Hey guys we have built up a bit of equity in our existing property and wondering if we were to buy a rental property how this would effect our working for families? TIA

familiadude1 - 2020-11-28 11:19:00

It depends on how much your rental makes. If it makes $5k a year profit, then you have to add that onto your family income. This may reduce your working for families entitlement.

tygertung - 2020-11-28 12:00:00

I get you so is it worked out income less expenses equals profit? Just don't want to buy a rental and completely lose WFF.

familiadude1 - 2020-11-28 12:55:00

Yes there is a difference between income and cashflow.

Cashflow isn't taxable income.

If you are getting 19k a year in rent, but have expenses such as interest, insurance maintenance, repairs etc., the cashflow minus expenses is your taxable income. Work out what you think it would be for the year and tell that to the IRD. You will probably want to see an accountant first.

tygertung - 2020-11-28 13:47:00

I'd go see an accountant. From what I remember, money paying off the principle of the mortgage can't be counted as an expense, but money paying off the interest portion is.
Also a heads up that rentals can be expensive and make sure you have a contingency plan for if the tenant stops paying rent and you have to cover the mortgage payments with no rent coming in, or the hot water cylinder dies and needs replacing immediately. Need quite a good buffer because you can't make tenants wait for things just because you haven't got the money to fix it.

annie17111 - 2020-11-28 13:54:00

And if the rental runs at at loss it cannot be offset against other income either.

joanie04 - 2020-11-28 15:19:00

You wouldn't buy a rental because you don't want to lose WFF?

rhys12 - 2020-11-28 16:04:00

familiadude1 wrote:

I get you so is it worked out income less expenses equals profit? Just don't want to buy a rental and completely lose WFF.

Sometimes to get ahead you may have to stop holding the taxpayers hand.

sw20 - 2020-11-28 16:31:00

rhys12 wrote:

You wouldn't buy a rental because you don't want to lose WFF?

That made me do a double take too.

kacy5 - 2020-11-28 17:08:00

sw20 wrote:

Sometimes to get ahead you may have to stop holding the taxpayers hand.

I'm sure your life has always gone to plan and not had any mishaps ever.........

familiadude1 - 2020-11-28 17:32:00

annie17111 wrote:

I'd go see an accountant. From what I remember, money paying off the principle of the mortgage can't be counted as an expense, but money paying off the interest portion is.
Also a heads up that rentals can be expensive and make sure you have a contingency plan for if the tenant stops paying rent and you have to cover the mortgage payments with no rent coming in, or the hot water cylinder dies and needs replacing immediately. Need quite a good buffer because you can't make tenants wait for things just because you haven't got the money to fix it.

I get you. Will definately see an accountant first. Thanks for your advice

familiadude1 - 2020-11-28 17:34:00

IMO
1. Finding a cashflow positive rental could be a challenge
2. Which means there is a better chance you will be 'propping up' the mortgage, than making a profit for quite a while
3. As mentioned 'losses' can not be used to offset against other income
4. WFF does not get counted as income when applying for a mortgage, so you need to be able to service the mortgage(s) without taking into account your WFF payment

desi1969 - 2020-11-28 17:48:00

desi1969 wrote:

IMO
1. Finding a cashflow positive rental could be a challenge
2. Which means there is a better chance you will be 'propping up' the mortgage, than making a profit for quite a while
3. As mentioned 'losses' can not be used to offset against other income
4. WFF does not get counted as income when applying for a mortgage, so you need to be able to service the mortgage(s) without taking into account your WFF payment

I had to supply proof of our wff got for our mortgage application so would say the income does count

annie17111 - 2020-11-28 17:53:00

annie17111 wrote:

I had to supply proof of our wff got for our mortgage application so would say the income does count

It was my understanding from another party, it didn't count in the calculations the bank uses to asses affordability, but Jeffqv or similar on the other side might be able to better assist here, and more than happy to be corrected if I'm wrong.
Admittedly it's never been something I've had first hand experience as we don't receive it.

desi1969 - 2020-11-28 18:03:00

desi1969 wrote:

It was my understanding from another party, it didn't count in the calculations the bank uses to asses affordability, but Jeffqv or similar on the other side might be able to better assist here, and more than happy to be corrected if I'm wrong.
Admittedly it's never been something I've had first hand experience as we don't receive it.

we needed to supply proof when we were going to buy a rental so assume if they needed proof of it then it did count. Could be wrong though.

annie17111 - 2020-11-28 18:37:00

rhys12 wrote:

You wouldn't buy a rental because you don't want to lose WFF?

You would be surprised the number of people who did, when they were able to offset the loss. Bit like a lot of people who purchased lifestyle blocks, registered for GST, got the GST back. Pottered around on them and got a hell of a shock when then sold and had to pay GST on the sale.

joanie04 - 2020-11-28 19:15:00

annie17111 wrote:

we needed to supply proof when we were going to buy a rental so assume if they needed proof of it then it did count. Could be wrong though.

If you were receiving it when you applied for the loan I can see why. But peoples circumstances change and they may not actually receive the same amount or any in future financial years. Children have a habit of growing older and some actually leave home lol.

Edited by joanie04 at 7:18 pm, Sat 28 Nov

joanie04 - 2020-11-28 19:17:00

joanie04 wrote:

If you were receiving it when you applied for the loan I can see why. But peoples circumstances change and they may not actually receive the same amount or any in future financial years. Children have a habit of growing older and some actually leave home lol.

I'm looking forward to that time in some ways haha. I can not wait until we aren't eliglbe for wff, fingers crossed in a couple of months when I find a full time job. But while I'm off due to health issues, it's really helpful.

annie17111 - 2020-11-28 19:34:00

annie17111 wrote:

we needed to supply proof when we were going to buy a rental so assume if they needed proof of it then it did count. Could be wrong though.

When we first bought we didn't receive WFF as we were both working. However would be good to know if it is counted when going forward with this.

familiadude1 - 2020-11-28 19:42:00

annie17111 wrote:

I'm looking forward to that time in some ways haha. I can not wait until we aren't eliglbe for wff, fingers crossed in a couple of months when I find a full time job. But while I'm off due to health issues, it's really helpful.

Can relate to that. Also off atm due to a few health issues and really dislike not having a job but a bit of extra time with the kids is nice while they still want to know me

familiadude1 - 2020-11-28 19:46:00

desi1969 wrote:

IMO
1. Finding a cashflow positive rental could be a challenge
2. Which means there is a better chance you will be 'propping up' the mortgage, than making a profit for quite a while
3. As mentioned 'losses' can not be used to offset against other income
4. WFF does not get counted as income when applying for a mortgage, so you need to be able to service the mortgage(s) without taking into account your WFF payment

You are right there is pretty much nothing recently thats likely to be cashflow positive for a few years

familiadude1 - 2020-11-28 19:47:00

familiadude1 wrote:

Can relate to that. Also off atm due to a few health issues and really dislike not having a job but a bit of extra time with the kids is nice while they still want to know me

familiadude1 wrote:

You are right there is pretty much nothing recently thats likely to be cashflow positive for a few years

Got to be honest, if you have health issues, unemployment concerns, dependent children that require WFF to support (or supplement), and an existing mortgage on the family dwelling, then I personally wouldn't recommend becoming a first time landlord just now. Especially with the RTA amendments etc ... and a cashflow negative property to boot ;) What are you going to do when interest rates rise?

Don't forget to make sure your calculations allow for a (good) property manager, but personally if I was you ... I'd focus on paying off existing debt whilst the mortgage rates are low.

Edited by desi1969 at 8:11 pm, Sat 28 Nov

desi1969 - 2020-11-28 20:10:00

I personally think a property manager is a waste of time if you have only one property, especially if you are in the same town.

tygertung - 2020-11-29 08:19:00

desi1969 wrote:

Got to be honest, if you have health issues, unemployment concerns, dependent children that require WFF to support (or supplement), and an existing mortgage on the family dwelling, then I personally wouldn't recommend becoming a first time landlord just now. Especially with the RTA amendments etc ... and a cashflow negative property to boot ;) What are you going to do when interest rates rise?

Don't forget to make sure your calculations allow for a (good) property manager, but personally if I was you ... I'd focus on paying off existing debt whilst the mortgage rates are low.

Good advice, far better than buying a rental.

If you do have any spare cash after paying down mortgage, eliminating debt then I would boost savings by putting into Kiwisaver for retirement and then perhaps, with a small amount, put some money into the share market via something like Sharesies.

Even though I am a ppty owner/LL I feel there is a place for investing in the share market especially if it is to get NZ going.

If you really get into shares it can be a mesmerising, learning experience etc as being a property owner. The trick is to learn and to never let your investments get 'stale'

shanreagh - 2020-11-29 09:49:00

desi1969 wrote:

Got to be honest, if you have health issues, unemployment concerns, dependent children that require WFF to support (or supplement), and an existing mortgage on the family dwelling, then I personally wouldn't recommend becoming a first time landlord just now. Especially with the RTA amendments etc ... and a cashflow negative property to boot ;) What are you going to do when interest rates rise?

Don't forget to make sure your calculations allow for a (good) property manager, but personally if I was you ... I'd focus on paying off existing debt whilst the mortgage rates are low.

This

catwoman1974 - 2020-11-29 16:37:00

tygertung wrote:

I personally think a property manager is a waste of time if you have only one property, especially if you are in the same town.

Not if you are a totally green landlord that can't afford to make a mistake and would basically be in huge financial doo-doo if you screwed up tenant selection.

desi1969 - 2020-11-29 19:43:00

WE BOUGHT A RENTAL THIS MONTH WITH EQUAITY IN OUR HOME AND SAVINGs, we top up the costs of it $33 a week so no profit (but great saving plan at $33 PW) u would likely be in the same boat so it wouldnt effect ur WFF I wouldnt think.

kenrick69 - 2020-11-29 20:05:00

kenrick69 wrote:

u would likely be in the same boat so it wouldnt effect ur WFF I wouldnt think.

"it wouldnt effect ur WFF I wouldnt think" .. but there is a possibility it could effect it ?

pf - 2020-11-29 22:00:00

Affect or effect? It won't affect it if you are not making any profit.

You don't need a property manager, it isn't rocket science, especially if you have experienced friends or family.

tygertung - 2020-11-30 06:24:00

kenrick69 wrote:

WE BOUGHT A RENTAL THIS MONTH WITH EQUAITY IN OUR HOME AND SAVINGs, we top up the costs of it $33 a week so no profit (but great saving plan at $33 PW) u would likely be in the same boat so it wouldnt effect ur WFF I wouldnt think.

That sounds good but are you paying principal aswell or interest only? Pretty sure you can't claim principal payments so in reality you actually have an income that will effect your WFF payments

familiadude1 - 2020-11-30 16:13:00