Negative Gearing

[R2]

I have 1 rental property currently in NZ and generated a tax loss last year despite being non-resident, it is carred forward i.e. rental income less property costs.

I have invested in over 20 properties so far in my life and part way through learned to limit 1st mortgages to initial drawn value + 1 years interest ,just as a safety net(Banks always want to sign the mortgage well above the actual initial loan value to block your ability to secure additional funds from other lenders - not enough equity left unsecured to use).

Therefore you may be able to limit the JPN loan to it's value + 1 years interest, get a second mortgage in NZ for the 40% required and generate a tax loss offering part of your cash (proposed 40% equity) as security. Invest your proposed 40% equity which is cash at the bank at 6.95% and pay 2% RWT thereby clearing 6.81% on your equity and being in a fairly liquid position should you need it.

I can strongly advise against having currency exposure, from experience, if you do go ahead, as I am currently sitting on a 45% unrealised exchange loss on US funds invested originally from NZD to AUD to USD which need to come back by the same route. The actual shares are ahead again based on $+div. but based on exchange I'm down, luckly I don't have to pay anything and can just wait until the stars align.

I think you may find you can pay a little higher rate and nominate NZD for repayment on the JPN loan.

Maybe my cunning plan is flawed - if so I hope someone will tell me before its too late as I may just enact it myself.

[rmbbrave]

Thanks very much R2,

Your plan is so cunning you could pin a tail on it and call it a weasel.

[Rogue1]

There are also a number of banks in NZ offering foreign currency mortgages, in the case of Japanese based investors interest rates would be 2.15%. Generally they'll accept borrowing between 70 - 80% of the security value.

If rates change markedly you could always re-finance locally (most lenders will provide lending up to 80% of a property's value for non-residents) and pay off the forex loan.

[rmbbrave]

quote:Originally posted by Rogue1

There are also a number of banks in NZ offering foreign currency mortgages, in the case of Japanese based investors interest rates would be 2.15%. Generally they'll accept borrowing between 70 - 80% of the security value.

If rates change markedly you could always re-finance locally (most lenders will provide lending up to 80% of a property's value for non-residents) and pay off the forex loan.

Now that I didn't know!

Do you pay the loan back in NZD or Yen?

[dinosaur]

I have several mortgages on some properties in Australia from a NZ Bank. They are in Australian Dollars so I repay the loans in Australian Dollars. The Interest rate is also based on Australian rates.

If you are a NZ resident you could be liable for yearly tax to pay/refunds on the unrealised exchange rate gains/losses if you don't get in the correct tax division as this type of loan is considered a Financial Arrangement under the NZ Accurals Regime. Division 1 works on an accural basis but if your financial arrangement is under 500K per tax payer (I think)you can nominate to be a Division 2 taxpayer which does not work on accurals. When you repay the mortgage the FX rate is taken into account regardless of what division you are under.

So, say when you took the Mortgage out the A/NZ FX rate was 0.92 and when you repaid the rate was 0.85 you can claim the FX loss in both countries.

A$200,000 mortgage @0.92 = NZ$217,391
A$200,000 mortgage @0.85 = NZ$235,294
That's a NZ$17,903 fX loss to claim.

As the security is in A$ it costs no more to repay the mortgage when you sell. The loss is not realised unless you bring the capital back to NZ at that rate.

Conversely if the rates went the other way you would have an unrealised FX gain on the mortgage if you repaid it and would be liable to pay tax on the FX gain in both countries, so timing is everything with these types of mortgages.

[rmbbrave]

I have looked at the ASB's, the National Banks', the ANZ's, Westpac's, and the BNZ's home pages and found nothing about "foreign currency mortgages". I have also searched the ASB's, the ANZ's and the BNZ's home pages for "foreign currency mortgages" and found nothing.

Rouge 1 or Dinosaur could you please tall me the names of any NZ banks that offer "foreign currency mortgages" and refer me to an internet address or give me the an email address of a bank employee whom I could contact for further information.

[dinosaur]

rmbbrave

Won't say who my bank is, but it is the wholesale arm of a major NZ bank. Even my Branch Manager of the same bank didn't know about it. You probably need to go through a mortgage broker to access it in the first instance.

[R2]

[http://www.anz.com/japan/overview.asp]

[dinosaur]

This may help, Pioneer source loans from many banks, like Rabo etc, etc. although the interest rate will probably be that current in the country where you have your main security.
http://www.pioneermortgages.co.nz/default.aspx

[sigian]

[
<h5>Like Matty, I too am a resident of Japan and so I am able to borrow money from Japanese banks at low interest rates to buy property in NZ. I have recently secured a 25 year loan for US $120,000 (NZ$162,000) at 1.68% (not fixed). I have to put up 40% (NZ$108,000) of the value of the property myself. If I put up no more than 40%, I could buy a house worth about NZ $270,000.

The interest repayments would be (NZ$162,000 @ 1.68%) $2721 per year. If I get about 7% rental yield ($20,000) and have to spend a third of this on rates, insurance, management fees, etc. ($6,700) then I should be up about $13,300 per year not counting capital gain.

If the capital gain is 3% per year ($8,100) then my yearly profit is $21,400, which would mean my investment of $108,000 is returning 20% per year.

I have not included any one off costs of purchasing a house as I have no idea what they are. I would greatly appreciate any comments on my estimates. Are a 7% yield, a 3% capital gain, and a third of the rent being consumed by rates etc. realistic?

The major problem I see is a fall in the value of the NZ dollar. As the loan has to be repaid in yen a big fall could really eat into my profits from this investment. Given that the $NZ is at record highs ( US$ 0.74) a big fall is probably the most likely scenario. I have 6 months to decide whether to go ahead with the loan. Should I go ahead with it?

All comments welcome.</h5>

[/quote]


rmbbrave
I was interested to read your post. I too am from New Zealand but also a resident of Japan and considering obtaining a loan from a Japanese Bank to purchase more rental houses.

I would like to know a little bit more regarding the guidelines that the Japanese Banks require in order to qualify for a loan for NZ investement property. I know that they require a 40% deposit. Do they require you to be married to a Japanese citizen. I have worked in Japan for seven years and thus a resident but that is where my ties with Japan end.
Another question, you said you already secured a loan. if you decide to sell you inital property is your loan able to be transfered to a new property?
Any information would be most helpful.

sigian