Brian Dalley talks Property Profit

A Billion Dollar Business

 

KiwiSaver is a billion dollar business that all Kiwis under the age of 65 can get a slice of, yet only one million have joined the scheme.

In my KiwiSaver update I included a photo of Nickleby the Magician to draw attention to just how amazing the returns on investment can be.

Like many, I have sat on the sideline waiting for the tinkering to end and paying very little attention to KiwiSaver until I came across this little quotation, “for every week you wait, it is costing you $20”.

“That’s madness” I thought, “and really the only tinkering is going to be reducing or removing benefits as it doesn’t need to be made better to attract people.”  One day I believe the scheme will be made compulsory.

Not only did I join KiwiSaver, I also made application to IRD for use of the KiwiSaver trademark licence in order to promote KiwiSaver on my website. As you could image, if you have had any dealings with IRD, that took a little while, but to be fair they were only crossing the ‘i’s’ and dotting the ‘t’s’.

This must be the best investment plan I have ever come across.  For the critics out there, and there always are critics, I challenge you to name one scheme that will match what KiwiSaver does?

If you are working and you invest $20 a week, the government will match that investment and your employer will raise that by another $20.  What’s more the government got so excited they offered to kick-start your investment with $1000.

Just over one million Kiwis have signed up, therefore there must be at least the same number who haven’t. That is equivalent to $20,000,000 a week, or over $1 billion a year doing nothing.

Amazing when you think about it.  The Lotteries Commission put over $30,000,000 up for grabs and people queued in cold weather with the hope that maybe just by some minute chance they could strike the big one.  Yet there is a vault with over a billion dollars for the taking, some of it, I may add, with your name on it.

Here is a magic trick for you: $1000 - now you see it, now you don’t.

The government could save around $3 billion dollars by canning the $1000 kick start.  With a savings scheme that stands head and shoulders above the rest, even without the $1000 kick-start, do they really need to put icing on a cake that is already sweet enough?  Use it or lose it, you have been WARNED.

So just how good are the returns?  Let’s do a little exercise in basic math to see. Although it may look like magic, it isn’t.  Say over a five year term you invested $20 a week and the rate of return per annum was 6% compounded.

A wise man was sent out to invest in his local bank.  After five years, without any effort, he made $748.30. Just to show I am not sexist, I then sent a wise female out to invest the same amount of money, and wait for it, she made $2391.80.

Was it one of those unexplained male / female phenomenon’s, or was it simply that the female took note of what was being said?  This is why I suggested to my business partner, Nicky Tegg that she concentrates on speaking with mums and schools.  After all it is often the lessons learnt early in life that shapes our future.

It really is a ‘no brainer’; however one dear soul did have very strong views when I went to hand him an information pack. “There is a down side”, he said, “unless you intend using it to buy your first home you’ll have to wait until age 65 to reap the rewards”.

To me, that doesn’t ring true.  The down side, as I see it, would be if one didn’t save for retirement at all.

For more information on KiwiSaver and to register for updates contact brian@propertyprofit.co.nz or nicky@nzweathclub.co.nz.

Brian Dalley holds a New Zealand Inland Revenue KiwiSaver Trade Lark License Agreement.

Brian Dalley is a qualified NZMBA Mortgage Broker, Property Investor and former Real Estate Agent.

 

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If nothing changes… nothing changes?

 

Ever since New Zealand was hit by the world recession not one property expert has paved the way forward, instead they constantly refer to the past for explanation as to what will come.

Apparently nothing has changed; it is still all about cycles.  A common comment is “we are at a particular point in the cycle and need to be at another point, when this happens then we will be able to …. “.  I certainly don’t share this view.

We are currently in a recession, largely because of the idealist theories of the past, and yet we are still being told we are on the right track and we just need to wait it out until the fog clears before moving forward ounce again.

Would it not be wise to instead assume that if nothing changes … nothing changes?  You can’t change the direction of the wind, but you can adjust your sails. The sooner that decision is made, the sooner we will be back on course.

Let’s use the OCR (Official Cash Rate) as an example.  In the past one could reliably expect retail interest rates, that is your home loan interest rate, to move in unison with any changes made by the Governor of the Reserve Bank. However the goal posts have changed, not just moved, and a new set of rules applies.  One should no longer expect what happened in the past to influence future trends.

Say you are playing a game of rugby, and halfway through the game a group of workers appears and relocates the goal posts.  The field hasn’t changed, you can still play the game, but some of the rules must change.  The real estate industry is in a similar position; it has changed, in my opinion for the better.

For far too long people have had an obsessive fixation with owner occupied property, and there is nothing wrong with that so long it is for the right reason.  Soon we will see many moving away from owner occupied property and instead, dotted on the horizon will be more rental properties.

As there are no tax advantages to owning an owner occupied property wouldn’t it make more sense to rent and invest in a rental?  Many people prefer the security of their own home, as opposed to living in a rental, and that is fine if that is their preference, but one should at least consider all options.

Remember what I said about cycles? That gone are the days you could hold a property for few years, sell it and make untaxed capital gain before repeating the process.  The only reliable cycle you will see for the next few years will be the kids racing past you at the speed of light.  As for capital gains tax, there is already provision to charge capital gains tax, so don’t be fooled into thinking there isn’t.

Kiwis really do need to stop behaving like sheep and take heed of what is in their best interests.  Far too often I come across people that say they did what they did because a friend said it worked for them. When I ask simple questions such as, “why did your friend set it up that way? What is their income? What debt do they have? What are their goals?” it is soon obvious that they simply went “baa” and followed.

Think about the heading for a moment, “If nothing changes … nothing changes”.  Some experts still believe we just need to be patient and wait for the wind to change direction rather than adjust our sails and move to calmer waters. 

Can you remember the saying that had been around for years, ‘if America sneezed we would get a cold?’  Well now it is they who have the flu.

I guess it comes down to who you turn to for advice, and my advice is to keep away from the sheep, they breed for a reason.