Advice needed on moving to Oz and selling rental

[K37]

Hi, I was hoping someone can maybe come up with some other ideas of what to do . . .
We are moving to Oz next year, and planned to sell our own home and our rental property, and rent for a short time in Oz and then buy as soon as we could. But ... with the market like it is, the rental may be hard to sell, we are only going to come out with $30,000 which will cover our moving costs. So I had thought of these scenarious ...
1. If we can't sell the rental, leave it rented out, and sell our own home (which should be easier to sell), and pay the rental property off completely, which after doing that we will be left with only $70,000 - the only thing that worries me with this, is that we won't be able to afford to buy in Oz, we would have to rent, and then what would we invest the $70,000 in?
2. Sell our own home and maybe pay $100,000 off the rental property, and take $170,000 with us (- moving costs, will leave us only $140,000, which will still not be enough for us to buy a house without having a large mortgage over there.
3. Rent both houses out here - not something I'm too keen on, as we have to top the rental up (rent from our own home would cover it just), but we still wouldn't have money for the moving costs.

Any more ideas people????
Thanks for your help.

[Keithw]

If you really want to sell something, don't pay off the rental totally, just enough to make it cash positive but still a tax loss or neutral(after depreciation etc).(otherwise you end up paying tax on rental income and not having your own place to live in)
Sell whichever one can get you into that position, ie you could be left with your home as a rental, or your rental as a rental.
If you can afford the subsidy, then keeping both is probably a better option.

Will you still have any other income in NZ ?
You can probably also offset any NZ tax loss on the rentals against your Aussie income, (but someone else will have to confirm that). It certainly works the other way- my Aussie property is treated like it is a NZ property, & its losses are offset against my NZ income.

By keeping your NZ property & borrowing against them you can make use of the equity in them without loosing the selling costs or sacrificing the value due to the low market, & of course once the market recovers, your property starts growing again.

Be careful about your purpose for borrowing- you can borrow to buy property which will produce income, so the interest will be tax deductable.
But if you borrow to buy a place for you to live, it is not deductable.
So talk to your accountant about ownership structure before borrowing.

[K37]

Thanks Keith for the advice. That's got me thinking now - so maybe if we sell our own home, and put a chunk of that money on the rental, so we're not having to top it up, and then use the $140,000 left to put towards a rental property in Oz, and rent ourselves instead of buying to live in. What do you think of that?

[Keithw]

yes, that's quite good in terms of tax reduction etc, but you have to watch the difference between rent costs & ownership costs for where you want to live.
At the moment it is probably still cheaper to rent than own over there, as their rents didn't take off in most places like the property prices did.
But if the property has dropped lots (I can't tell you if that has happened or not- there are mixed reports & it depends where you are thinking of going) then it may work the other way now, even when considering the taxdeductability of the investment property.

If you are going to end up renting in Aus anyway, then you are probably better to hold onto both NZ properties, as you will probably get a better rental return than you will in Aus.(& any losses should be able to be offset against your Aussie income)
The Aussies put up with a low rental return in exchange for good capital growth, but of course that's questionable right now.

One advantage of buying a rental in Aus would be to have an asset that you could use later to borrow against or sell to fund your own place.

[tpr2]

Hi K37

Where are you moving to in Oz. It makes a pretty big difference to the reponses.

For example on the Gold Coast, renting gives you way better lifestly than owning. I can live on the beach in an large 2 beddy apartment with tennis courts, spa pools, swimming pools, squash courts and sauna for $500 per week or less. Try and buy that puppy.....ha! Yields on my rentals on the Gold coast are about 2% to 4%

To give you an example, one of my rentals is a large 4 bedroom, 3 bathroom, formal dining room, 2 large living rooms, a swimming pool with 70 sqm under cover around a built in BBQ, 6 car garaging and 900sqm of land with fantastic views of the coastline.

This rents for $550 per week. Last valuation was $700k

Another one I have there is a 2 beddy on the broadwater which rents for $240 per week. Last valuation wa $500k

Of course if you were moving to say Gladstone which is 5 hours north then everythng changes. Homes are cheaper and rents are higher. A 3 bedroom 4 year old home I own is only worth $300k but rents at $380 per week.

Head down to Sydney and the reverse begins to happen so depending on where you are going will depend on the validity of any advice from here.

To add to Keiths post, yes you can offset your rental losses in Nz against income earnt in Australia.

Also how long are you going over for?

This will be relevant due to your election for tax status in Oz, which will be important regarding capital gains tax, you will need to talk to a specialist accountant regarding this because it is possible that if you elect to be a resident for tax purposes in Australia the ATO will want you to pay CGT if you dispose of your rentals in NZ while you live in Oz. Not a nice scenario.

If you plan on coming back to NZ and you are determined to sell a property before going, don't use the proceeds to purchase a rental in Oz. If you want to buy something to live in thats up to you.

If you buy a rental you expose yourself to CGT and stamp duty only to recieve mediocre yield.

If you want to buy another rental property, save the stamp duty and buy in NZ somewhere. You will also possibly avoid CGT.

So more for me to chat about once I know a bit about where you are heading.

cheers

[K37]

Hi Terry,

Thanks for your help, we are going to the Sunshine Coast, and hoping to live in Buderim, we are going to be looking at paying $400pw in rent in that area. We are probably going for the long term. So do you think it's better to possibly keep the rental here and sell our own home (which will be easier to sell hopefully), maybe put $100,000 on the rental here so it leaves us with a $100,000 mortgage on it, and then use the other $100,000 grand or so to go on a investment property over there, or would we be better financially to sell both and put the money into a house to live in over there. (Also the area we are looking at to rent is going to cost us more than here to buy a property, so we would end up with a bigger mortgage than here). I don't really like the idea of renting for too long, but if it makes more financial sense, then we will do it.

[tpr2]

Hi K37

The sunshine coast is a lovely part of the world. I don't get up that way very often so I don't know it that well.

I would head over with the intention of renting for maybe 6 months so that you get a good grasp of the area, some people head over and find they don't like the location they are in (I'm not one of them, I moved over in 96 and love the gold coast, I still live in the same block of apartments that I moved to in 96 with the only difference being thatr once I realised I loved the location I bought the first apartment that came up in the block.)

If you are renting then you can always move to another area of the sunshine coast if buderim proves to be less than your favorite spot, it wil also give you a chance to look around at the different locations to purchase if you do decide to buy over there.

Are you moving over to a job or are you moving over and then going job hunting?

This also makes a diffence to your choices. If your going over and job hunting then I would leave buying until you are settled in to the new work and area.

If you have an existing job and this is a transfer at least you have that foundation from which to work from.

I wouldn't rush into anything to begin with K37, the markets are on your side at the moment so it's not like prices are going to accelerate away from you while you shop around.

Remember when you purchase in Oz you will be subject to stamp duty and capital gains tax if the property is an investment.

If its your home then no CGT is applicable.

There are so many variables K37 to what's going to be most appropriate for you and your property. I would recommend spending a couple of hours with a Financial Planner who is not anti-property, he/she will ask you a tonne of questions that go way beyond what we can discuss here and based on all the answers to those questions he/she would be able to gve you some guidance on wether you should buy in Oz or not.

In a nutshell though and not in my professional opinion (I can't provide that without a lot more info) I would say that selling one of your homes here in NZ and reducing the debt on the other property so that it is cashflow neutral would be a good thing if you decide not to purchase a home in oz for your PPOR.

If you decide to purchase a PPOR in oz then do not reduce the debt on your investment, you will end up with more debt on your PPOR and the interest is not deductible.

If you decide to purchase another rental property, buy it in NZ. The lack of stamp duty and capital gains tax are significant savings.

[younginvestor]

offsetting tax when in aus

Hi Terry,

I've lived and worked in Australia as a tax resident for the last 18 months (was living in NZ before that and am a kiwi), I have properties in NZ, can losses on these be offset against my Aussie tax??

I thought not, and that the losses were accumlated until I come back to NZ.

thanks
Israel

[tpr2]

Recent changes in the legislation in Oz allow you to now offest the NZ property losses against your Ozzie income.

It has only recently changed so it's not widely known.

If you are a resident for tax purposes though you will trigger capital gains tax issues if you start to claim the deductions in Oz.

Obviously not a big problem if your goal is to hold the properties long term but if you were to sell a NZ property whilst living in Oz and claiming the deductions the ATO will want a slice of the cherry.