20 employees - will have somewhere to go for free help with grievances against advisers.

"Currently, consumers have access to the Disputes Tribunal, which has a limit of $15,000 (or $20,000 with the agreement of both parties), and bank and some insurance consumers have access to the Banking Ombudsman and the Insurance and Savings Ombudsman schemes," says Evelyn Cole of the Ministry of Consumer Affairs. But under the FSPA there will also be other new schemes, so that clients of every adviser are covered.

Note, though, that we're talking about "most" people being covered. As you say, there are limits to claims. "The Banking Ombudsman Scheme and the Insurance and Savings Ombudsman Scheme both have compensation limits of $200,000," says Cole.

She adds, "This is the limit of the compensation sought, not the limit of the transaction on which the complaint is about. This limit has been set at the level limit of claims to the District Court. Claims above $200,000 are seen as more complex and thus go to the High Court."

One recently formed disputes scheme, Financial Services Complaints Ltd (FSCL), has a compensation maximum of $100,000, says Cole. And the reserve scheme being set up by the Ministry of Consumer Affairs for providers who don't belong to another scheme will have a $200,000 maximum. So your $100,000 to $200,000 looks spot on.

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 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.