Commercial Property I don't think you should buy!
30 October 2017
Commercial Property I don't think you should buy!
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Kind regards
Ross Barnett
Accountants Hamilton, Chartered Accountants Nz Blog
I'm nervous.... No I'm Scared
27 October 2017
I’m Nervous…. No I’m Scared
The property market has already turned, or is showing signs of turning. LVR rules have had a huge impact, and I was getting set for a consolidation phase. My prediction was that the market would go flat, and that in 2-3 years there would be some desperate vendors, therefore some opportunities to pick up some bargains. I love this video showing what a new investor does at the peak of the market: https://www.facebook.com/thepropertyaccountant/vide...
Now the game has changed a little bit more;
- 5 year brightline test. This personally doesn’t worry me, but the majority of property investors are after a quick buck. They want to buy a property now, it to jump up in value $100,000, and then to sell so that they can reduce their personal house loan, or buy a fancy car, boat , holiday etc. Paying tax on a property gain scares these investors.
- Tenant friendly. Everything seems to be going the tenants way at the moment, no letting fee, only annual rent rises, 42 day notice becomes 90 day. There is also a lot of tenancy tribunal cases going against landlord, and some landlords are having to pay some serious money back to tenants.
- Extra costs and compliance – insulation, smoke alarms and especially Health and Safety. Health and Safety is frustrating some landlords and also pushing up ‘Tradie’ costs.
I would guess that 65% of property investors have negative cashflow, that means the rent doesn’t cover all the costs. These investors then love and rely on their tax refund. I just did a quick cashflow of a standard rental that an average/normal investor would buy now. $550,000 and getting maybe $475 per week in rent, so just over a 4% gross yield. If the property is 100% mortgaged (this is pretty normal), it costs $10,600 before tax refunds!
That’s right – an average rental, that an average property investor buys now, is costing them $10,600 per year, before tax refunds.
And that is at 4.5% interest rates. What happens if this goes up to 6.5%? The loss moves up to $21,500!
Currently this average investor would be getting back around $5,000 in tax presuming highest tax bracket and some chattels to depreciate. So this brings the overall cost down to around $100 per week. Which is manageable to most investors.
How is this new or average investor going to cope with no tax refund – down $5,000 or another $100 per week?
Plus the extra compliance costs and hassle?
Plus if there is no capital gain for 2-5 years?
Then the biggie – WHAT IF INTEREST RATES GO UP? 1% would be another $100 per week.
Can the average investor survive an extra cost of $200 per week?
My thoughts from this;
- If you are conservative - Wait, watch and hope the market collapses. Then buy some bargains in ½ to 3 years, that have opportunity to add value, maybe through subdividing.
- If you are a little more aggressive - Same as above, but maybe some joint ventures, so that you are still doing things, but with lower risk. Also ensure the new purchases whether trades or holds, can cover themselves easily and don’t put you under pressure
- Aggressive – I just don’t think it is worth going there at the moment
- Buy in the bigger regions, such as Auckland, Hamilton, Tauranga and Wellington, where there is always buyers and tenants. Keep away from dying regions and little regions, especially if they rely on one industry. I always laugh to myself as each property cycle comes around and talk slowly moves to "lets buy in Tokoroa or Whanganui!"
My best advice at the moment, is take your time and don’t be afraid to get some advice and ask for help. Your local property investor association is a great starting place, and we also have some great information, checklists, webinars, seminars, video’s and blogs coming out over the next few weeks on strategy and how to get through the hard times if they come. Make sure you like our page or sign up for our newsletter to ensure you get the info!
If you have negative properties, think hard on how you can turn these into positive – a great starting place is a free 10-15 minute chat with me, where I can often point you in the right direction. Just email my PA, Mareese at mareese@cswaikato.co.nz. It’s completely free and no obligation!
What do you think?
Ross Barnett
How to get passive income from property?
6 November 2017
Check out my article for Waikato Property Investors Association - Have you joined yet?
How to get passive income from property! A must read on 5 different strategies. Have you joined your local Property Investor Association yet? With so many changes to property it is worth checking out the benefits at the bottom of the article!
Claim your $1,000 back right here!
30 October 2017
Claim your $1000 back right here....
If you earn over $52,000 per year, then you are likely to have just lost $1,000 in tax cuts that National planned to bring in from 1/4/18.
How can a property investor get that back again?
1) Increase your rent. In simple terms it would sound like you need to increase rent $20 per week to gain $1,000, but after taking tax into account you actually need to earn around $29 extra rent per week!
2) Restructure – Over the last 10 years, we have found that the average restructure saves around $2,500 in tax per year, after taking into account any costs!
a. So can you borrow in your rental company to repay a shareholder current account?
b. Can you restructure a rental into an LTC, to make more interest on borrowing deductible?
Both of these need to be done correctly, for the restructure to work!
3) Rent by the room or fully furnished – Both of these will result in more rent, but they only work in certain places and it is important to make sure you can manage these kinds of properties and understand the tenants demand in the area.
4) Chattels depreciation
5) Make sure you are claiming all those small things. By themselves, each of these items is likely to be quite small, but added together they might save you $1,000 per year
· Mileage - For rental property associated travel you can claim 73 cents per km using the IRD rate or you can also use the AA rates which are generally higher. Make sure you have a simple system
· Donations - You can claim back 33% of any donations, as a rebate!
· A good system to account for all repairs, and all the little purchases
6) Insulation subsidies – If you haven’t insulated yet, talk to your property manager about insulation grants or subsidies. These can often reduce your insulation costs by $1,000
7) Kiwisaver – If you are an employee, then joining a super scheme or Kiwisaver makes sense. The government pays $521 into your Kiwisaver each year. Plus your employer matches your 3% contribution (3% of your income), less tax = approx. 2% extra contribution. So on a $50,000 income, you could be gaining $1,521 per year from the government and your employer
8) Renovation – An example from a property manager in Hamilton, was the landlord spent $25,000, and increased the rent $80 per week. A 16% return on investment!
Do you own a business, and also investing in property? Watch out for my next blog on “Maximising the benefits of having a business and property”
Kind regards
Ross Barnett
What is happening in the Auckland market?
6 November 2017
What is happening in the Auckland market?
The Median sales information shows that Auckland has been very flat over the last 6 months, but is still slightly above last year. At this stage it definitely hasn’t crashed!
What’s your prediction for the next 12 months?
