Walker Property Management is now trading as LJ Hooker Gisborne. It is the same team, same location and same service now under a new name.

“We are excited about the change to LJ Hooker Gisborne,” said Business Manager Julie Walker. “LJ Hooker offer wonderful support to property management. We will be able to increase the level of support both to our property owners and our enants.”

The company has an improved website making it easy for those looking for rental properties in Gisborne to find the right home.

When you own investment property there are two questions that are asked more than any others. Firstly, are the tenants paying the rent on time? Secondly are they looking after the property? And these questions are exactly why you need a good property manager. You see, as property owners we think tenants will pay the rent, in full and on time without default, just like we pay the mortgage to the bank. And if we don’t, we know we will follow the path of a mortgagee sale. We know too as property owners that getting behind in mortgage payments can have huge impact on the final cost of ownership. So why can’t we believe tenants can and will pay the rent on time? Well most do, but for a multitude of excuses, some tenants don’t. As property managers, we have a zero tolerance for late rent payments. It’s not acceptable to make a late payment at all. We put in place steps to ensure that all tenants know what will happen if the rent is not paid on time. For a small fee of $20 – $40 a week that’s got to be the best peace of mind property owners can buy!

And the same goes for taking care of the property. Regular scheduled inspections by an experienced property manager who knows what to look for is essential for double peace of mind. In fact, as a property owner why would you want all this worry when you can buy this service for such a small fee?

Here is how to apply online. Just follow the link on each property that is offered for rent.  Just what you have been looking for!

Last month’s budget effects landlords of residential property. This article published by Crockers Market Research Department gives a good overview of how the changes impact on investment property owners.

Depreciation on buildings

From the start of the 2012 income year, you will not be able to claim depreciation on buildings with an estimated useful life of 50 years or more. As it happens, residential rental properties are considered to have an estimated useful life of exactly 50 years.

If you have a standard 31 March year end, you will not be able to claim any depreciation on your rental property from 1 April 2011. However, you can still apply to the Commissioner for a special depreciation rate (as you can at present) if you believe your building has a useful life of less than 50 years. Note that such exceptions are only granted in very limited circumstances.

It’s possible to apply to the Commissioner for a special depreciation rate where the actual economic life of a particular item is expected to be significantly different to the estimated economic life used to prescribe the depreciation rate. To determine the special depreciation rate, the factors taken into consideration are likely wear and tear, exhaustion and obsolescence. This can be determined using for example, a valuer’s report. Accordingly, if the building is only expected to last 10 years due to it being a leaky building and you have a report to show this, it is possible to apply to Inland Revenue for a depreciation rate that depreciates the building over its 10 year expected economic life.

The 20% depreciation loading currently allowed for new assets will be removed for all purchases after Budget Day. Landlords must ensure that the correct depreciation rate is applied for assets purchased after 20 May 2010.

These changes clearly have the potential to affect your net rental income (or loss). For example, if you currently generate a tax loss on your rental property, the loss may now be significantly reduced, or you may even end up owing tax. If so, you may need to consider making provisional tax payments in the new tax year, if you’re not already doing this.

Building fit out

The income tax treatment of fit-outs will be reviewed and rules around the splitting of buildings from building components will be clarified. Repairs and maintenance expenditure will remain deductible for income tax purposes, while depreciation deductions will remain for “fit out” items not considered to be part of the taxpayer’s building.

Increase in the rate of GST

When GST increases from 12.5% to 15% on 1 October 2010, the purchase price of most goods and services bought by landlords will naturally increase too. In theory, that will ultimately result in a higher “cost of build” for properties destined to become residential, which could increase the market value of already existing comparable rental properties.

How much will those values increase? Past experience (for example when GST was first introduced) has shown this to be very hard to accurately predict.

Conversely, unregistered landlords (which includes most residential landlords) will experience higher operating costs, resulting in either smaller rental margins or increased rentals.

Qualifying companies and loss attributing qualifying companies

LAQCs are common throughout the residential rental property market. From 1 April 2011 QCs and LAQCs will be treated as flow through entities (similar to limited partnerships). As now, losses may still be offset against a shareholder’s personal income tax (subject to our comments below). However, any taxable profits the company makes will be taxed at the shareholder’s personal income tax rate, rather than at the company tax rate, as now.

The reduction in the top personal tax rate from 38% to 33% also effectively reduces the value of rental losses that can be claimed against other income for landlords who were on the 38% tax rate.

The LAQC regime will also be modified to include a “loss limitation rule”, currently contained in the limited partnership regime. This will allow a shareholder of the LAQC to offset net losses for tax purposes only to the extent of their investment in the qualifying company.

As used here, investment includes any capital investment in the company plus any debt guaranteed by the shareholder. For example, if your investment in the qualifying company is only $50 of share capital and you have also guaranteed $100,000 of the mortgage over the rental property, then a total of $100,050 of tax losses can be offset against your income. Obviously, if you have not guaranteed the qualifying company’s mortgage obligations then loss you can claim could be very small ($50 in the example above).

The problem of the loss limitation rule is completely avoided where a rental property is held personally by the investor. In that situation, an unlimited amount of losses generated by the rental property can be offset to the owner(s).

If you hold a rental property in a LAQC and are considering transferring it to your own name or to a partnership with your spouse, take care with the sale. A sale from a related LAQC to you personally constitutes a sale to an associated person and, for tax purposes, it will be deemed to have taken place at market value.

The sale may also result in depreciation recovery (income) in the LAQC. Depending on the level of depreciation recovery, the company may need to consider paying provisional tax in the year of sale. Inland Revenue could also argue that the reason for the sale was merely for tax purposes and that the arrangement constitutes tax avoidance. You would therefore generally need other commercial reasons for changing the ownership rather than merely to save tax.

There’s yet another “fish hook” in the transfer of depreciable property between associated persons: Even though the present market value of the property may be significantly higher than the qualifying company paid for it, the purchaser’s depreciation claim must be based on the original price the seller paid. For practical purposes, this particular fish hook will not often arise, as the general restriction on depreciation of residential rental properties will usually override it. However, it should be borne in mind in relation to any commercial property presently held within LAQC structures.

Working for Families Benefit

You will no longer be able to use investment losses (including rental losses) to reduce your income in calculating eligibility for the Working for Families benefit. Investment losses will be added back to the taxable income for the purposes of determining such benefits.

Inland Revenue investigations

The Government’s budget for property transaction audits and ensuring compliance has been increased by $119.3 million over the next four years. This signals the Government’s commitment to ensuring that people trading in property are taxed on their trading gains. Although rental property investors are not generally classified as land traders, it is prudent to be aware of the proposed Inland Revenue activities in this area.

Kindly contributed by Staples Rodway Limited, the Auckland representative of a national network of independent chartered accounting firms.

Article courtesy of Crocker Market Rearch June 2010.

According to the Department of Housing and Building there are very few leaky  homes in Gisborne. Of the 3,189 properties that have active claims before the Weathertight Homes Resolution Service (WHRS) only one is from Gisborne. That’s not to say there aren’t more properties in the region affected with water tight issues, but it does indicate the problem is no where near as severe in our region as it is in other parts of the country.

Leaky homes are a national disaster. I can’t  imagine to begin to know what it is like living in a leaky home.Worse still, to actually own one.  From my own experience, I would even be lost without our dehumidifier going regularly in the winter months.

In most homes dampness and moisture can be managed simply by good ventilation practises, the reduction of the use of portable gas heaters and by simply wiping away of moisture when it occurs. But the issues associated with leaky homes go way beyond these simple practises. That’s when specialist building advice is required.

Recently three senior high school students came into our office looking for a house to rent for themselves. When asked why they wanted to a place of their own, they explained that they were being kicked out of home. Mmm… what seems like a reasonable request, to get away from home and to stand on your own is actually quite a hurdle to get over. Ask anybody who has gone renting for the first time and they will tell you, it’s difficult to tick all the boxes before you can get your own place. Furthermore, most young renters are likely to agree that the best bed in town is your own, back with your parents.

You see, to get into a flat is quite difficult. You have to come up with four week’s rent as a bond, a week’s rent in advance and a week’s rent as a letting fee. That’s anywhere from $1,200 – $1,800. But if you are sharing with two others well, that’s easy (you think). The agency will then point out that if one or two of you decide to throw in the towel, then YOU ARE IT! If  your mates walk away, then you are the one who is responsible for paying the entire rent and if you can’t, you are the one who is facing getting evicted and losing all that up front money. Mmm …

But before we can put them in to a property we need  references. First up – your most recent landlord. Now this is where it gets difficult. It’s not a good look to write on the application form where it says “reason for leaving : kicked out” Mmm …

Maybe someone will go gaurantee for you. That is, if you don’t pay, then they pay for you. Now it gets more difficult. Do you know anyone who is willing  to put their good name against your recent reputation? Mmm…

Even if you get this far, going flatting is now about to take every hard earned dollar from your part time job and you will never see it again! What about the set up costs of the flat? Furniture, kitchen stuff, linen and bedding, washing machine, lawn mower!  Maybe you will need to drop out of school so you have enough money to make ends meet. But ask anyone on the minimum wage, that’s not much fun.

My advice to the the three young students was easy. “Welcome to the real world guys. Why don’t you put your, moving-out-on-your-own plans, on hold for a while, sort out your differences with your parents and say at home for a while longer. The best deal in town is your own bed, back at your parents place. Make peace at home, work on getting along with your folks and put off getting into the real world as long as possible.”

This week’s Budget could have been alot worse for property investors. While building depreciation on investment property goes, there will be no land tax or capital gains tax.

For the average investor with a rental property in Gisborne, the actual bottom line may mean a loss of $400 – $600 a year, depending on the tax bracket they are in.

So, do the fundamentals of owning investment property still hold? Definitely. If held over time, investment property will continue to be an excellent wealth generator.

Watch this video for more comment.

Click here to view the embedded video.

The new tax laws that are to be released this month could have an affect on the cost of renting a house, as landlords look to recover increased costs from tenants.  If the tax changes reduce landlord’s income, then it is likely that rent increases will follow. The government is no doubt mindful of this and it is my opinion that tax reforms will not go as far as the reforms recommended by the Tax Working Party.

New Zealand needs private investors to provide houses for rent and if the tax law changes are too sweeping, then we will see investors leaving this market sector in favour of stocks and share markets.

There will no doubt be some some changes to the tax laws regarding investment property, but for many investors the reforms will not mean their investment properties are no longer good investments. It will just mean the returns are not as high and the best way to combat this will be to raise the weekly rent.

Rental markets are however sensitive and if rent increases are too steep, then tenants shop around for more affordable homes and in some cases look to move in with family in order to avoid rising rent levels.

Change is inevitable. Let’s hope it is not too sweeping.

If you are renting a house in Gisborne either short term or long term, you may be thinking that one day,  owning your own home is a better long term solution. But are you better off to rent and save your money and invest?  Or are you better to buy your own home?

This article by Mary Holm makes for a provocative arguement over the home ownership or renting debate. I tend to favour the majority of the university student’s viewpoint. How about you?

I was a little surprised the other day when I asked a couple of hundred young university students whether they wanted to buy a home in the foreseeable future. Everyone said yes – despite the fact that we’d just been considering why home ownership is not necessarily all it’s cracked up to be.

It seems that most New Zealand adults either own a home or want to. “Rent is dead money,” people say, “whereas if you’re paying off a mortgage you’re making an investment.”

That’s only partly true. In the early years of a longer-term mortgage, almost all the payments are interest. Even across the full 20, 25 or 30 years – for those who keep a mortgage that long – interest often outweighs principal. And the only one who benefits from interest payments is the lender.

But there’s more to it than that. Let’s compare Reggie Renter and Hannah Homeowner, and assume they both want to arrive at retirement with mortgage-free accommodation.

Clearly if Reggie rents all his life, without saving, he’s not going to achieve that. But if he saves the difference between what he pays in rent and what Hannah pays on her mortgage, rates, insurance and maintenance, Reggie could well hit 65 with enough money to buy a mortgage-free home. It might even be better than Hannah’s home.

To save enough, Reggie would probably have to invest in diversified shares or commercial property or in a fund that invests largely in those assets. That means his savings balance would be volatile – falling quite often, and sometimes quite far. But over the decades such an investment is highly likely to grow healthily.

It’s worth noting, too, that the value of Hannah’s house will also fluctuate over the years. I suspect many would be shocked at the volatility of the value of their home if it were auctioned every month.

What’s more, Reggie can much more easily reduce risk by diversifying his investments – in a wide range of New Zealand and international assets. Hannah’s money is all in a single property – or at least one property at a time.

Other advantages of renting over home ownership include: being able to move quickly and cheaply, and not being responsible for home and garden maintenance. As one man puts it, “Did you have a good weekend, or do you own your own home?”

On the other hand, it will take Reggie more discipline to save. If he sets up regular automatic transfers from his bank account – and if he’s not the type to sabotage his own plans just because he fancies a flasher car or a more luxurious holiday – discipline might not be a big problem. Still, he doesn’t have the threat of losing his home hanging over him, as Hannah does if she misses her mortgage payments. She has a huge incentive to keep paying.

Also, with home ownership comes the ability to make your own choices about interior decoration and your garden. And you can’t be kicked out by a landlord – perhaps just when the kids have settled in at the local school.

To some extent, Reggie could share some of those advantages if he could get a long-term lease, something that might become more popular in New Zealand if more people decide to stick with renting for decades. But a rented property is never going to give quite the same pride or security as home ownership – provided the homeowner isn’t mortgaged to the hilt.

That’s probably why the university students all want to own their own home. It’s an issue that involves much more than money.

article by Mary Holm : maryholm.com