If you’re new to the rental property game then here’s some invaluable tips to get you started on the right foot, get the most tax back and keep your accounting bills down:
Know what you can’t claim
x The initial cost of the property
x Depreciation on the building or land
x Mortgage principal repayments
x Repairs which improve the value of the property
x Interest if you’ve used the rental property loan for personal things
x Additions or major improvements to the rental property
x Your time for managing the rental property
- Accounting & Legal fees (New Zealand ones only)
- Assets which cost less than $500 (microwaves, dryers, curtains etc)
- Bank fees on the property bank account
- Depreciation on assets over $500 (stove etc)
- Rental Property Insurance
- Legal fees under $10k for financing, buying or selling the property
- Motor vehicle running costs for property inspections & maintenance
- Property Management Fees
- Rates & Water bills for the rental property
- Repairs & Maintenance to the rental property
- Xero Accounting Software used to manage the rental property
- Valuations for financing the rental property
- Interest on money borrowed for property.
Heads up! You can only claim the interest part of your repayments (not the principal)
- Have a separate bank account for the rental property
- Deposit all the rent into that bank account
- Pay all the property bills out of that bank account
- Aim not to pay the rental property bills using cash or personal bank accounts
- Have a separate loan or mortgage for the property
- Don’t use the loan for anything except the property
- Flexi-loans are not good because tax laws make claiming the interest awfully complicated for accountants which means expensive for you!
- Use Xero accounting software with bank-feeds ($10 month with us)
- If you accidentally pay a property bill by cash (or from a private account) then reimburse yourself by taking the exact amount out of the rental account to your personal account
- Do repairs while the property is tenanted, or between tenants, so you get a full claim.
- If you have a personal mortgage then book a consulting session with us so we can maximise your interest claim.
- Before you buy, get a valuation showing separate values for the land, building and chattels. To get the most tax back, list all the chattels which aren’t attached to the building (carpets, curtains, water heaters, stove, loose cupboards etc with current values).
- Don’t believe those cult-style property seminars know anything special. It all comes down to money in and money out. There are no special tricks and they’ll generally try to sell you an expensive look-through-company (LTC) which is completely unnecessary for most Mums & Dads investors.
- Aim for a return well above what you’d earn with your money in a term deposit.
- Remember tenants can be trouble and if they don’t have their own renters-insurance you may lose out seriously if they’re liable for major damage.
- Aim for a positive cash flow. Losses are losses no matter what people try to tell you.
- We’ve seen thousands of peoples results and what most people won’t tell you is that most heavily financed rental properties lose money unless there’s a significant capital gain.
- Talk to us if you don’t know about the proposed two-year rule.
- Hope for a capital gain but don’t count on it
- Get accounting advice before you or family think about moving into the property
- Before you buy a property, take the time to do a budget & understand it (sample below).
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