NZ 1st homebuyers are ScReWeD...

[fungus pudding]

Unless expenditure exceeds income. If the interest bill was $100,000 and rentals income was $70,000 then the landlord has to earn another $50k gross approx to bring in the cash to pay the $30k shortfall. If interest drops $30k then that $50k gross goes straight to the back pocket as $30k after tax.

Wrong. The 50,000 gross will be taxed, with the balance going to the pocket.If expenditure exceeds income then the losses are reduced by 30k. Increasing tax liability by the tax on that 30k. interest rate reduction is no different from increasing rent, or working overtime for that matter.

[upside_umop]

Fungus, I think GGG is right. Its because he's making a loss on his properties. Cashflow neutral is the best leverage to have....

If he was making a loss of $30,000 on all his properties, he would not be taxed at all right? Now consider his expenses decrease by $30,000. This is a tax free gain. (Was an inefficent structure from the start if he was making a loss..)

This is assuming, however, that he is not offsetting his property losses against his income. If GGG is, then the decrease in $30,000 is actually being taxed, as he wont be able to offset his taxable income at year end by the loss on rentals.

Are your properties in a trust, company, or personal GGG?

[The Great Gold Guru]

Funguspudding ... I can depreciate the value of my houses by far more than $30k each year ... tax free increase in cashflow ... is that a better way to put it ??

[fungus pudding]

Funguspudding ... I can depreciate the value of my houses by far more than $30k each year ... tax free increase in cashflow ... is that a better way to put it ??

No. You can depreciate them regardless of interest. No matter how you put it you have a taxable gain of 30k. And don't get to hung up on depreciation. It's a real cost even though it's a non-cash expense. Houses depreciate by more than the tax scales allow.

[neopoleII]

has anyone thought about the mountain of state cash dished out to benificaries every year in the form of housing suppliment payments?
with a serious recession loaming, will the govt be able to fund these payments?
as its these payments that prop up the landlords rental income.... and his investment value.

i see property sliding for sometime yet.

[The Great Gold Guru]

Looking to buy 8 more rentals ... falling prices ... "come to papa" !!

[The Great Gold Guru]

My 8 properties are all owned by a company 50/50 with my wife. They have been making tax losses since we bought them with funds removed from the stockmarket in 2007 ... phew . The company owes us about $400k in shareholder loans. This year ( 1st April 09 - 31 Mar 2010 ) I am estimating rental income will exceed interest and rates and insurance by about $30k. Because of depreciation and actual tax losses while interest rates were up in the 9-10% area we will not be paying any tax for a few years. The $30k will be removed from the company by way of shareholder loan repayments. So the $30k will be tax-free to me and the wife ... but will reduce the tax losses in the company and make the day when we actually will pay some tax a little bit closer.

[The Great Gold Guru]

PS. I had a look thru a couple of properties in Papatoetoe today. At 100% borrowing I need to buy at a 20% discount to CV to make them cashflow positive ( assuming 50wks per year occupancy ). The agent said that's not out of the question if you get the "right" vendor. Am looking in Avondale tomorrow. Can see the first offer going in on something before the end of the month ....

Disc: Sold some Macquarie Office Trust ( MOF ) today at 17.5c ... bought them about 10 days ago for 9.2c ... will pay some of the deposit on the first purchase. What a CRAZY market !! MOF were about $1.50 this time last year !!

[STRAT]

PS. I had a look thru a couple of properties in Papatoetoe today. At 100% borrowing I need to buy at a 20% discount to CV to make them cashflow positive ( assuming 50wks per year occupancy ). The agent said that's not out of the question if you get the "right" vendor. Am looking in Avondale tomorrow. Can see the first offer going in on something before the end of the month ....

Hi GGG,
Just out of interest what made you choose those two areas?

[skeet]

Whats everyones thoughts of the Welcome home loan?? For first home buyers.