Drowning in paint

The back house is all painted. Despite the accident - when the painter slapped the roof paint on the house exterior - it's come out okay. The roof colour is looking a little lighter than the same colour on the house.

We're still trying to get rid of the eye-sore blue shed at the back. Have sold it twice on Trademe but the people didn't go through with the buy. That seems to be happening alot on Trademe lately.

The front house has just got it's first coat of paint on the roof. French doors bought from a demolition trader via Trademe have gone in to the driveway side of the house (that's North, sun-facing) and allow alot more light inside.

Inside is almost just the skeleton. We've had to rip up some of the laundry floor because of poor repairs to rotten subfloor timbers. Some joists run across to nothing - no support. Some are propped on timber which is standing on another piece of timber sitting on the ground!

New beams have to be put in where the dining room walls are coming out. This requires new supports and new piles, hence the holes in the floor through which we had to manually dig down into the dirt underneath to install new tanalised timber piles and concrete. We're held up on that while we wait for the Council Permit. They've got some questions on heights, thickness and materials... as they usually do. 

Roof paint on the walls solves colour problem

Our painter friend finds us way too slow. Since the only paint we supplied was the roof paint and he was waiting for the exterior weatherboard paint, he just decided to go ahead and paint the weatherboards with it.

Meanwhile, I was agonising over a colour and buying a test pot. Nekminut!

Before shot

One coat of Solarguard Roof paint "Lichen"

Freshened up and rented

Four weeks hard out from possession date and tenants are moving in to House No.3. Here's the before and after pics at flickr.

The house is under-priced at $350 including water. We advertised it before we'd finished and based the rent on what the house was like before the new carpet and replaced kitchen went in. Plus, we've put in a microwave and washing machine. Saving grace is the first term is only for 6 months and all prospective tenants were told the rent would be going up $10-$20 after that time reflecting the work we expected to have done on the property over 6 months.

The rent is cheaper than it could be also, because we'll be around and want access to paint the exterior, paint the roof, fence and landscape.

New Year New Property

We're seeing in the new year (2012) slogging our guts out to get house no.3 ready for tenants to move in by the end of the first week in January. House 3? What happened to House 2? My last post, we were excited to be buying the house next door to House 1. We got stuck in to ripping the guts out of it as soon as it was ours and have been working flat-out. Too busy or exhausted to post updates. Within one week of taking possession of House 2, Fae had secured the house on the back half of the crosslease section and she offered it to us.

Her starting price was $250,000. Way too high. We said we'd go no higher than $220,000. A week later she sent a text offering it to us at $210,000. This is for a 3 bedroom 1986 Keith Hay home - your basic box with Hardiplank cladding, tin roof - nothing flash. We talked to our ANZ mobile mortgage manager who helped us get the mortgage on House 2. Because it was the same deal: private sale, contemporaneous settlement, ANZ required a registered valuation.

Mike the valuer didn't like this place at all. He gave it a really low valuation of only $216,000. Fair enough - the previous owners had built an unpermitted carport and extended it all the way down one side of the house. The north side cutting off the sun and much light to the lounge room and 2 bedrooms. They had then built in an enclosed conservatory off the lounge - using whatever wood and wood-like materials they could gather. This included using mdf and chipboard flooring, materials not for use outdoors. The wonky extended deck was quite bouncy. There was a horrid looking shed also clad in chipboard flooring material that was swollen with wet. The shed was badly lined and carpeted and make-do wiring had been run from in the house to provide light for some poor person whose bedroom it would have been.

The fencing on all sides is tin and ugly bad. There was a lot of rubbish around the property. Outside and in had been painted a bright lemon yellow! The carpet had been unprofessionally laid making the place feel destitute. The kitchen was rough - the stainless steel benchtop had numerous dents and cut marks. The stove had been home to mice and cockroaches. The toilet... well you get the picture.

We bought it anyway at a final negotiated price of $212,500. Poor House 2 has been sitting with her guts ripped out of her for 3 weeks while we've been diverted on to fixing up House 3. But, it's a new year and we're waiting for chosen tenants to get the bond over to us and confirm their move in date for hopefully end of next week.

From yucky yellow to

Cool cream, chocolate brown wool carpet and new curtains

Did we over-capitalise or not?

We have finally finished everything: the fencing, the sliding gate, tenants... almost. We're still waiting for the owner of the front house, the other cross-lease owner to sign off on the new title. Having problems there.

Meanwhile, we have found house number 2 - right next door. To get that, we've had to get a Registered Valuation on our do-up.... drum roll.... YES! We've squeaked in just over what we've actually outlayed. Once the bill comes in for the lawyers and land titles office registration for the new title, well that'll probably blow the cream off the top of our hot chocolate.

It's very exciting to have a run at getting the place next door. We can't believe we're getting to buy a house on the same size section, for little more than what we bought the first section for! We've gone unconditional and sign the mortgage docs tomorrow. Just waiting then for settlement to go through smoothly on Friday.

It may not be a smooth settlement, because it's a contemporaneous settlement. We have bought from a woman, who secured the house with a sale and purchase agreement but she doesn't have to settle until she sells it to someone else. She's a kind of trader, middle-gal. It was thus a 'private sale'.

The bank has really seemed to struggle with the whole deal. It nearly fell over when we informed our lawyer, naively, that the footprint of the house did not match up with what's on the title. It's "defective" she said. We looked up on the internet what a 'defective title' means and found that it can't be 'conveyed' so we thought that was all-over-rover. But, turns out you still can buy 'as is where is'. We just needed to give the bank our assurance that we would undertake to resurvey and fix the title, once we've done the renovations we're planning to do. And that's another story....

Home maintenance and renovation costs

An article in the New Zealand Herald today outlines a couples' renovation. They've bared their soal in terms of the budget and that they'll be selling the place - in a national paper. So, you'd have to conclude that they're going to pay capital gains on this project, or will they? It looks like a classic do-up to sell project, but they don't say that. They sold their previous family home to buy this one and they spent $200,000 to renovate it. In the article, Rachel talks about the figures having to stack up - she talks about the resale value. I'd conclude, they always intended to flip it for gain. But, it's the family home - and under Labour's proposed Capital Gains Tax, the family home will be exempt. They've lived in it for more than a few months - yep, they're exempt. But, she's virtually advertising the place for sale by the end of the article.

Now, if they were asked to pay Capital Gains Tax, it would be only fair that the cost of renovations counts towards the expense of gaining any capital to be made at sale - thus the capital gain should be calculated to be only the profit (the amount left over after the expenses: purchase price, maintenance costs, lawyers and real estate agents fees, bank interest on the mortgage, rates, insurance and renovation and repair costs are all deducted.) That's only fair - maintaining a home and improving a home costs.

The Truth Behind Labour's Capital Gains Tax Grab

Labour's Capital Gains Tax proposal is, as they admit, a tax grab. It's pitched as if it's a tax that will only affect a small percentage of rich people. It's pitched in a way, that implies there is no CGT now, which is not true. So who are they targeting? People harbouring resentment towards the 'rich'? People feeling hard done by and ripped off by the rich? They are also relying on people being fairly financially illiterate - well that's a lot of people. Even some 'rich' people are financially illiterate - they think they know what to do with their money, but look at how many people invest in managed funds and Kiwisaver.

How we pay CGT now

Let's say I work and work and climb the employment ladder until one day, lucky me, I start earning more money a week than I need to spend. Finally, I have some disposable income. Choices are: spend it on having fun or crap for the house, move up to a nicer lifestyle thus increasing my weekly outgoings so I have no disposable income each week; or, I could save it in the bank, where, after bank fees, tax on interest and inflation, I'll be lucky if it holds it's value. (Note: interest earned on money in the bank is taxed at the highest tax rate possible, your personal income tax rate).

The best thing to do with my disposable income is to buy assets - things that will actually appreciate in value (capital gain) or better yet earn money somehow (that's cashflow). There are a range of assets: property, shares, bonds, collectables like art or antiques, businesses...

Let's say I buy some shares in Air NZ. At the moment, I have to decide whether the shares are for my long-term savings portfolio (i.e. for retirement) or for trading. Trading means I'm going to watch the market and sell the shares when they increase in value - i.e. I'm going for capital gain.

The Air NZ shares in my long-term savings portfolio are not taxed. They just sit there long-term. Every now and then though, to balance my portfolio, I may sell some. Other things could happen, like a company gets taken over and the shareholders are paid out. I wouldn't pay tax on any capital gain, because that was not why I bought the shares in the first place. Labour is, if I've read it right, planning to tax any capital gains inadvertently earned via these occasional or unwelcome sales of shares.

The shares I bought for trading, for example, Genesis Research and Development at $2.60 are a purely speculative bet. Yep, it's like gambling. They looked good, were on track to develop a treatment for psoriasis. If they had, then they might have done well and the share value might have increased, at which point I'd sell. Any gains would be factored in to my annual income and taxed at the highest rate, i.e. personal tax rate (less the costs of buying and selling the shares).

Take home message: We already pay tax on capital gains from assets bought and sold for the purpose of making money. I don't like that, but that's the way it was.

We don't pay tax on money we convert into an asset of some kind that we then hold on to, that one day in the long distant future, we may have to sell to turn the asset back into money.

Labour says personal assets, like gold jewellery, will not be taxed. What about gold bars? Silver ignots? What about my Robyn Kahukiwa painting? And, the family home? The family home is going to be exempt. That might be because for many many people, the family home is not an asset, it's a liability! More on that next post.