NZ Herald 30 January 2016

AThanks for an original idea.

To take advantage of your offer, readers can email me and I will forward their messages — although of course I’m not in a position to judge the quality of your advice.

AThere are no tax implications. Since October 2011, gifts are “no longer liable for gift duty and you no longer need to file any documents with us,” says Inland Revenue. So well off parents can go ahead and help their lucky children.

However, I’ve got two other comments about that story:

• This young landlord has been very successful — so far at least. He says his property portfolio is valued at $6.5 million, and it earns about $275,000 in gross rent each year. He also says he’s not worried if property prices fall, as that would enable him to buy more properties.

  But you can’t grow wealth that fast without taking big risks. And, while those who succeed tend to put it down to skill, there’s always an element of luck in there too.

  Anyone thinking of setting out on a similar path should be aware that there are also many people who try to build a property empire fast, but crash. But we don’t hear about them.

• The young man plans to raise his rents soon. “I’m not a slum landlord — I want to charge above-market rents by keeping my places better than the market average,” he says. “A tenant will have 20 bucks less, perhaps. But which business in the world actually subsidises their customers?”

  I’ll probably cop some angry letters for saying this. But that’s the kind of attitude that makes some people hate landlords. Selling accommodation — people’s homes — is not that same as selling ice cream.

  On the radio recently, a working mother of two said she earns $380 a week and pays $260 in rent. A $20 rent rise could easily force that family to move. And moving kids is a big deal.

  Not everyone gets $200,000 for a wedding present. Couldn’t someone so lucky consider giving his tenants a break? How about being proud of charging below-market rents for above-market places?

  Furthermore, this anti-subsidy young man should be aware that arguably he himself is being subsidised by the rest of us taxpayers. The government pays accommodation supplements to many beneficiaries and low and middle income workers. This, in turn, must enable landlords to charge more rent than they otherwise could.

AYou’re referring to the first Q&A in my final column last year, in which a couple asked whether they should put all their $50,000 retirement savings into Bonus Bonds.

I said “No”, because they don’t pay any interest. And the average return from Bonus Bond prizes has tended to be less than on bank term deposits — even after taking into account that the prizes are tax-free. Given that Bonus Bond returns are much less certain, we would expect the returns to be higher to compensate for the higher risk.

The professor was probably thinking along those lines. But for another view, read on.

AYour experience is similar to that of another reader, who invested $100,000 into Bonus Bonds in August 2013. His monthly prizes have ranged from $20 to $170, and his tax-free return has been 2.6 per cent.

“It is certainly not part of my investment portfolio, as a growth and income earning investment,” he says. “It must be looked at as available cash in emergency with the chance of a large win, so is not an option unless you can afford to do it and may only receive low returns.”

A third reader has earned 1 per cent over seven months — but that’s too short a period to judge. Interestingly, though, he invested $50,000 — the same amount as the couple were planning to invest in retirement. And he won three to five small prizes each month — although when he dropped the amount to $25,000 he won nothing for three months.

All of this suggests that I was rather too negative when I asked the couple, “How much fun will it be when you realise your investment has made a zero return for several years?” It seems they would almost certainly win something each year.

Still, I stand by my opinion that Bonus Bonds are not the best place for their savings.

However, you two readers have persuaded me that perhaps they’re not a bad spot for on-call cash — if you want to hold a considerable sum in cash. And who knows, you could get lucky!

It’s not clear, though, that it’s better than keeping, say, $500 to $1000 on call, and putting the rest in 30 or 60-day term deposits, earning interest. You can then use a credit card for emergencies, paying that off when a term deposit matures.

AIt’s super that you’re happy with your property. I just hope you fully appreciate your situation. Not only do you not benefit from increases in land value, but you may also be hit hard by those increases.

When someone buys a leasehold property, the rent for the land is fixed for a period, in your case 21 years. But then it’s reviewed. And the new rent is often, say, 5 or 7 per cent of the unimproved land value — the land minus the house.

Of course, land values can multiply over 21 years. As Anne Gibson said, rent of $2000 or $20,000 a year can become $100,000. That’s when disputes often arise, ending up in the Land Valuation Tribunal.

What’s more, you’re sitting on a property that will be harder to sell than a freehold property when the time comes — especially if the rent has soared in the meantime, or is likely to soar soon.

I hate to say it, but there’s a reason your property was cheaper than if it had been freehold. I suggest you keep in mind how you would handle a big rent rise. And try not to get into a situation in which you need to sell in a hurry.

Sorry to be a wet blanket. But it’s better to be damp than dumbfounded.