by Miles Flower | Dec 27, 2015 | Blog
New Year’s Resolution that sticks
Every year in the heady celebration that is New Years’ eve we all make resolutions for the coming year but surveys in the past show that 75% of us stick to our resolutions for a week and only 46% of these are still on target 6 months later.
Whether it be to lose weight, run a marathon or spend less on shoes we are all striving to improve our lives but quickly lose interest and the New Years’ resolution becomes a distant memory.
Planning our financial future often gets put on the back burner because we are all so busy and fear that if we have a financial plan we won’t be able to enjoy the lifestyle we currently enjoy, when in fact a financial plan creates the opposite effect.
Financial planning allows for the lifestyle you enjoy and plans for the future lifestyle that you desire, creating one less thing to worry about in our busy lives.
We would like to suggest that you make a resolution this year that we at Money planners can assist you to stick to, by resolving to get your finances, retirement and estate planning in order.
by Miles Flower | Dec 7, 2015 | Blog
Breaking a fixed-term mortgage comes with a cost, but you may find it’s worth it.
How do break fees work?
The way banks calculate break fees is a complicated process.
An extremely simplified version is this: The bank looks at the interest rate you are committed to, the amount of your loan and the term you have left to run. Then it looks at what it could charge someone else for the same amount of money.
If you have $500,000 fixed for another year at 6.5 per cent, the bank will consider that the most it could get for the same chunk of money lent to someone else for the next year is about 5 per cent. So it might ask to be compensated for the difference of 150 basis points, or about $7500 for the year.
The key then is to refix at a much better rate so that the interest savings make the break fee worthwhile.
The difference in repayments between a $500,000 loan at 6.5 percent and a loan at the current cheapest two-year rate of 5.65 per cent is about $895 a fortnight so you would save the cost of the break fee in 10 months.
Banks also apply administration fees. The break fee can vary day by day.
If you would like an opinion on whether it is worth breaking your fixed rate please get in touch.
by Miles Flower | Nov 18, 2015 | Uncategorised
Negative Gearing Explained
What exactly is negative gearing? How does it work and what are the pros and cons to having a negatively geared investment property?
In a nutshell negative gearing is when a property investor borrows funds to purchase an investment property, and the cost of holding and managing that investment property is greater than the gross income the property brings in.
Costs also include tax depreciation on the property and interest charged to the loan, but not the cost of the principal (capital repayments).
In New Zealand costs incurred in earning income are generally tax deductible, so negatively geared properties afford investors certain concessions.
When to use a negative gearing strategy
If you have the funds to cover the shortfall between the cost of holding the property and the rental income, then you may be able to purchase a negatively geared property.
Negatively geared properties have certain tax benefits as detailed above.
Holding a negatively geared rental property long-term may see the investment gain capital growth, or become positively geared property if the local rental market changes. However, there are no guarantees, which is why this strategy is sometimes called speculative investing.
The very nature of negative gearing means your investment property is essentially being held at a loss.
Negative gearing requires you to have the income to make up the shortfall between the cost of holding the property and the rental income, so if this shortfall is made up of income from elsewhere this strategy may not be suited to those close to retirement or about to leave the workforce.
HOLDING A NEGATIVELY GEARED RENTAL PROPERTY LONG-TERM MAY SEE THE INVESTMENT GAIN CAPITAL GROWTH, OR BECOME A POSITIVELY GEARED PROPERTY IF THE LOCAL RENTAL MARKET CHANGES.
Conclusion
While there is much debate on whether or not positively or negatively geared investment properties are the better option for investors, the truth is there is no definite answer. Both have their merits and drawbacks, and both cash-flow structures are currently possible in both Australia and New Zealand.
Notes
It really comes down to your financial situation and the type of investment property you are considering.
There are two schools of thought – one is capital growth, the other is positive cash flow. Negative gearing probably appeals more to those looking for eventual capital growth – as some areas with promising capital growth opportunities don’t necessarily promise positive cash flow.
by Miles Flower | Oct 14, 2015 | Blog
The government announced that it would introduce a bright line test that would tax sales of residential land made within two years of acquisition. On 24th August 2015 the new Bill (Bright-line Test for Residential Land) was introduced in Parliament. It contained a number of important changes to what was included in the original proposal.
The bright-line test is in conjunction with the existing intention test and only applies to residential land – non-residential land is excluded.
There are also exclusions for residential land that is the owner’s “main residence”, is inherited land, or is land acquired as a result of a relationship property agreement. There are also special rules relating to Trusts.
The bright-line test applies to land acquired on or after 1st October 2015. To confirm if the application date of 1st October applies, the date the sale and purchase agreement is entered into is relevant. For agreements entered into before the 1st October the new rules will not apply.
For agreements entered into on or after 1st October 2015, the date of acquisition for calculating a start date for the two year period of ownership will be the date of change of ownership registered on the title. This is different to the current legislation, which provides that the date of acquisition is usually the date the contract is entered into.
Just to confuse matters, when determining if the sale is within the two year period, the sale date is the date that the sale and purchase agreement was entered into, and not when the title changes.
There are a number of rules covering a raft of related matters but the glaring omission is rules relating to sales of residential land between associated parties.
The easiest way to avoid any of these capital gains taxes is to hold the property long-term. Money planners would normally recommend you hold property for 7 to 10 years it should be seen as a long-term investment.
In conjunction with the bright line test as from 1 November any investment property in the Auckland area will require a loan to value ratio (LVR) of 70%. This means for existing property an investor will need to provide a minimum of 30% deposit.
A way to mitigate this is to look to buy new property under construction as the LVR requirements apply only to existing property.
As time goes by we will become more familiar with the new rules surrounding the bright line test – LVR requirements in the meantime, if you need advice regarding the sale and purchase of residential land, please contact Miles at Moneyplanners Ltd.
by Miles Flower | Sep 15, 2015 | Uncategorised
IMPORTANT NOTE and DISCLAIMER: The following is a list of options which may help to reduce insurance costs. It is general in nature and is not intended as personalised advice. We strongly recommend talking to your insurance adviser before making any changes to your policies.
One of the questions which inevitably comes up when we are talking to clients about their insurance needs is; how can we reduce the cost of insurance. In this post, we take a look at some of the ways that you can reduce your insurance costs without losing important benefits.
- Read your policy. As with all legal contracts, it’s important that you read your policy so you know what’s covered and what isn’t. Pay attention to policy changes that come in the mail. If you have questions, ask. And make it a habit to review your policies every so often to be sure you understand them (and check whether anything has changed).
- Don’t duplicate coverage. Know which policies provide which benefits. If you have a AA membership, for example, you don’t need towing coverage on your car insurance. And if your credit card doubles the warranties on the things you buy, don’t pay for extended warranties. I try to go over my policies once a year to remind myself of my coverage. (I’m a forgetful guy!) I recommend you do the same.
- Consolidate. Get all of your insurance from one provider. Insurance companies often give a discount if you have multiple policies with them. Plus, this saves you the hassle of having to pay more than one company.
- File fewer claims. Don’t penny pinch your insurance company. If you file claims for every little thing, they’ll raise your rates. Insurance is meant to cover unexpected large losses, not every ding your car gets from shopping carts.
Tip: To increase the odds of a satisfactory settlement when you file a claim, be sure to document your losses well. And it’s perfectly acceptable — good even! — to negotiate if you think the insurance company’s settlement offer isn’t fair (and their first offer almost never is). Be persistent.
- Shop around. To find better rates, harness the power of the web. A quick search for car insurance will throw up a number of options.
- Buy only what you need. Insurance agents are happy to sell you more coverage than your situation calls for. Do some research before you buy. Figure out how much and what kind of insurance you need, and don’t let the agent talk you into more than you need.
- Raise your excess. The excess is the amount you pay on a loss before the insurance company kicks in money. For example, if your car takes $400 in damage because you drive over a curb and you have a $250 excess, you pay the first $250 and your insurance company pays the rest. It’s up to you where to set the excess, but the lower your insurance excess, the higher your premiums. Ask yourself how much you can afford to pay if something goes wrong; more specifically, how much is too much? Set your excess just below “too much”.
- Increase your wait period. Similar to an excess. For income protection increasing your wait period before the policy kicks-in can reduce premiums quite significantly. There is a BUT here – make sure you have sufficient funds to cover you during the period you are not covered by insurance.
- Take care of the things you insure. One of the best forms of insurance is routine maintenance. A well-maintained car is less likely to have an accident due to mechanical failure. If you take care of your house, it’ll weather the ravages of time. And if you exercise and eat right, you’ll get cheaper life and health insurance.
Source: This post is adapted from an article originally published on the web site “Get Rich Slowly“
