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What Investors Need to Know About #Cryptocurrencies: Risk and Taxes

11/29/2021

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What investors need to know about cryptocurrencies: Risk and Taxes?

​We discuss the big questions that investors need to know: Should your investment portfolio include cryptocurrency? Why? What are the risks? What about tax? If you trade one currency for another, is it taxable? What about if you mine? Is there any way to sell crypto and it not be taxable? And lastly, what about the accusation that cryptocurrencies are not eco-friendly? We find out the answers to all these questions, and more. 
Visit Goodlife Financial Advice www.goodlifeadvice.co.nz
Buy #bitcoin at EasyCrypto
https://easycrypto.com/?ref=73913
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OFFSETTING PROFITS/LOSSES FROM LTCs AGAINST OTHER RENTALS

10/25/2021

 
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Inland Revenue released a Tax Information Bulletin (TIB) in September 2019, which clarified this.

For the purposes of this blog post, we are going to assume that the LTC or an individual only holds residential rental property i.e. no commercial, they are not a trader or an associated person or a developer etc, they don't have an Airbnb-style short-stay accommodation house in the picture.

Can losses from an LTC with residential rental property be offset against income from rentals owned by a partnership or in your personal name?
It depends on whether
  1. the LTC decides to apply the ring-fencing rules on a portfolio basis or on a property-by-property basis.
  2. the shareholders have any other residential rentals with income/loss to offset against this

However, the answer is essentially, "Yes", if:
  1. you have decided to use a portfolio basis for the LTC (that is spread the losses and profits out between the various properties owned by the LTC) 
  2. you have at least one residential rental property held in your own name or in a standard partnership i.e. we are not commenting on "limited partnerships" here

So the result is, you can have a negatively-geared LTC, and given the above points, the losses can flow through to you as a shareholder. You can then offset this against profits from a personally-owned rental (either solely owned or in a partnership). The situation also works in reverse ie there are profits in the LTC and losses in the personal/partnership rental.

Note that you can't offset any losses against income from other sources e.g. wages, like you used to in the good old days. That is what the concept of "ring-fencing of losses" means. The losses are "ring-fenced" so that they only apply to residential rental property.

Some interesting points
  • If an LTC applies the rules on a property-by-property basis, the shareholders have to also take that approach in their returns. If it applies the rules on a portfolio basis, ditto.
  • This is not the case for partners in partnerships. If a partnership has filed a partnership return applying the rules on a particular basis, the partners do not necessarily need to apply the rules on that same basis. So a partnership now gives much more flexibility than the LTC in this one respect.
​
Do restructure strategies such as selling your old family home to an LTC still work?
We have previously recommended this, in blog posts such as this one.  The answer is now a big "no." Why? Changing ownership structures will now not shift/change non-deductible debt into deductible debt in any residential investment property scenario, including short-stay accommodation. For more info, see this blog article

For more info, the IRD Sept 2019 TIB is below

As always, situations vary, so please contact us for advice on your specific situation. Call 099730706 or email us here

tib-vol31-no8.pdf
File Size: 1981 kb
File Type: pdf
Download File

WHERE TO INVEST? 9 STRATEGIES

6/25/2021

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With the government's shock introduction of laws slashing interest deductions on existing rental properties, where can you as an investor put your money? What will get you the best return while still maximizing tax deductions? We present 9 strategies: 
  1. New builds.  New build homes will not be subject to the interest deduction limitations, and will only be subject to a 5-year Brightline period. 
  2. Commercial property, as it is not subject to these new rules.
  3. Mixed commercial ie commercial with a flat, may be worth looking into as well; you would likely not be able to claim interest on the accommodation portion but could on the commercial portion, so would need to "do the numbers" to see if it adds up.
  4. Short-stay accommodation, because it is not subject to these interest deduction limitations if a Mixed Use Asset - see this link for more info. (Talk to StayHub about how it could work; contact us to discuss your property/ies)
  5. Boardinghouse accommodation e.g. near large hospitals and the universities, there is a demand for this. These can consist of 4 mostly-self contained units, with shared major cooking and laundry facilities.
  6. Relocatable homes. If you relocate a home to a section, it is considered a "new build" (see point 1).
  7. Add a dwelling to your home. If you add a dwelling and a new Council Code of Compliance (CCC) is required, it is considered a "new build" (see point 1).
  8. Split 1 house into 2. If you add a dwelling and a new Council Code of Compliance (CCC) is required, it is considered a "new build" (see point 1).
  9. Buy a rental property overseas. Overseas properties are not impacted by the changes, so you can still claim interest on the borrowings.
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GOVERNMENT RENTAL PROPERTY TAX CHANGES - UPDATED

6/18/2021

 

WEBINAR:

SUMMARY OF CHANGES

Changes announced in April 2021 by the government: 
  • ​Bright-line test increased to 10 years (except for new-builds, which remain at 5 years); more info here
  • amending the "main home" exemption which would require tax to be paid on gains
    made for periods the property is not used as the owner’s main home (a "change of use" rule).
  • not allowing property owners to claim interest on loans used for residential properties as an expense against their income from those properties. This will start from 1 October 2021, and will be phased in over 4 years for existing properties. There will be an exemption for newly built homes. More info here
  • Ring-fencing rules applied to short-stay accommodation e.g Airbnb
​Note that this law is very much "being made up as they go along" so lots of things are unknown, or not even decided on yet.

HOW DOES THIS AFFECT ME?

At present, when you receive rents, you can offset expenses against that rental income to reduce the taxable profit.  A big part of this is interest paid on the rental mortgage/s.

If the expenses are more than the income (a "loss"), the Ring Fencing laws mean the loss can't offset non-rental income, and the loss instead is carried forward to the next year. If you have two or more rentals, the loss from one property can offset the profit from another (depending on how your affairs are structured).

However, under these new laws, the interest deduction will (over 4 years) be reduced, then finally removed.  Rental properties will make more profit, and for almost everyone: there will be a lot of tax to pay.

And of course, if you can't claim the expenses on interest, but still have to pay it... where does the money come from? You have to raise the rent.

WHAT SHOULD I DO?

  1. Don't panic! Most investors have losses from FY20 and FY21, which can be carried forward to offset future income. This would defer the tax impact for a couple of years, giving you time to make changes.
  2. Consider selling your existing rental and getting a "new build property." According to the Labour Party website, "If you invest in a new build property, you will be exempt from changes to the bright-line test and interest deductibility policy."
  3. Look at your budget. Expect that around March 2023 you will have 25% more to pay, then 50% more the following year, then 75% more, then 100% more for the period starting April 2025. You might end up being a provisional tax payer in a couple of years time.
  4. Look at raising the rents to help offset the reduction in interest expense that you can claim.
  5. Consider selling heavily-debt laden properties. Look for something more cash-flow neutral or positive. Check with us first to make sure you are not caught by the various tax laws.
  6. Check whether it is time for a restructure e.g. a change of shareholdings or sale or properties to a new entity etc: contact us. Just be aware that if something is done primarily for tax benefits, it is viewed by IRD as tax avoidance. Also be aware that in some cases, a restructure can restart Brightline. Note however that the new proposed laws are also offering "roll-over" relief ie where you restructure into an entity with the same ownership, it is not viewed as a restart of the Brightline test.
  7. Worth looking into commercial property, as it is not subject to these new rules.
  8. Mixed commercial ie commercial with a flat, may be worth looking into as well; you would likely not be able to claim interest on the accommodation portion but could on the commercial portion, so would need to "do the numbers" to see if it adds up.
  9. Also definitely worth getting into short-stay accommodation, because it is not subject to these interest deduction limitations if a Mixed Use Asset - see this link for more info. (Talk to StayHub about how it could work; contact us to discuss your property/ies)
  10. Talk to your financial advisor about boardinghouse accommodation e.g. near large hospitals and the universities, there is a demand for this.

FAQ

Q: So what can I claim?
A: You can claim all the usual costs e.g. property management, repairs & maintenance, rates, insurance, legal etc. Re interest: It depends on timing. The following chart shows how much you can claim, depending on when you "acquired" the property:
Interest % claim by year
Q: How do I work out the tax impact?
A: The calculator below will help you work out the taxable income. The exact tax depends on many things e.g. owned personally or via a trust or LTC? How much wages you receive etc etc.​ Note that this calculator assumes you already own/have "acquired" the investment property/ies.
interest-deduction-calculator.xls
File Size: 52 kb
File Type: xls
Download File

Q: My rental was a new build. Does it still qualify as a new build under these laws?
A: Probably not. 

Q: Is short-stay accommodation caught by the new interest deductibility limitations?
A: It would appear that mixed-use-assets (MUAs) - which are holiday homes partly used personally and which are vacant for at least 62 days in a year - are not caught by these new rules, but IRD specify this (at 2.33) "the Government considers it important that where a residential property could be used to provide long-term rental accommodation, the income tax treatment is the same whether the property is used to provide long-term rental accommodation or short-stay accommodation. Any income tax advantage provided for properties used for short-stay accommodation could reduce effective housing supply." In other words, it would seem that yes, it is caught. Just remember that this is all "draft" at this stage, so not actual law.

Q: When did I "acquire" my rental property?
A: For tax purposes, a property is generally acquired on the date a binding sale and purchase agreement is entered into (even if some conditions still need to be met). More info here. Note that for the purposes of the changes outlined here, a property acquired on or after 27 March 2021 will be treated as having been acquired before 27 March 2021, if the purchase was the result of an offer the purchaser made on or before 23 March 2021 that cannot be withdrawn before 27 March 2021.
​
Q: My property sale will be taxable due to the Bright-Line Test (BLT).  Can I claim the interest costs in that scenario?
A: No one knows. IRD say "The Government will consult on the detail of these proposals. Consultation will cover an exemption for new builds acquired as a residential investment property, and whether all people who are taxed on the sale of a property (for example under the bright-line tests) should be able to deduct their interest expense at the time of the sale."

Q: How do the "main home" changes work?
A: Actually, it reminds us a bit of how CGT works in Aussie. There is a great explanation at Stuff together with an example.  (Thanks Stuff.co.nz!)

Residential care subsidy and gifting

6/1/2021

 
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Your lawyer has possibly mis-advised you - although in good faith.  Why do we say that?  Well, here's a quick checklist before you start panicking:

Quick checklist 
  1. Do you have a trust?
  2. Have you done any gifting?
  3. Are you worried about getting residential care subsidies in future?
    • If not, you can stop reading here
    • If you are, keep reading
    • If you are not sure what I mean, see below for an explanation
  4. Have you (and your partner if applicable) gifted $27,000 per year or $54,000 per year?

​The gist of it
Previously, the country's lawyers had advised people to gift no more than $54,000 per couple per year so that they wouldn't be accused of excessive gifting when it came time to be assessed for a residential care subsidy.  If your assets come under certain figures the Govt. will subsidise your rest-home care.  People generally gradually and cautiously gift their house to their trust so that anything they do doesn't stray into excess.  

BUT!  A recent series of court decisions, upheld all the way to the Court of Appeal, has now said 

Gifts of more than $27,000 per year, per application made before the five year gifting period, may be added into the assessment. For couples, gifting is $27,000 in total – not per person.

​See this page on the WINZ website for more info

What does this mean for you?
Here's what the Law Society of NZ said:*

The result of the High Court’s decision is that many people who have undertaken a gifting programme to a family trust may now unexpectedly find themselves ineligible for the residential care subsidy. This will come as an unwelcome shock to many. It will also likely cause many members of the profession concern at the prospect of claims from disgruntled clients for previous advice on gifting programmes.

The long and the short of it is that if you have already gifted more than $27,000 per annum to your trust, then this may now viewed by MSD as excessive gifting. (NB: If you have mirror trusts then you may be able to get away with $27,000 per trust per year). If you acted on legal advice, then I suggest you approach your lawyer about making a claim against them.  The NZ Law Society makes this comment to lawyers:

Lawyers may wish to consider whether there is a need to notify professional indemnity insurers in respect of the risk of potential claims for previous gifting advice. Some brokers are encouraging practitioners to notify insurers of the risk of potential claims. Practitioners are encouraged to check their particular circumstances with their broker/insurer.

Note that lawyers throughout NZ advised people based on the then-understanding of $54,000 per couple per year, and so acted in good faith.  But, at the end of the day, the advice has been misleading, as this recent judgement has shown.  It's not pleasant for anyone.

Yes, but?!
Yes, but didn't the IRD change the law or something?  What you might be referring to was the repeal of gift duty.  What happened was that the Government passed a law change, meaning that you could gift your entire house to your trust, without incurring gift duty.  Previously there was a limit of $54,000 per couple per year.  Anything above that had gift duty applied to it.  BUT (and here's the key point), the MSD's view of excessive gifting didn't change.  If anything, it has tightened up, as explained above.

Further reading
Residential Care Subsidy (WINZ)
FAMILY TRUST ACCOUNTING - WHAT DO I NEED TO DO? 
TRUST LAW CHANGES NEW ZEALAND

Help!
What to know more?  Call us on 0800 890 132 or email us.

* Note that the quoted blog post from the NZ Law Society is dated Jun 21, 2013, which was before the Appeal Court had made its ruling.  This Court ruling confirmed MSD's view, as stated above.


See our three-video series:
SHAM TRUSTS: COULD YOUR FAMILY TRUST BE A SHAM? 
COMMON RENTAL OWNERSHIP STRUCTURES
WHICH OWNERSHIP STRUCTURE SHOULD I USE FOR MY RENTAL PROPERTY?

And the following blog articles:FAMILY TRUSTS: BASIC CONCEPTS
FAMILY TRUST ACCOUNTING - WHAT DO I NEED TO DO?
COMMON MISCONCEPTIONS ABOUT FAMILY TRUSTS

Image courtesy of Idea go at FreeDigitalPhotos.net

RESIDENTIAL TENANCIES LAW CHANGES: EFFECT ON LANDLORDS

5/18/2021

 
The Residential Tenancies laws have changed. What effect does the "Healthy Homes Act" have on landlords? The Residential Tenancies Amendment Act takes effect in three main stages:
 
Phase 1: Law changes from 12 August 2020

  • Transitional and emergency housing: Accommodation provided for these purposes, which is funded by the government or part of a special needs grants programme, is exempt from the Residential Tenancies Act.
  • Rent increases: Rent increases are limited to once every 12 months. This is a change from once every 180 days (six months).
    Any rent increase notices given to tenants from 12 August must comply with the new 12-month rule. 
I'm freaking out already
Fear not!  MBIE have provided this great checklist to work through:
hhs-landlord-checklist.pdf
File Size: 1410 kb
File Type: pdf
Download File

Phase 2: Law changes to take effect from 11 February 2021

  • Security of rental tenure: Landlords will not be able to end a periodic tenancy without cause by providing 90 days’ notice. New termination grounds will be available to landlords under a periodic tenancy and the required notice periods have changed.
  • Changes for fixed-term tenancies: All fixed-term tenancy agreements will convert to periodic tenancies at the end of the fixed-term unless the parties agree otherwise, the tenant gives a 28-day notice, or the landlord gives notice in accordance with the termination grounds for periodic tenancies.
  • Making minor changes: Tenants can ask to make changes to the property and landlords must not decline if the change is minor. Landlords must respond to a tenant’s request to make a change within 21 days.
  • Prohibitions on rental bidding: Rental properties cannot be advertised without a rental price listed, and landlords cannot invite or encourage tenants to bid on the rental (pay more than the advertised rent amount).
  • Fibre broadband: Tenants can request to install fibre broadband, and landlords must agree if it can be installed at no cost to them, unless specific exemptions apply.
  • Privacy and access to justice: A suppression order can remove names and identifying details from published Tenancy Tribunal decisions if a party who has applied for a suppression order is wholly or substantially successful, or if this is in the interests of the parties and the public interest.
  • Assignment of tenancies: All requests to assign a tenancy must be considered. Landlords cannot decline unreasonably. If a residential tenancy agreement prohibits assignment, it is of no effect.
  • Landlord records: Not providing a tenancy agreement in writing will be an unlawful act and landlords will need to retain and provide new types of information.
  • Enforcement measures being strengthened: The Regulator (the Ministry of Business, Innovation and Employment) will have new measures to take action against parties who are not meeting their obligations.
  • Changes to Tenancy Tribunal jurisdiction: The Tenancy Tribunal can hear cases and make awards up to $100,000. This is a change from $50,000.
 
Phase 3: Law changes to take effect by 11 August 2021 (but may take effect earlier if the Government agrees)

  • Family violence: Tenants who experience family violence will be able to withdraw from a fixed-term or periodic tenancy without financial penalty by giving two days’ notice and evidence of the family violence. If they are the only tenant, the tenancy will end.
  • Physical assault: If a tenant physically assaults the landlord, owner, or agent of the landlord, or family member of the landlord/owner, and the Police have laid a charge against the tenant, landlords can issue a 14 days' notice to terminate a fixed-term or periodic tenancy.
Contact us for advice or call now

Is selling your home taxable?

4/29/2021

 
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Is selling your home taxable?, Or in other words, do you have to pay tax when selling your home?

Buying and selling your private or family home typically is not taxable. However some are looking to purchase a family home with the intention of reselling it in time, and a few earn their income this way – buying and selling.

If you have established a pattern of purchasing and then selling your “family home,” this could be considered as property speculation or dealing for tax purposes.

So, how do you know whether you are considered a property speculator, dealer or wheer you are an investor? 
  • What was your intention when you bought the property?
  • What pattern have you established in terms of property transactions?
  • Are you (and if so, how) associated with a developer, builder or property dealer?
  • Will the Bright-line Test* apply?
  • Will you be affected by rezoning?

​How do you know if selling your home will be taxable?  Think carefully about the answers to these five questions.

QUESTIONS

Q. Ok, so I just have to hold onto a property for a really long time and then I’m not considered a dealer?
A. No.  The amount of time you hold the property is immaterial.  It’s your 
intention at the time of acquisition.If you bought a property with the intention of reselling it, then any capital gain that you make on the sale taxable.

Q. Right-o.  So, is there some sort of level?  That is, my first couple of properties are tax-free and then I pay tax after that?
A. Ahhh… no.  Again, it’s intention, patterns and associations – not numbers of properties sold.

Q. What period of Brightline Test applies to my house?

​A. The bright-line property rule looks at whether the property was acquired:
  • on or after 27 March 2021, and sold within the 10-year bright-line period
  • between 29 March 2018 and 26 March 2021, and sold within the 5-year bright-line period
  • between 1 October 2015 and 28 March 2018, and sold within the 2-year bright-line period.
Please note that the government has indicated that new builds will continue to be subject to a 5 year bright-line period. Before this can be legislated, what is considered a 'new build’ is still to be consulted on. The Government intends for the legislation to be retrospective so that new builds acquired on or after 27 March 2021 will continue to be subject to a 5-year bright-line period. More info here

Q. What about sub-dividing? Is that taxable?
A. That's a big subject. Contact us.

Q. Great.  It looks like I might have to pay tax then.  How do I figure that out?
A. Contact us.

* For more info see this link at Inland Revenue

NEW TAX RATES NZ

10/18/2020

 
What will the new tax rates in NZ mean for you? Now that the election is decided, there will be a new tax rate to deal with in 2021: 39% on personal income exceeding $180,000 per year.
  • This applies to individuals only, e.g. an individual receiving a salary of $200,000 will pay an additional $1,200 tax each year
  • It does not apply to combined household income, e.g. if you earn $100,000 each as a couple, you won't pay any more tax 
  • All other rates and brackets unchanged
  • Any new taxes or further income tax increases ruled out for next term (if present government remains in power)
  • Applicable from next year
  • No changes are proposed to trust (33%) or company (28%) tax rates

These coming changes emphasize how important it is to have the right business and/or investment structures in place. There will be tax planning opportunities arising out of the difference between the trust tax rate (33%), the company tax rate (28%), the present top personal tax rate (33%) and the new top personal tax rate (39%). 

If you would like a review of your tax position and structure, please complete the contact form below or call us on 099730706 line 2

    PLEASE REVIEW MY TAX POSITION

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COVID-19 STRATEGIES FOR PROPERTY INVESTORS AND BUSINESSES; GOVERNMENT STIMULUS

10/7/2020

 

WHAT CAN YOU DO?

PictureWe haven't yet found a garden centre that sells one of these
 1. MORTAGE HOLIDAY: In other news, with the OCR dropping to (and staying at) 0.25%, your bank should be passing on rate cuts for any floating loans, and it is worth looking at existing loans to see if you should break and re-fix or extend the term. Break fees are tax-deductible. Ask the bank or your mortgage advisor to do the calculations for you, or use this tool here. You might also want to look at a mortgage holiday, but just be aware that this will increase the loan,^ but it will buy you some time, so in the big picture, may be worth it. We suggest you only do this if you really need to.

Please see this detailed page with info about mortgage holidays, including links for all the major banks to apply for one. See also our blog post with 4 options for your mortgage to improve cash-flow right now


​2. INTEREST RATES: Check with your bank re break fees on your loans, and look at whether the math adds up to break and renegotiate one or some loans at lower interest rates.

3. RENTS: Rent increases are worth considering, as you can now only increase the rent once a year.


4. PAYMENTS: Of course, cash-flow is king, and in this environment, we suggest asking your suppliers if you can start paying in smaller regular installments, rather than bigger sums. This will help reduce the impact of having less cash coming in. EpsomTax.com group offer interest-free time payment plans to all customers as a matter of course; please contact us to arrange this now.

5. INVESTING: This might also be the time to look out for housing bargains - see this article about timing and buying.  If you can get a good deal on a cash-flow positive rental, that's going to introduce some $ into your portfolio. Heads-up: Banks are deluged with lending applications, so getting mortgage approval is slow

6. OTHER RESOURCES: Xero.com have provided a page with links to educational content. You don't have to be a Xero user to access all of it. Webinars include managing stress, resilience, business continuity and so on. 

​What good news is there for the coming weeks and months, in view of the COVID-19 pandemic and its effects on the economy? 

Government policy changes include:
  • Increasing the small asset depreciation threshold to $5,000 for the period 17/03/20 to 16/03/21.  It will return to $1,000 for 2021/22 onwards
  • Giving Inland Revenue the discretion to remit use-of-money interest (UOMI) for customers significantly adversely affected by COVID-19. Affects all tax payments due on or after 14 February 2020. (There are some conditions, see here for more info. For those who don't qualify; tax pooling is still a cost-effective option.)
  • Increasing the provisional tax threshold from $2,500 to $5,000 i.e. if your 2019/2020 income tax was under $5,000, you are not a provisional tax payer for 2021 year
  • Allowing 2% depreciation on commercial and industrial buildings from 2020/21. 
  • Giving wage subsidies or leave payments in some situations.* Find out more HERE. 
  • Business Finance Guarantee: loans for businesses with annual revenue up to $80 million can apply for loans up to $500,000, for up to three years. Click here for more info.
  • COVID-19 small business cashflow loans:  10k minimum loan, 1 year interest-free, no repayments till year 3, then 3% interest p.a.  There are some fishhooks if you miss a payment, so be aware of your responsibilities if you apply and are accepted. More info here.  Apply via the IRD website (use your myIR account)


* The wage subsidy and leave payments are NOT subject to GST - an Order in Council was passed to treat it as exempt (Section 5(6E)(B)(iii GST Act). The wage subsidy paid to the employer is not taxable; it is excluded income under section CX 47 of the Income Tax Act 2007; it is also therefore not deductible when paid by the employer as part of wages to employees. The payments made to employees are taxable for the employee and subject to PAYE, KiwiSaver deductions, Student loan etc in normal way. The same is true for self-employed persons: it is taxable income. NB: you only need to show a 30% revenue reduction for a single 4-week period to receive the full 12-week lump sum; you should be able to show that you took active steps to mitigate the financial impact of COVID-19, which could include drawing from your cash reserves (as appropriate), activating your business continuity plan, making an insurance claim, proactively engaging with your bank or seeking advice and support from either the Chamber of Commerce, a relevant industry association or the Regional Business Partner programme.

^ How it works is that the principal payments temporarily stop and the interest is added to the mortgage

Is Now a Good Time to Buy a Rental Property?

10/1/2020

0 Comments

 
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Are you thinking about buying a rental property but not sure if now is the right time to dive in?  

There’s nothing like a worldwide pandemic to give you wobbly legs at the thought of making a big financial investment! It may seem like a precarious time to buy a rental property due to Covid-19 and political uncertainty around landlord requirements. However, there are other drivers which may indicate that it is a good time to enter the property market or expand your portfolio.  Let’s take a closer look! 

The Housing Market

Despite the economic uncertainty caused by Covid-19, the New Zealand property market is still growing. International migration has decreased, however Kiwis are returning to and staying in Aotearoa in record numbers. 

According to the REINZ, in August median house prices across New Zealand increased by 16.4 percent. Furthermore, every region in the country has experienced an annual increase in median house prices.  There are still housing supply issues which is hot on the political agenda and demand for rentals are said to be strong. 

Interest Rates

The amount at which home loan interest rates are set is influenced by the Reserve Bank of New Zealand’s Official Cash Rate. As of September 2020, the Official Cash Rate was held at an all-time low of 0.25 percent.  These modest home loan interest rates make it a more affordable time to borrow funds. Consequently, term deposit rates are decidedly slim… 

LVR Ratio Restrictions

 In addition to low-interest rates, you currently will need to use less of your hard-earned savings to buy an investment property.  

Pre-Covid-19, the loan-to-value ratio (LVR), or the size of the deposit that lenders require you to provide in order to buy an investment property, sat at around 30 percent. In response to Covid-19, these LVR restrictions have been removed for one year in an attempt to make it easier for households and businesses to buy property

Legal Requirements for Landlords

Something to keep in mind when thinking about purchasing an investment property is any new and ongoing legal requirements on landlords. 

For example, the new healthy homes standards have been introduced for rental properties in New Zealand, to ensure tenants have access to warm, dry and safe homes.  These standards set specific and minimum requirements, including heating and insulation for rental properties. This means any property you purchase will either need to be up to specification when you buy it, or investment will need to be made to get it ready for tenants.

Final Thoughts

In reality, the decision on whether now is the right time to buy is always going to be ‘as long as a piece of string’. There are always going to be risks and potential threats.

However, lower interest rates, the temporary removal of LVR restrictions and ongoing demand in the housing market make it an attractive time to buy a rental property. Ultimately, the decision of buying a rental property needs to be right for your situation. Doing your research and seeking expert advice is going to help you make informed, long-term financial decisions that are right for you.  

Engage with us at EpsomTax.com to learn more about how you can minimise tax when investing in a rental property.  
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    Garreth Collard

    Accounting for your rental residential investment property; specialised property tax advice.  Buy me a coffee! 

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