Australian resident wanting to invest in residential property Wanaka (NZ)

[love nz]

Hi, We live in Oz and love NZ. We go there twice a year. Fave places are Wanaka and Lake Hawea. Our dream for the future (once we retire) is to live a few months there and the rest in Oz. We have been looking for years for a place in the perfect location. Now we have found a house up For Deadline Sale. So many questions to consider.

Firstly...is it a bad time to buy now with a new government coming in with new rules and legislations? Are we better of to borrow part of the money from an Australian or NZ bank or other financial institution? Do we even have a choice about this?

Do we use a NZ or Australian lawyer for help and the settlement?

Do we use a NZ or Australian accountant?

If we buy this place we would like to rent it out permanently for the next 5 or 6 years. Can we claim (to what extent) any trips to NZ to renovate the place from our Australian tax?

Do we claim the rental income from our Australian tax or do we have to register and pay tax in NZ?

Are there any benefits or disadvantages in renting this property as a permanent rental or a holiday rental?

Any advise highly appreciated.

[Anthonyacat]

I'll fill in a couple gaps here, but can't answer everything.

Is it a bad time to buy? No one knows. Look back in a couple years and it'll be obvious. If the deal makes sense now, I'd say it's a good time to buy.

Whether you're better to borrow in Aus or NZ, depends on how you think exchange rates will move. Refer to above, no one knows.

As for whether you have an option - an Aussie bank probably won't allow you to borrow secured against the NZ property, but will likely lend on any existing Australian property you own. If you have enough equity in Australia, you can effectively buy the Wanaka property 'mortgage free'. If you can't do that, NZ banks might lend to you secured against the Wanaka property, but they're tightening up on lenders relying on overseas income, so don't like your chances - find a good NZ-based mortgage broker, there are a few on the forum here.

An NZ lawyer will do the settlement best. An Australian lawyer might be better placed to discuss any risks involved in investing 'overseas'.

My recommendation would be to use a NZ accountant, who knows NZ property laws. There are a some trans-tasman accountants expert in both laws, but they're very expensive, and it can make more sense to have two accountants. Clients of mine based in Australia have both myself, and an Australian accountant. I send the final NZ accounts to the Australian accountant to do whatever he does.

I'm not an expert on Australian law, but if the situation were reversed and you were living in NZ with a property in Australia, you could certainly claim the airfares and some other costs to visit/inspect/work on your Australian property, once it was already earning income. These travel costs might be considered capital if you're doing them before renting the property out. I presume Australian rules mirror NZ's here, but this would be for your Australian accountant to confirm.

You must register and pay tax in NZ on any NZ-sourced income. You then must return the NZ income in Australia, but can claim any NZ tax paid against any Australian tax paid. If your NZ rental is making a loss, you may be able to claim NZ losses against Australian income, depending on structure. Even though NZ does not have a capital gains tax, you are liable for Australian capital gains tax on any gain on sale of your New Zealand property. I understand there are complications here with foreign exchange and timing and change of use etc, but don't know the Australian law well.

Hope this helps.

[Rosco]

Hi Love NZ,

Are you better to keep business and personal separate?

Ie would it be cheaper, better and easier to buy a good rental, that is used solely for rental, and the aim to give you good passive income (this could be anywhere), and then rent a house in NZ when you come on holiday? Otherwise are you mixing the two uses, and ending up with nothing perfect?

With this in mind, would the purchase be a good rental? What would the gross yield and cashflow be like?

Two major issues spring to mind from a NZ tax perspective

1) There are tax rules in place that stop you borrowing too much that is tax deductible. So it is harder for an overseas rental owner to make a loss and more likely to be profitable, and therefore pay NZ tax.

2) If you are using the property for private and for rentals, then this will reduce the % of expenses you can claim.

Ross

[love nz]

Thank you Rosco and Anthony for your very helpful info!
We will be looking into all of this.
We have already spoken to a Mortgage broker while in Wanaka 2 weeks ago. He told us to open up a NZ bank account, which we tried to do while still there. Believe it or nor...no ANZ or WESTPAC bank in Queenstown or Wanaka could fit us in over 4 days!
Anyway...we would like to make an offer on the Deadline Sale of this particular house subject to finance and building inspection (incl. asbestos testing). Do we already have to involve a NZ solicitor for this already now? Our offer could be declined and we really don't want to pay hundreds of $s unless we purchase.

[Anthonyacat]

So long as your agreement is conditional (the vaguer the conditions, the better) there's no need to involve a solicitor until the contract is accepted.

A good solicitor can add a lot of value in due diligence, but do tend to charge through the nose for this, so a lot of people forego it.

If you're confident in buying property you don't need to involve a solicitor until the final step (conveyancing) after the contract is unconditional.

Please seriously consider engaging a New Zealand accountant as soon as the agreement is unconditional, so you can ensure everything is structured properly.

[love nz]

Thanks again Anthony!

Very helpful info! We are seeing our bank in Australia for a possible mortgage for that house in Wanaka next week. Then compare to what the Mortgage broker in Wanaka can come up with.

Question about Deadline Sales in NZ.
Not very familiar with this kind in OZ. When all the offers have been represented to the seller...is there still an option to raise the offer. As in will all the potential byers be informed of the highest offer and given a chance to raise their own offer?

[Nick G]

Not usually, it's a blind auction. They may come back to the highest bidder and try to get them higher but if it fails to sell the property would usually be relisted at "offers over X".