All Topics / Overseas Deals / Need help getting out of my NZ investment

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  • Profile photo of kramadugukramadugu
    Member
    @kramadugu
    Join Date: 2010
    Post Count: 3

    I moved to Hobart 2.5 years ago and lived in Auckland before that. I bought a 3 bedroom house investment property in Tauranga. Bought this 4 years ago and had no plan as to how I was going to make money except an unconscious hope of capital gains. GFC has crushed even that and I am looking for options to get out with little profit if not break even.

    Its a pretty average house with a potential for upgrading kitchen and bathroom and new fence and some other cosmetic makeover. For all that I need cash and I dont have it. If I sell it I have a chance of selling it for 20K less than my purchase price. That wouldnt even cover my equity. which means I will take about 10K debt if I sell the house. I have good tenants, pay rent on time and look after the property well. My property manager is also very hands on, proactive, no bullshit and keeps constant communication.

    But it is not making me money and unless I put more into it i wont make money and I will keep loosing $100 a week on repayments. And further more the distance is always a challenge. I need a mentor to help me get through this and am sure this is the community of creative minds. Anyone out there willing to advice I greatly appreciate your time and advice.

    Krish

    Profile photo of mikeymmikeym
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    @mikeym
    Join Date: 2010
    Post Count: 1

    Hi Krish

    I think the stats are that NZ property residential prices dropped by about 10% during 2008, and then stayed reasonably stable during 2009.

    If you sell now, you may be selling near the bottom of the market, but having said that, it may be a couple of years before you get back to the 2007 value (ie 10% above current value).

    You haven't mentioned what your income situation is, and whether you are in a position to continue funding the losses on renting the property for a few years.

    If you are employed and earning a reasonable income, then the $100 / week deficit between the rental income that you receive and the cost of mortgage and other expenses (ie $5000 per year) is probably mainly deductible against your Australian income – or at least the interest part of that anyway – which sounds like it will be most of the loss.  (From memory I think there are some expenses you can't claim if the property is out of Australia, but I believe the interest cost is deductible. Best to talk to a tax expert on that.)

    This may mean that you are effectively getting a tax credit to cover part of the ongoing investment losses (eg up to $2000 / year if you are on the 40% marginal tax rate.)

    By waiting a while before selling, my guess is you would get a better overall outcome.

    As an example, if say your Tauranga property is worth NZ300k, if the market recovers to its 2007 levels in 2 years time (ie up 10%), you will add $30,000 to your selling price by waiting.  It will have cost you an extra $10,000 in rental losses over that time, but you would still be $20k ahead. And if you are paying Aust income tax, you can probably get some of those rental losses back through negative gearing.

    If you sell now, you may be taking away a $10k deficit after paying off the mortgage (have you factored in selling costs – say 5% of the sale value).

    But it really all depends on what your income situation is, whether you can afford to continue paying the rental losses for a while, and have enough extra to cover things like rises in interest rates, no tenant for a month or 2 etc etc.

    Mike

    Profile photo of wlynchwlynch
    Member
    @wlynch
    Join Date: 2010
    Post Count: 8

    Hi Krish

    I own two investment properties in NZ one in Whangarei which I’ve owned since 2004 and one in Nelson which I’ve owned since 2007. Although different to your situation, mine are positively geared now thanks to the drops in interest rates.

    The Nelson property has held it’s own as far as capital gains are concerned and the Tasman area is actually going up in value but Northland, as in your situation, has been dropping for some time now unfortunately. I recently decided I’d like to buy again and use the equity in the Whangarei property to do so. Or was thinking of selling it and would of used the gains I thought I had to buy two other properties. I’ve just had it appraised and the gains aren’t as much as they were in 2007, due to the downturn the property has gone backwards by about 30K, so there is no benefit in me selling. All I can do now is sit on my hands and wait.

    My advice is the same as Mike’s I’d try and hang on too. There is no point in selling to make a loss when things will eventually come right.

    If it’s of any use to you I know for sure that all of your losses are a tax deduction over here and are treated as though the property was in Australia. There has always been reciprocal tax laws between NZ and Australia but they have become even more beneficial to NZ investors and they changed in Australia, as at 1st July 2008, so that now all losses can be claimed against personal income as long as the property, therefore losses, is in your name. This includes everything from the interest on your loan, management fees, maintenance, depreciation ….. the lot!!

    It sounds like you need to get yourself a good NZ accountant do your tax return over there which you give to your Australian accountant so they can then claim the losses against your income over here. I’m doing it myself right now. The losses can also be back dated as long as, as I said the property is in your name.

    I don’t know if this will help offset the out of pocket expenses enough but something else to think about, if you aren’t already doing it, make sure the loan is interest only at least until you get out of the rut.

    Al least you have a gung ho agent which is more than i can say for my place up North!! Hang in there.

    Wendy

    Profile photo of kramadugukramadugu
    Member
    @kramadugu
    Join Date: 2010
    Post Count: 3

    Thanks Mike. I guess my biggest frustration is that I am unable to gear it negative in australia. And that was a simple lack of knowledge that I can negative gear a NZ property in OZ. Last couple of year, a friend of mine accountant by the way has been doing my taxes and didnt think I could claim it in OZ.  So guess who is getting their arse kicked tomorrow. :) . It makes perfect sense to go see a proper tax accountant tomorrow.

    Wendy thank you for sharing your story with me and thanks for confirming that we can negatively gear NZ property in OZ. That will solve the problem as it will only cost me about 2000 with the tax refund.

    Mike, my financial situation has improved recently and once I get out of the fixed interest rate contract of 9.45% this 2010 May, it will be even better. I should be able to afford the losses from the NZ property for the next 2 years.

    Thanks a lot for the advice guys. You guys saved me a shit load of time and an unnecessary trip to NZ to renovate the place in an attempt to sell for breakeven.

    Krish

    Profile photo of wlynchwlynch
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    @wlynch
    Join Date: 2010
    Post Count: 8

    Great news Krish but don’t be too hard on your mate as I was only speaking to my NZ accountant last week and we were discussing a claim that I thought I was entitled too and basically his comment to me was that, ‘it didn’t matter anyway as the losses would only just sit NZ until I went back there to work to beable to make a claim agaisnt them.’ I very quickly set him straight and told him in no uncertain terms that I wanted to claim every dollar I was legally allowed to as I could claim the losses over here. You can’t have two bites at the cherry though so once claimed here then thats that. So my accountant wasn’t aware of the law change either.

    It used to be that the losses did sit over there and here, until that is, you owned a investment property over here that made gains which is when your NZ losses would come into play and offset those gains. Which of course renders them useless if you don’t own positive investment properties over here. But as I said 1st July 2008 all that changed so that the losses are claimable now, regardless of the income they’re being claimed against.

    Krish make sure that you do all of your years tax returns as I’ve got losses that have been accumulating and I’m now able to claim them all at once now for this first time this year (as in the 2008/09 financial year as I’m only just doing my tax for that financial year now, oops!!) So happy days.

    Good luck
    Wendy

    Profile photo of Playa ChickenPlaya Chicken
    Member
    @playa-chicken
    Join Date: 2004
    Post Count: 128

    Glad to hear you've decided to hang in for the duration Krish.  There are a lot of investors who have purchased in the 2006-2007 who are feeling the pinch right now and many bailing out and losing money.  I know of at least two that have had to top up their mortgages before the bank will release the loan because they sold below what is owed – very dumb!!!

    Patience is a virtue.  I'm glad to see you have some, as it will serve you well when rents rise and capital gains kicks in again in a few years.

    Good on ya!!

    Vicky

    Profile photo of yuyuyuyu
    Member
    @yuyu
    Join Date: 2004
    Post Count: 15

    yes i am one of those as well. got quite abit of loss on it atm.

    but it is good to know that now u can claim the loss against ur aus income and gain. tks for that info as my accountant doesnt seem to think we can do it last couple of yr.

    cheers

    Profile photo of wlynchwlynch
    Member
    @wlynch
    Join Date: 2010
    Post Count: 8

    As it turns out, after finalising both NZ and OZ tax returns. 20.2K NZD this year for me, which are the accumulated losses, in AUD 16.2K. Worth claiming I say!!

    Wendy

    Profile photo of kramadugukramadugu
    Member
    @kramadugu
    Join Date: 2010
    Post Count: 3

    I just had my returns done and about 13k AUD in losses. Definitely worth it. Had I known this before I would have claimed another 5K loss that I paid in cash and didnt bother to get receipts. I didnt do any tax return in NZ though. I am just converting all NZ expenses to AUD and directly claiming rather than doing one in NZ and claiming those tax offset in OZ. Not sure it make any difference. Thanks Wendy

    Profile photo of ChizChiz
    Participant
    @chiz
    Join Date: 2008
    Post Count: 70

    Just a thought: Ask your tenants of they’d like to buy the property from you on vendor finance terms. You’ll save on sale costs and may make something on interest rate.

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