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Selling Whangarei to get back in Auckland market?

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  • Selling Whangarei to get back in Auckland market?

    After 14 years living in Whangarei reluctantly considering a move back to North Auckland outskirts for a variety of reasons, mostly due to family, but not sure how to do this. We have 3 rentals purchased during the GFC with 100% borrowings that after the past 18 to 24 months have final built between 30% and 45% equity (Whangarei has not slowed as much as Auckland yet due to Aucklanders still cashing up and moving North) plus we have our own mortgage free home we built in 2008 at a popular beach side holiday community 20 minutes from Whangarei central.

    The returns on our own home at the beach will only recover what we put into it when it was built, so not happy to sell yet. Current thoughts are to sell the rentals, using equity to get back in Auckland market with a mortgage and keep the other house as a holiday home thinking that the next cycle the returns will be very good. (Very few empty sections now left in subdivision and no other land available to subdivide as neighbouring land all DOC owned.) Beach house can be rented short term over xmas holiday period for good returns to cover the rates and insurance. We would then have a mortgage again in Auckland, but also have greater capital gains hopefully when the market returns in the future. Move to Auckland will only be short term, 10 years max. before returning back to Northland and maybe early retirement with equity gains from Auckland. We could possibly borrow 100% maybe $800k to get back into Auckland and keep the rentals, however servicing that mortgage is too restrictive, especially if mortgage rates rise and rental yields not that great, will probably be positive for the first time the financial year ( If we allow it, insulation, painting and a heat pump could offset this)

    Other option is to sell the more expensive two rentals, make the third freehold to help service the Auckland property mortgage, but we will be paying tax on the rental earnings. (but will still get capital gains.) Too date all 3 rentals have only just been negatively geared on purpose due to making sure we make improvements each year through maintenance.

    Appreciate any suggestions or thoughts

  • #2
    Check out the newish 'bach' tax rules, as there are now limits on deductibility if properties are not fully available for rent.

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    • #3
      I believe Artemis is referring to the 'Mixed Use Asset' rules. These only take effect if you use the asset both for personal use and renting it out. You're still able to claim deductability if the property is made available for rent the whole year, regardless of how often it's actually rented. Well worth looking into.

      Just a comment from the accounting perspective here:
      Paying tax isn't a bad thing. It's actually a really good thing, it means you're making money. When you make a dollar's profit, you 10-33c in tax - you get to keep the other 67-90c.
      The idea of maintaining your properties well is admirable, but to do so for the purposes of minimising your taxes doesn't make a lot of sense. And you do need to be very careful with the capital distinction between maintenance and improvements. Improvements cost you the cash, but don't reduce your tax at all! Insulation and a heat pump for example will often require to be capitalised.

      Comments on your situation as a whole:
      I'm a fan of leverage to a sustainable level, and would look at borrowing the extra $800k if this will get you a property in Auckland you're happy with. If you're looking at the prospect of early retirement, you'll be well aware that this involves some short term sacrifice. Important if you do do this that the transactions are structured properly to allow deductions on the new debt.
      I'm not a fan of holiday homes. They are a waste of capital. You have to consider not only the actual costs of ownership such as your rates and insurance, but the opportunity costs of the money - what you could otherwise spend it on. This is really easy to calculate in your case, as it'd otherwise be used to draw less mortgage debt.
      AAT Accounting Services - Property Specialist - [email protected]
      Fixed price fees and quick knowledgeable service for property investors & traders!

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      • #4
        Agree with Ant. However now is a good time to sell whangareiand coming into winter good time to buy Auckland so cashing up and buying in Auckland also good. Keep everything if you can.

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        • #5
          You might be surprised how much use your beachhouse can bring in during the rest of the year too. I'd keep it if I could- will you regret it in 5-10 years if you sell?

          "We would then have a mortgage again in Auckland, but also have greater capital gains hopefully when the market returns in the future. Move to Auckland will only be short term, 10 years max. before returning back to Northland and maybe early retirement with equity gains from Auckland."

          No guarantee that there will be capital gains in the next 10 years. Probably yes, but not 100% guaranteed? In the same time frame could you get your 3 existing properties to be mortgage free and have 3 incomes streams from them when you return north?

          Anthonycat wrote:
          I'm a fan of leverage to a sustainable level, and would look at borrowing the extra $800k if this will get you a property in Auckland you're happy with. If you're looking at the prospect of early retirement, you'll be well aware that this involves some short term sacrifice. Important if you do do this that the transactions are structured properly to allow deductions on the new debt.


          Not sure borrowing an extra 800k fits my definition of sustainable levels but can see the rationale.

          I'm not a fan of holiday homes. They are a waste of capital. You have to consider not only the actual costs of ownership such as your rates and insurance, but the opportunity costs of the money - what you could otherwise spend it on. This is really easy to calculate in your case, as it'd otherwise be used to draw less mortgage debt.

          To a point I agree. Plenty of holiday homes cover their costs and give similar returns to a rental- in my case my holiday home is used on average 2 days a week, I use it 1-2 but possibly more and get the equivalent rent as if I had rented it out as a regular rental. So is a win/win as far as I'm concerned. But sold my other holiday home as it didn't stack up as a long term rental. However, driving a $20k + car makes no economic sense to me, total waste of capital but many people choose to drive them- we aren't always rational with how we spend our money.

          I think I would:
          sell 1 rental
          keep 2 + the beachhouse- if you can get them positively geared
          Get something in Auckland with the equity from the sale of one rental.

          Regards

          Craig

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          • #6
            Not sure borrowing an extra 800k fits my definition of sustainable levels but can see the rationale.

            Didn't say it was - that's up to the OP to decide, no way we'd get enough information here on the forum.

            Personally, my wife and I couldn't stomach $800k for a private house, so we bought in Otahuhu for just under $600. But as you say, different people have different views of 'economic sense'.
            AAT Accounting Services - Property Specialist - [email protected]
            Fixed price fees and quick knowledgeable service for property investors & traders!

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            • #7
              Are you paying off your mortgages, how long until they are paid off? Ie by the time you want to move back to Whangarei would you have 3 mortgage free rentals and your own home if you just rented in Auckland?
              Free online Property Investment Course from iFindProperty, a residential investment property agency.

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              • #8
                Thanks for your comments, food for thought. The beach house is currently our home of residence, so see this as being again our home of residence when we return from Auckland, rightly or wrongly some emotional attachment. Our current total equity is 72%. Borrowing $800K will move that to 42%. Would also be looking to a property in Auckland (thinking Helensville, Riverhead, Huapai area) that we could add value rather than just depend on capital gain. Don't see renting as an option, dead money! Understand personal sacrifice and this will all also be dependant on gaining new employment, hopefully salary will be slightly higher than Whangarei due to the Auckland factor, took a huge drop in salary moving north 14 years ago. Quite possible look at hanging onto the rentals if the bank will lend on current equity and only sell if the sacrifice becomes too much,. but can't predict a future market. If Auckland is becoming difficult to sell in now, Whangarei will likely follow in the next 12 months

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