Moving home to rent out unit which is in my name - lawyer? accountant?

[turneg01]

Hi everyone, newbie here so please be nice

I brought a one bedroom unit in central Auckland about a year ago. I brought it in my name and have been living in it. I have made the decision now to move back to my families place and to rent it out as i want to pay off the mortgage faster

Im basically just looking for advice.

1) Did i make the wrong choice in putting in my name? can i still rent it out?
2) Should i see an accountant? lawyer? or both? If so it would be great if you could give me a recommendation

If you have any other info it would be muchly appreciated

Cheers

[Tan]

It is good to have it under your own name if you need to top up expenses (if it is cashflow negative) as you can claim these against your income tax. Even if it is cashflow positive, you will save by not having to administer a company or trust.

You can always rent out any property.

If you have no idea about rentals it would pay to see an accountant. In any case, I'd set up a seperate bank account for rent to go into & rates, insurance, maintenence etc to go out of to make it easier. If you need to contribute, do it into this account.

No need to see a lawyer unless you haven't got a will. It is a pain when people drop dead with no will - very hard to deal with the property expenses as your bank accounts will be frozen for months.

Sounds like you need a property manager. I'd use Property Management Services http://www.younan.co.nz/ as they managed an apartment for Mum & Dad who were totally ignorant and about to do everything wrong, and got it running so well I was impressed. Mum & Dad also liked them.

They can also tell you a bit about tax.

Good luck, it's fun when you know how!

[turneg01]

Thanks for you input Tan.. good info

I currently have 2 loans

1) fixed loan - 2 years
2) revolving account for 35k

so you would suggest to have a separate account which just deals with the expenses of the property. This makes sence but would it be worth to just keep my revolving account as this would mean i would lower the amount of interest i need to pay? (would be harder to calculate deductions im guessing..

how do others have their bank accounts setup?

[buxlo122]

Hi Turneg01

Having the property in your own name can be a good thing as cuts down on administration expense as no need for company/trust/partnership accounts.

I would recommend having a bank account for rent to go into and expenses to go out off. Keeping everything separate makes it alot easier to do your end of year accounts.

When you start renting out the property you will be able to claim the interest on the fixed loan. However you may have an issue with the revolving credit account. The reason for this is the deductibility of the interest depends on what were the funds from the loan are used for. Originally both loans were used to purchase the house so when the house is used derive income you can claim the interest as a deduction. The issue with revolving credit account is you may of drawn-down on the revolving credit facility for things not related to the house. The interest related to these purchases will be a personal expense therefore not deductible. For info on revolving credit loans and interest deductibility you can see this thread.

[Ahar]

Hi Turneg01


I would recommend having a bank account for rent to go into and expenses to go out off. Keeping everything separate makes it alot easier to do your end of year accounts.

When you start renting out the property you will be able to claim the interest on the fixed loan. However you may have an issue with the revolving credit account. The reason for this is the deductibility of the interest depends on what were the funds from the loan are used for. Originally both loans were used to purchase the house so when the house is used derive income you can claim the interest as a deduction. The issue with revolving credit account is you may of drawn-down on the revolving credit facility for things not related to the house. The interest related to these purchases will be a personal expense therefore not deductible. For info on revolving credit loans and interest deductibility you can see this thread.

The interest may not be deductible......IRD always look at the reason for the loan...in your case it was to buy a home to live in NOT to buy an income generating asset.

You need to see an acountant asap.....who will advise you how to get around this issue....it's not difficult but it MUST BE DONE ...leave it at your peril

Likewise the interest on the RCF....if you use it for personal expenses, it will complicate things beyond your imagination

Hence my accountant said to NEVER use a RCF for personal expenses......use it ONLY for business expenses

[spaceman]

The interest may not be deductible......IRD always look at the reason for the loan...in your case it was to buy a home to live in NOT to buy an income generating asset.

This is not true....it has been done to death on this site.....the reason for the loan doesn't matter....is the expense generated incurring assessable income???....this is what matters.

once again...... imagine you buy an ip and the loan is deductible....if the reason for the loan was important you could then kick out the tenant and move into the property and still have the loan remain deductible. Trust me it doesn't.

You need to see an acountant asap.....who will advise you how to get around this issue....it's not difficult but it MUST BE DONE ...leave it at your peril

as already noted pish and tosh what utter tot

Likewise the interest on the RCF....if you use it for personal expenses, it will complicate things beyond your imagination

Hence my accountant said to NEVER use a RCF for personal expenses......use it ONLY for business expenses

Complicate things beyond your imagination??? or simply require accurate records????....though to be fair I would recommend taking the easy way out and not use it. But I mean c'mon how hard is it.....I borrow $1,000 on 15 july for 6 months at 10%(or whatever) and 6 months later pay back $1,500 into the RCF....not exactly rocket science

Cheers
Spaceman

[buxlo122]

The interest may not be deductible......IRD always look at the reason for the loan...in your case it was to buy a home to live in NOT to buy an income generating asset.

They do not look at the reason for the loan they look at what the money was used for. Often these are the same but this not alway the case. In this case the money was used to a home. While it is used as a personal home the interest is personal expense and non-deductible. When it becomes a rental the interest a business expense and therefore deductible.

[Perry]

The RTA requires a separate bank account, although I suspect
that not everyone complies with that stupid idea. Most any
reasonable computer software will deal with the what's what
questions, if, as Spaceman says, accurate records are kept.

Yes, you can let the unit;
.......(unless the body corporate rules forbid it)
Yes, you can then claim all rental income earning related expenses -
.......including loan / mortgage interest;
No, you don't need a lawyer;
Yes, you should have a separate bank or credit union account for the rental
No, you don't need an accountant
.......(but it might be helpful);
Maybe you need a property manager to avoid nasty RTA* pitfalls
....... (you wont need a separate bank account if you use a PM).

KISS - Take the advice / suggestion of Tan and Spaceman.

* RTA = Residential Tenancies Act

[spaceman]

The RTA requires a separate bank account,

Really???????.....serious question

Cheers
Spaceman

[Perry]

T'was a long time ago . . .

I think there was some precedent that related to s29 . . .

(b) to any rent paid by the tenant into any account nominated by the landlord
and operated by the landlord exclusively in respect of the tenancy, or exclusively
in respect of the tenancy and any other tenancies of the landlord;

. . . in which a Mediator or Adjudicator decided that clause meant all LLs
must have an account for rent receipts separate from their every day
personal bank accounts.

Or something like that. Probably to do with easy reference / record keeping.

But, with most off-the-shelf computer money manager type software, why
would one bother with the cost of another account for rent?

Doesn't have any impact on PM firms, of course.

[Ivan McIntosh]

Hi everyone, newbie here so please be nice

I brought a one bedroom unit in central Auckland about a year ago. I brought it in my name and have been living in it. I have made the decision now to move back to my families place and to rent it out as i want to pay off the mortgage faster

Im basically just looking for advice.

1) Did i make the wrong choice in putting in my name? can i still rent it out?
2) Should i see an accountant? lawyer? or both? If so it would be great if you could give me a recommendation

If you have any other info it would be muchly appreciated

Cheers

Just to reinforce what others have said, you don't need to get ownership transferred to a new entity such as a trust or LTC (unless you want to for other reasons) to be able to properly run your (now) investment property.

[turneg01]

Thanks everyone. All your information is greatly appreciated

As its my first rental property i have decided to see an accountant just for reassurance (im thinking of keeping it in my own name)

I will also be going with a property manager