Do I/We need a property Manager?

[Xplaya]

So a family member has started to live in our homestead, and the plan is for them to pay into a bank account.
Now to go official e.g. to make IRD happy etc. Can we just declare it as income at the end of the year? Or declare as income now? We are hoping to avoid a propety manager because we are ok with who we have in the house? Is this doable for us to do? We do not have any certs etc regarding Real Estate, but want to make sure we cover the legal side of things.

Also I have been told that we can claim back on any maintenance or tax etc while someone else is living in the house? Is there any truth to this?

Anything appreciated.

[Rosco]

Hi Xplaya,

Your question is more around tax than property management!

From a tax perspective if you charge fair market rate, then you will be able to claim all expenses. So this means returning the rent as income, then claiming all costs such as insurance, rates, repairs, interest, accounting, bank fees, travel etc. If you make a profit (income more than expenses) then you will have to pay tax on this profit. If a loss, then depending on your structure (entity who owns the property), you can often get a tax refund.

You also need to consider chattels depreciation.

As you sound new to property investing, I would suggest you pay for some advice from a property accountant, to go through
- is it a good investment?
- the numbers
- what structure is best for you?


In your case also be very careful with dealing with family. Make sure you are charging fair market rent, and also doing everything right such as a meth test at the start, regular inspections, credit checks, regular rent reviews etc, otherwise your investment just turns into charity. If you can't do these or don't want to do these, then yes you should get a property manager.

Ross

[Xplaya]

Hi Xplaya,

Your question is more around tax than property management!

From a tax perspective if you charge fair market rate, then you will be able to claim all expenses. So this means returning the rent as income, then claiming all costs such as insurance, rates, repairs, interest, accounting, bank fees, travel etc. If you make a profit (income more than expenses) then you will have to pay tax on this profit. If a loss, then depending on your structure (entity who owns the property), you can often get a tax refund.

You also need to consider chattels depreciation.

As you sound new to property investing, I would suggest you pay for some advice from a property accountant, to go through
- is it a good investment?
- the numbers
- what structure is best for you?


In your case also be very careful with dealing with family. Make sure you are charging fair market rent, and also doing everything right such as a meth test at the start, regular inspections, credit checks, regular rent reviews etc, otherwise your investment just turns into charity. If you can't do these or don't want to do these, then yes you should get a property manager.

Ross

Hi Rosco, Thanks for the reply, Yeah I didnt quite know where exactly to put this post, but because one of the main questions, was can we do what we are asking without a Property Manager.
Just to update a few things after reading your response.

The property (Rural) is my mother's passed down from her mother (Grandmother), there is only about 50k owing from a re-mortgage our grandmother did a long time ago.
So the house was not purchased for an investment in mind, but everyone now lives in the city, and the house was pretty much gaining dust and occasionally visited by us. So we thought to let a family member stay for year periods. We didnt know if we could legally write a contract up for this or not because we do not have any qualifications regarding real estate?

At the moment the rent we are going to charge is about $100 below other houses we found on trademe in the area. But the house isn't the flashiest so we felt it was a good start. And because its a casual agreement, this is family we can just turn up and have a coffee if you know what I mean

We never thought about Meth testing because we did have a bit of trust in this member, but I guess it would be a good idea to do sometime.

Anyway my biggest concern and question was how can we do everything legally ourselves and if there are any perks we could claim. And it does look like you have given us a great start of answers that I need to look more into

Our plan at this time, was just to get the money put into mums bank account and she puts this income down as secondary tax? )(As she already has a job also) After reading your reply, would that mean she should only pay secondary tax on profits?
e.g. if renter's rent is paying part of the mortgage, then the remaining would be considered profit and that is what she puts down as secondary tax?

[artemis]

Not quite clear from your post but assume this is a tenant rather than a boarder.

Tenancy Services website has a lot of useful information for new landlords including forms for tenancy agreements, bonds, tracking rent. Suggest read every page.

Tax, yes good idea to talk to an accountant experienced in properties, but suggest you first do a little self education so you know the best questions to ask. Start with the IRD booklet IR264 - Rental Income, noting the part about charging less than market rent eg to family..

More information in Matthew Gilligan's two books - Property 101 and Tax Structures 101. And on the Propertytalk site of course.

Also you could join your local property investors association.

[Xplaya]

Not quite clear from your post but assume this is a tenant rather than a boarder.

Tenancy Services website has a lot of useful information for new landlords including forms for tenancy agreements, bonds, tracking rent. Suggest read every page.

Tax, yes good idea to talk to an accountant experienced in properties, but suggest you first do a little self education so you know the best questions to ask. Start with the IRD booklet IR264 - Rental Income, noting the part about charging less than market rent eg to family..

More information in Matthew Gilligan's two books - Property 101 and Tax Structures 101. And on the Propertytalk site of course.

Also you could join your local property investors association.

Thanks Mate. Downloading Now and will give it a read

[Xplaya]

Tax, yes good idea to talk to an accountant experienced in properties, but suggest you first do a little self education so you know the best questions to ask. Start with the IRD booklet IR264 - Rental Income, noting the part about charging less than market rent eg to family..

I now notice my question is more pointed towards tax.
I read the part you are talking about. It mentions "If you rent your property out for less etc......... and you make profit from it, the profit is taxable as part of our income."

Would profit mean, after paying expenses? Like mortgage / loan payments? Or before? Is mortgage payments considered an expense?

[artemis]

I now notice my question is more pointed towards tax.
I read the part you are talking about. It mentions "If you rent your property out for less etc......... and you make profit from it, the profit is taxable as part of our income."

Would profit mean, after paying expenses? Like mortgage / loan payments? Or before? Is mortgage payments considered an expense?

Take the rent you receive, deduct the allowable expenses and the balance is profit or loss. You pay income tax on profit, and usually can offset a loss against other income. But not always because it depends on the structure you use (trust, company, personal name etc), and also if less than market rent is charged and expenses exceed the rent received.

Mortgage interest payments are an expense; principal payments are not.

There are many rules and laws around tenancies these days and more coming. It is important to get it right. If you are not sure probably worth getting a good property manager at least for a while.

[Perry]

So a family member has started to live in our homestead

Anything appreciated.

What does "in your homestead" mean?

Are you also living in the aforesaid "homestead?"

If so, and as it's a family member, he or she can be classed quite differently to a tenant.

If that's the way it is, things get so much easier.

[Xplaya]

What does "in your homestead" mean?

Are you also living in the aforesaid "homestead?"

If so, and as it's a family member, he or she can be classed quite differently to a tenant.

If that's the way it is, things get so much easier.

Sorry homestead in my terms is the family home. But none of us live in it My mother owns the home, but she now lives in the city so we were planning on renting it out so she can atleast get someone to pay the rest of the mortgage instead of her. A close family member we have chosen(Cousin)? This is family we can turn up whenever and have a coffee, without an invite etc. Please let me know if there is anything easier we can do As I am trying to maximise what my mother can get / claim

[Xplaya]

Take the rent you receive, deduct the allowable expenses and the balance is profit or loss. You pay income tax on profit, and usually can offset a loss against other income. But not always because it depends on the structure you use (trust, company, personal name etc), and also if less than market rent is charged and expenses exceed the rent received.

Mortgage interest payments are an expense; principal payments are not.

There are many rules and laws around tenancies these days and more coming. It is important to get it right. If you are not sure probably worth getting a good property manager at least for a while.

Thanks for the reply. Am definately looking into more. As we would like to try without a property manager as things may get more difficult adding a 3rd party between us and the family member (The renter).

[Nice]

Thanks for the reply. Am definately looking into more. As we would like to try without a property manager as things may get more difficult adding a 3rd party between us and the family member (The renter).

My observations (yes, being the dreaded PM by trade) is that often having an additional party in between family members in this manner only improves things, not worsens them !!

Are you comfortable asking them for money ? Are you comfortable to say know when they ask you for it (by way of 'can't afford the rent this week) ? Are you comfortable, if all else fails, in taking them to the Tenancy Tribunal ?

[Sportsvee]

Questions to consider:
Do you know what you're doing?
Do you have time to keep on top of changing rules for rentals?
Do you have good contacts for contractors?
Are you able to drop everything to fix a problem?
Are you good at record keeping?
Can you do inspections in an unbiased way?

Honestly answer thosee questions and you'll probably get your answer about a PM.

As for tax. Can you afford to screw it up?
Personally, I'm happy playing with numbers, but I don't know what I don't know.

Hope that helped a little.

[MikeC]

I think you should have a written tenancy agreement, even though you are renting to family. This will document the type of tenancy, rental amount, notice periods etc. You can downloading ad a template from tenancy website.
There is no need to use a property manager in this case,
If you don’t meth test before they move in, there is no point testing until the property is next vacant.
you should also take photographs before they move in showing the condition of he property, and give a copy to the tenants. If they have already moved in, you should do this as soon as possible.
Your mother will need to pay tax on the rent she receives, less any allowable expenses. You should consider using an accountant, at least for the first few years to make sure you do this correctly (this cost is also an expense). In the meantime, keep all receipts related to the property.

[Perry]

You should consider using an accountant . . .

Very good advice from Mike. Start this process off with a rental-property-knowledgeable accountant.

Renting to family / friends is (or can be) fraught.

Really!

Even though is may be galling for family, use a TA! That removes elements of doubt.

The 'family' part can be recognised by a reduced rental rate or some other type of sweetener.

The rental-property-knowledgeable accountant will advise on the family-member-concession options and the pros and cons of those options.