Rental Property in Auckland - Time to sell?

[David Hardman]

Hey guys

I'm living in Sydney but own a rental property in Auckland (Takapuna)

I bought the property about 5 years ago for $NZD265,000. I've been told in todays market I could get $NZD500,000 for it.

Its been rented out solidly over the last 5 years and has given me no problems whatsoever. The house is in good nick and needs no money spent on it.

The rental income pays the bulk of the mortgage (200k left outstanding), insurance, rates however I normally have to subsidies by around $1500 PA

My mortgage rate is currently fixed at 7.3% but comes off this rate in Feb. ASB floating rate is currently 9.5%. I could fix for a further 2 years at 8.3%

Many are picking we are at the end of the interest rate rises and because of this the NZD may weaken over the next year or so.

Here is an interesting article

http://www.nzherald.co.nz/section/st...ectID=10362292

I have made a nice capital gain based on the Auckland house prices boom and also the kiwi strengthening. When I bought the house the AUD/NZD cross rate was around 1.30.. its now around 1.09.. so I've done quite well on the currency front as well....

With house prices peaking (???) and the NZ dollar possibly weakening (???) maybe now is the right time to sell.


???

[David Hardman]

Further to this.

If I did sell the proceeds would make a significant dent in my "owner occupied" mortgage on my house in Sydney.

I guess this would be advantageous as this debt is non deductible.

[shasta]

Locking in the gains & reducing interest bearing personal debt probably best position to be in for 2006 with all the doom & gloom predicted ahead.

You can always use the equity to start over again when the dust has settled.

Quiet a few investors on this forum are seemingly overweight in cash at the moment & biding there time.

[David Hardman]

Another option would be for me to get a formal valuation on the house.

Lets assume this comes in at 500k

Refinance NZ mortgage and withdraw equity (around 250k) leaving 50k deposit (10%) in the rental property

Use money to pay of Sydney house mortgage.

This would reduce my non deductable debt and increase my deductable interest payments which can be offset against my other income. I would also avoid a CGT event.

Thoughts?

[shasta]

Not a bad idea, but you would need to get a good interest rate to do this & ours are pretty high.

Floating or fixed or a mixture?

The timing of all this is crucial!

[minimoke]

quote:Originally posted by David Hardman
Refinance NZ mortgage and withdraw equity (around 250k) leaving 50k deposit (10%) in the rental property

Use money to pay of Sydney house mortgage.

This would reduce my non deductable debt and increase my deductable interest payments which can be offset against my other income. I would also avoid a CGT event.

Thoughts?

I think you will find that you will only be able to claim the original amount of interest as a taxable expense as this is a genuine cost associated with your rental. The top up would not be related to the rental property so is probably not claimable

[steve fleming]

if you do intend to return to NZ, then you may want to hold off selling your rental until you re-qualify as a NZ tax "resident", to avoid paying ATO CGT of up to $100k

[David Hardman]

quote:Originally posted by steve fleming

if you do intend to return to NZ, then you may want to hold off selling your rental until you re-qualify as a NZ tax "resident", to avoid paying ATO CGT of up to $100k

Yeah i've thought about this as well but family/work commitments makes it hard to leave Sydney.

Any idea on how long it takes to re-qualify for NZ tax residence. If I did move back it would only be temporary (but the IRD/ATO needn't know this)

I think I could only handle Auckland for a year at the most

[shasta]

check out www.ird.govt.nz & the publications section for non residents, i think its 180 days, but having investments & family here would help

[steve fleming]

quote:Originally posted by David Hardman




Yeah i've thought about this as well but family/work commitments makes it hard to leave Sydney.

yeah...know what you mean!

quote:Originally posted by David Hardman




Any idea on how long it takes to re-qualify for NZ tax residence. If I did move back it would only be temporary (but the IRD/ATO needn't know this)

I think I could only handle Auckland for a year at the most

Shasta is correct.... generally 180 days, although there is no hard and fast rule - you have to prove that you intend to committ long term to the country you reside in...be careful though in this regard, as it the ATO/IRD do pursue you if they think your residency is a "sham"!