Miket12
Okay, this isn’t truly a scam but a warning to avoid a new house owning scheme currently promoted in South Auckland. And it will probably end up soon in the town or city where you live.
This is not the proposed shared equity scheme the government is talking about when they will share owning a house with you - it’s private investors.
Cold callers are phoning people asking them if they are renting or struggling to make mortgage repayments They’ll offer to give you money as a deposit for no interest if you’re renting or “give” you money at no interest if you can’t make your mortgage repayments so you give make a capital repayment to the bank.
But they’re not doing you a favour.... the whole arrangement may look good but it’s certainly in their favour... especially if you start missing mortgage repayments to the bank.
Let’s say you want to buy a place for $650k, they will “give” you say $325k and you borrow $325k from the bank. You don’t have to pay them any interest for say 20 years which sounds great until you go to sell the property. Say, it’s gone up to $850k from the time you brought it, you have to pay them their original money (in this case $325k) plus their share of the capital gain (in this case 1/2 of $200k).
If you keep the house for the period you agree to (say 20 years) and decide to stay in it, you need to pay them back their original money plus their share of the capital gain. Using the same figures above (half of $650k that they’ve lent to you), if the property has doubled in value, they do really well while you haven’t. Say your $650k house has doubled in value to $1.3 mil., you have to pay them their original amount plus their share of the capital gain (in this case $325k plus $325k = $650k). But you don’t get to keep that much yourself because you need to pay back the bank. If you borrow your money for 30 years, you’ve only paid back approximately half the mortgage in those twenty years so you only get around $150k plus your share of the capital gain ($325k) and you’re got $425k in your hand. Remembering that you’ve paid interest to the bank which, after twenty years, is around 100% of what you’ve borrowed and you’ve effectively got no money.
It gets even worse if you default on the mortgage because the person who you have the shared equity arrangement with “owns” half of your property so they will have the first right to buy you out and pay the bank the money you owe them. This leaves you with nothing while they get to keep all the capital gain and a property they can either keep or sell/enter into a shared capital arrangement with someone else.
There’s another reason why these companies want to invest this way. Instead of them owning rental properties where there’s issues with insulation, tenants damaging properties, unpaid rent, supplying AC units and losing some of the tax advantages having rentals, they don’t have to pay tax on their “profits” because it’s based on gains in equity and there’s no capital gains tax in NZ.
So, be warned, if you get offered one of these arrangements, there’s very little advantage for you and tons for them.... they’re not, as my old man would say, “doing it out of the kindness off their hearts”.
This is not the proposed shared equity scheme the government is talking about when they will share owning a house with you - it’s private investors.
Cold callers are phoning people asking them if they are renting or struggling to make mortgage repayments They’ll offer to give you money as a deposit for no interest if you’re renting or “give” you money at no interest if you can’t make your mortgage repayments so you give make a capital repayment to the bank.
But they’re not doing you a favour.... the whole arrangement may look good but it’s certainly in their favour... especially if you start missing mortgage repayments to the bank.
Let’s say you want to buy a place for $650k, they will “give” you say $325k and you borrow $325k from the bank. You don’t have to pay them any interest for say 20 years which sounds great until you go to sell the property. Say, it’s gone up to $850k from the time you brought it, you have to pay them their original money (in this case $325k) plus their share of the capital gain (in this case 1/2 of $200k).
If you keep the house for the period you agree to (say 20 years) and decide to stay in it, you need to pay them back their original money plus their share of the capital gain. Using the same figures above (half of $650k that they’ve lent to you), if the property has doubled in value, they do really well while you haven’t. Say your $650k house has doubled in value to $1.3 mil., you have to pay them their original amount plus their share of the capital gain (in this case $325k plus $325k = $650k). But you don’t get to keep that much yourself because you need to pay back the bank. If you borrow your money for 30 years, you’ve only paid back approximately half the mortgage in those twenty years so you only get around $150k plus your share of the capital gain ($325k) and you’re got $425k in your hand. Remembering that you’ve paid interest to the bank which, after twenty years, is around 100% of what you’ve borrowed and you’ve effectively got no money.
It gets even worse if you default on the mortgage because the person who you have the shared equity arrangement with “owns” half of your property so they will have the first right to buy you out and pay the bank the money you owe them. This leaves you with nothing while they get to keep all the capital gain and a property they can either keep or sell/enter into a shared capital arrangement with someone else.
There’s another reason why these companies want to invest this way. Instead of them owning rental properties where there’s issues with insulation, tenants damaging properties, unpaid rent, supplying AC units and losing some of the tax advantages having rentals, they don’t have to pay tax on their “profits” because it’s based on gains in equity and there’s no capital gains tax in NZ.
So, be warned, if you get offered one of these arrangements, there’s very little advantage for you and tons for them.... they’re not, as my old man would say, “doing it out of the kindness off their hearts”.
