[Moorf]

My parents have tasked me with finding them a rental apartment as an investment - they intend to move here in 4 yrs time when Dad retires.

I'm not up on rental income here in NZ so any advice welcome. Ideally they want to buy an apartment so no garden upkeep etc.

Cheers in advance
Moorf

[Diny]

We have a rental propety here in NZ, we bought it last December.

Here's what we do with ours, don't know if any of this info will be of use your your olds.

We created a company for ourselves then bought the rental in the name of said company. We took a 95% mortgage out on the property. We could very easily cover the mortgage payments with the rent but we intentionally don't. We effectively run the business (rental) at a loss. There's not a huge amount of difference, but just a margin of a few dollars will mean it's running at a loss. The company has been set up as a Loss Attributing Qualifying Company (LAQC). Without getting all technical (I leave that bit up to the old fella) it means that we can claim back any tax paid - such as mortgage tax, GST on any work done to the property etc. We've just had our tax return back from the accountant and we are able to claim back $2886 ... and that's just from December - minimal work done on the property, paying a (very) minimal amount each month to keep the mortgage payments (from tenant) negative.

Now - this is where it's different for your olds. Seeing as they aren't living here in NZ I can't see the need (or indeed the legality) of them becoming an LAQC. It will probably be just a straightforward purchase for them. However, if you buy the property for them you could set up the LAQC and claim the tax back yourselves. I have no idea how involved or how 'legal' this would be .... this is where you need the services of a good accountant/financial advisor.

Moving on a step further (just as a matter that may be of interest) - once you have bought your first rental it's (relatively) easy going from there. Sit on it for a while, wait until there's a small amount of equity, then pull that equity out to either a) pay a chunck off your own mortgage or b) put down as a deposit on another rental property. The whole idea of having a rental owned by an LAQC is to keep the mortgage as high as possible all the time. Cream off the equity as soon as it accumulates and re-invest.

As for renting their house out (which ever option they take for buying it). The key to everything running smoothly with the minimum of headaches is to really go all out to find a good tenant. You'll find when you advertise the vacant property you will get inundated with applications (we still get the occasional call now and we advertised ours back in December). Take the time to vet them all. Take references (written) and cross all the T's and dot all the I's. I know this may sound as though I'm teaching my granny to suck eggs but a good/bad tenant can be the difference between a harmonious investment and a living, expensive nightmare.

Going that extra few yards in the beginning can really reap in the rewards later. My advice (for what it's worth) is for you to see about buying the property in your name.
It can be transferred to your olds when they arrive. Let's face it, 4 years of claiming tax back on a rental is better than a poke in the eye isn't it.

Give us a yell if you need any more info as I'm pretty sure I've missed alot out.

Diny

[Moorf]

Cheers Diny, brilliant info, I've forwarded it to my parents ;)

[Avalon]

Wow - thats a great explanation! Eyes went a bit squiffy over the LACQ though :D I just dont get it. And as this is something we will be doing at some point - i kinda need to get it - but every time i try - my brain tries to dribble out of my ears

Moorf, not sure if it would help but you get free seminars on buying rental properties for investments. It may not be what you are looking for - but amongst the hard sell (of which there is a lot) - there is some rather good info. These are done by a company called Richmastery - whose ethics have been questioned - but a lot of info regarding investing in the seminar is good. Just be aware the idea is to sign you up to a 3 day intense "academy" and get you to buy some software. None of which is needed unless you are going to be the next property magnate :D May be too general as you are buying something for your parents - but I thought its worth mentioning.

They do talk about gearing (positive where you make money - negative where you dont), and some ideas on structuring mortgages.

So if you have a spare 3 hours ;) may be useful. Oh - and if you do want to go to one - dont pay for it - if you go to thier website - you can download free tickets (and a bunch of other stuff as free downloads too). And if you are even vaguely the sort of person who would go to a timeshare lecture and end up with a week a year in a spanish villa that you dont want - leave the credit card at home!

[Diny]

Wow - thats a great explanation! Eyes went a bit squiffy over the LACQ though :D I just dont get it. And as this is something we will be doing at some point - i kinda need to get it - but every time i try - my brain tries to dribble out of my ears

!


Believe me, it makes me dribble too .... and I'm doing it !!!!! Best thing to do is have a word with your accountant, we went to ours with a few basic (and I mean basic) facts and they explained it to us in laymans terms. They also set up the LAQC, all we had to do was think of a name and pay the registration fee - which (I think) was in the region of $550.

Diny

[happymartins]

Diny,

That information has been a real eye opener for me. One of teh things we want to do when we get to NZ is look at buying a rental property as an investment and setting up an LAQC could be the best way of doing this. I'm no expert on tax though but am I right in thinking that you just make sure that the rent you're bringing in stays just below the mortgage payment?

[Diny]

Diny,


am I right in thinking that you just make sure that the rent you're bringing in stays just below the mortgage payment?


Basically yes. So in effect you are running the 'company' at a loss, thus enabling you to claim back any tax paid.

If the rent is the same as the mortgage then all you do is have the rental property as an investment - i.e. accumulating equity. If the rent is more than the mortgage you are effectively making a profit and you will end up paying tax.

Diny

[Avalon]

Got told of a property investors website with a forum (uses the same format as this ones - so looks nice and "friendly"):

www.propertytalk.co.nz

Most people on there deal in cashflow positive property investing (ie - the tax loss is on paper only - but the rent pays the mortage, expenses and extra). Depreciation is the only thing that turns it into a loss. Fascinating place - im learning a lot.

Im also cuurently reading a book my Margaret Lomas called "The pocket Guide to Positive cashflow property" or something like that. It has a pretty good explanation of the 3 ways of financing this - Negative gearing (what Diny does), positive gearing, and positive cashflow. May make your head spin for a minute though.

Also, Anita Bell (The godess of all money writers imo) has a book about investment property as well - which come from the basis of paying off the mortgage on it fast and then getting big returns on it after that and buying the next one.

As with everything - there are lots of ways to do this - and its a bit of a minefield trying to work out which one is best - for us at least.

[willsken]

This is really interesting info. We intend to buy a rental and Diny you have just given me lots of food for thought! Mind if I get on your case about all this in a few months when we want to buy? :roll

[Diny]

This is really interesting info. We intend to buy a rental and Diny you have just given me lots of food for thought! Mind if I get on your case about all this in a few months when we want to buy? :roll


No worries at all, please feel free to ask. I'm no expert but I'll do my best to answer any questions you may have.

Diny