Buying 1st home...

[stolen 0]

Hello,

Looking to buy my first home. Have been browsing around for a while and there aren't that many of the sort we are after for the amont we have got to spend. I guess this is always the case?!

Looking for something around the mid to high 400 mark in the ellerslie/mt wellington area.

Was wondering whether there was any tips of the buying process anyone would have, websites i could read, books etc....on things like how to tackle the real estate agent, the process of making an offer, the auction process etc etc....

Any tips would be appreciated!

Thanks!

[ducatiss 1]

You could move to the South island, buy a house and have enough money over to buy a brand new BMW and then have have plenty of un-crowded roads to drive it on - sorry not the help you were looking for I know ;-)

[jpp 0]

Buy a house that you can afford, rent it out, then get a crib you do like, rent it off the landlord.

[nz320i 0]

pretty much what im looking at doing! so i can flat in a decent place, but tryingt o do it myself.

[nz320i 0]

oh mortgage brokers are pretty good too..

[lidistick 70]

Ideally, you should have more than 10% of the purchase price saved for a deposit and then you can avoid paying the low-equity premium. Try a few mortgage brokers and see if you can get a good deal first and then go to the banks directly and see if you can negotiate better rates.

The market has cooled somewhat so you may be able to get a better 'deal' from the vendor but if you offer too low, you may not get a counter-offer.

Know the area well, get a good lawyer and a proper building report. Spend the money on a LIM report. Do not use the agent's lawyer (it will bite you later) and check for caveats on the property (cross-lease, building restrictions etc).

Also be prepared to shell out some money to kit out the place (furniture etc) and save some money for unforseen maintenance issues. Our main water pipe burst under the concrete driveway about 3 months after moving in. Cost us about $1500 to dig up the concrete, fix the pipe and re-concrete the damn thing back!

good luck and enjoy the process.

Cheers.

[stolen 0]

Ideally, you should have more than 10% of the purchase price saved for a deposit and then you can avoid paying the low-equity premium. Try a few mortgage brokers and see if you can get a good deal first and then go to the banks directly and see if you can negotiate better rates.

The market has cooled somewhat so you may be able to get a better 'deal' from the vendor but if you offer too low, you may not get a counter-offer.

Know the area well, get a good lawyer and a proper building report. Spend the money on a LIM report. Do not use the agent's lawyer (it will bite you later) and check for caveats on the property (cross-lease, building restrictions etc).

Also be prepared to shell out some money to kit out the place (furniture etc) and save some money for unforseen maintenance issues. Our main water pipe burst under the concrete driveway about 3 months after moving in. Cost us about $1500 to dig up the concrete, fix the pipe and re-concrete the damn thing back!

good luck and enjoy the process.

Cheers.

Hey, thanks for the info. Yes already got in touch with a mortgage broker & bank and have the loan etc sorted and in place. Now in the process of looking for the house. The broker and loan bit was straight forward, the next part seems a bit tricky :-)

I.E. is it better to make an offer on a place that is going to go on auction or better to wait till the auction? Just stuff like that im not too certain on.... :-S

THanks again.

And yeah, apparently the average sale price of Auckland houses in the last 3 months was $594,000. Which is not looking good for me with my budget!

And, the renting your house out and renting another persons house to live in....many people do that?

[my_e36 43]

And yeah, apparently the average sale price of Auckland houses in the last 3 months was $594,000. Which is not looking good for me with my budget!

As long as you like the place and it's suitable for you. The price is just a number.

And, the renting your house out and renting another persons house to live in....many people do that?

I don't and I can't understand why people do that.

[drifty325i 0]

Buy a house that you can afford, rent it out, then get a crib you do like, rent it off the landlord.

Thats what i did mate

[jpp 0]

As long as you like the place and it's suitable for you. The price is just a number.

I don't and I can't understand why people do that.

Means you get another income in, whilst owning a home, and you pay the extra.

Means people can own a home in Manurewa yet live in Ponsonby.

Just another method of "investment". Not for me however.

[steve R 0]

Means you get another income in, whilst owning a home, and you pay the extra.

Means people can own a home in Manurewa yet live in Ponsonby.

Just another method of "investment". Not for me however.

thats what ill be doing once i finish my property degree, mmm $150 a week student loan Edited October 1, 2007 by 328imobbin

[bravo 34]

I don't and I can't understand why people do that.

I do it.

I don't know why you wouldn't. You obviously havn't done the maths.

If you purchase a property to rent out it is classed as an investment. Therefore interest on borrowings on that investment are a business expense and are deducted from your tax liability. Same with maintenance, insurance, rates... This makes a huuuuge difference as to the cost of ownership, esp. if you are in a higher tax bracket. (Everything costs a third less as it is all tax deductible).

Conversely you have to pay tax on the rent.

Lets take a hypothetical $200k house for easy arithmetic. 10% deposit means $180k borrowings. Interest rates are up at the moment. (About 9% fixed for 3 years). So on a 25 year mortgage using a table loan structure, you are looking at $695 a fortnight in repayments. Over the lifetime of the mortgage you will pay $273,000 of interest. Now if this is your own home you are living in that is all your cost. But if it is a rental, you get to offset that amount against your tax. At 33%, that's a saving of around $90,000.

Then there are rates at say $1500 a year for a $200,000 home. With no adjustment for inflation, over the 25 years, that's $37,500 - another $12,750 saving if offset against your tax.

So as you can see the savings add up very quickly - and I havn't started on insurance or maintenance.

So what about rent??? Well, in the current market a $200k home probably brings in $230+ in the right area a week. 50 weeks a year (allowing for empty tenancy between tenants or for renovating), that's $11,500 a year to pay tax on. Seeing as you are paying a high proportion of interest on your mortgage in the first few years until the principle reduces, this will easily offset the rent income so no tax to pay.

Basically in the first 5 years of ownership on a $200k home you can expect a yearly tax refund (after offsetting the rent etc) of around $2-3k. So that's $2-3k to put into the principle that you wouldn't be able to do if you were living in it.

On a $400k home the numbers more than double as the multiplication effect of the interest. So it makes even more sense.

As time goes on, the rent will outstrip the expenses and you will end up paying tax on it, but by then you should be in a better financial situation, your equity in the home will have increased, and then you can borrow to buy your own "dream home". Keep the rental as an extra income.

You also have the added benefit of buying a house you can afford NOW rather than wait and continually find the goal posts have shifted. Buy in a less desirable area so you can get a foot on the bottom rung of the property ladder, and rent somewhere else.

I did it. My brother did it, my sister is saving. I'm 25, own 50% equity in my rental property, own 33% of a commercial property, and am looking at what to do next. I don't earn stupid money (I'm only in the 33% tax bracket), but I live cheaply. I started with $12,000 as a deposit in 2003 when I was 21 and never looked back.

My 2 cents.

P.S> What I didn't tell you is that tenants actually do suck. Even the good ones cause damage, or miss rent occaisionally which you have to chase up. I used to be over friendly - now I'm a hard-ass as it gets the rent paid on time. Had the tenants in the commercial skip town and then go belly up. Have a $12,500 claim at the insolvency office. It comes with the territory I guess. All that said though, I still wouldn't do things any differently. The $12,500 comes off my tax anyway, and its only lost income in the end. Makes the bank all twitchy though lol.

Edited October 1, 2007 by bravo

[stolen 0]

I do it.

I don't know why you wouldn't. ...............................................................................

.................................................All that said though, I still wouldn't do things any differently. The $12,500 comes off my tax anyway, and its only lost income in the end. Makes the bank all twitchy though lol.

Wow, thanks A LOT for that info! whole new way of looking at it. Thanks for your time!

[bravo 34]

Another point. The IRD only lets you claim interest on money borrowed for an investment. This means if you borrow money to buy your own home to live in and a couple of years down the track you move out and rent it out, the interest on the mortgage does not become tax deductible all though all the other expenses still are.

So the moral is, if its going to be a rental, borrow and buy it as a rental from the start.

[Braeden320 0]

Thats some Dam good advice Bravo.Respect.

[lidistick 70]

Another point. The IRD only lets you claim interest on money borrowed for an investment. This means if you borrow money to buy your own home to live in and a couple of years down the track you move out and rent it out, the interest on the mortgage does not become tax deductible all though all the other expenses still are.

So the moral is, if its going to be a rental, borrow and buy it as a rental from the start.

Nope.

If your home becomes a rental, it becomes income generating and its losses are tax deductible. That includes interest on the mortgage and all the accounting fees.

Just remember tho, Tax deductible means you get a discount on the expenses at the rate of your tax. Ie; 33% for most people and 39% for some. It still means you have to cough up the remainder. No free lunch there

Cheers.

[bravo 34]

Not quite.

Taken from some property investment info by Kenina Court (Accountant, property investor, Acorn Solutions Limited):

When you are buying a new home and keeping the old home as a rental property, in order for the interest on the home to be tax deductible, it must be transferred to an entity. Whether or not interest on a loan is tax deductible depends on the purpose for which the money was borrowed. In a case such as this, the loan was to buy a family home and so the interest is not tax deductible.

When transferring the house to an entity at market value, the entity is borrowing the money to buy an investment property and this makes the interest tax deductible. If you are primarily interested in the tax benefits of owning investment property, then a Loss Attributing Qualifying Company (LAQC) will be the most appropriate entity for you. An LAQC gives you the protection of a limited liability company while allowing the shareholders to offset the loss from the company against their own personal income.

So basically you can do it, but only if you transfer the property to an LAGC, family trust or similar. It depends on what the money was BORROWED for, not what the asset is being used for.

In regard to your tax comments - yes, which is why mostly I used the term "reduced tax liability". It is a free lunch in that a third of your costs or 39% (depending on your tax bracket) is saved over what you would normally be paying, (after correcting for rent income).

Edit: Been thinking about it. If you were to move out of the family home and rent (not buy another family home) - maybe there's a loop hole there. Professional advice from a tax accountant would be wise in that case.

Edited October 3, 2007 by bravo

[bravo 34]

As always, though it pays to get professional advice. here's a snippet from an NZ property investment website. The respondent, Lisa Dudson is a long-time property investor and author of "The Complete Guide To Property Investment in NZ".

First-time house buyer - live in or rent out?

Hi, I currently live at home and have a serious relationship with my long term girlfriend. We would like to buy our own property in Auckland but find it just about impossible. I am also worried about buying a property in Auckland at say $330k, that capital gains may be very limited or negative. I have looked at other areas in NZ where we could set up a cashflow positive rental or two. If we did this we would just rent in Auckland for the time being and use our lower cost rentals as stepping stones into the market. Is it a good idea to be purchasing rental properties without getting your own place first ?

Lisa Dudson responded:

Firstly I am not sure why you think purchasing a property around $330k you will have negative or limited capital growth. I would expect the market to slow down in the next few years and limit short term capital growth but essentially this would apply to the entire country and it would not necessarily make much of a difference where you purchased or if it was for a home or a rental. Obviously some areas will out perform others. Where those areas are – well you could say that is the sixty four million dollar question! I think its fine to purchase a rental property first it that is the best option for you considering both your short and long term objectives. You will need to think about how you structure the ownership and finance of this property to ensure you have the most flexibility on the longer term should you wish to purchase your own home at a later date. A good finance broker, accountant and/or property mentor will be able to give you some guidance on this

[lidistick 70]

Sorry, yes you are right but let me qualify my statement

When I said ,"when your house becomes a rental" I implied (or forgot to) that it should be sold to a loss-attributing qualifying company (LAQC) as that is the only way to claim back the interest, expenses and depreciation on chattels. Going via the trust method is useful to tax credits further down the road for the trust but the tax credits cannot be distributed to the beneficiaries of the trust.

So if you want to rent our your current house, form an LAQC, borrow money to buy the house from yourself to the company, rent it out and claim all the losses as tax deductible.

Cheers.

[bravo 34]

Sweet. You bring up an additional point too. Something I missed.

As a rental, you can also depreciate the house and claim the depreciation as an expense against your income to reduce your tax too. I don't on my residential as I plan to make some capital gains, and don't want to have to pay tax on them lump sum later on, even though it means less of a gain in the meantime. I don't plan any major renovations soon either.

However, on the comercial which is owned by my LAQC, I do.

Horses for courses.

[Grant 4]

Do you maximise the depeciation that you claim, or are you claiming it at the standard 4% (DV)? By breaking the building into its variuos elements, you can claim a hell of a lot more, especially if your commercial has a things lie carpet, lifts, air con etc, fire alarms etc.

I have done this exercise for a number of clients, and have saved some thousands on their annual tax bill (admittedly many of these have been multi-level office buildings).

Cheers

Grant

[bravo 34]

I do my own accounts and tax on my residential. I let my accountant deal with the LAQC and commercial. So I'll have to ask.

The commercial is a factory workshop with office space and owners accomodation on the second level, plus yard and carparks. I imagine my accountant has it under control though as he has always made us aware of every possibilt to save money where he can.

Edited October 3, 2007 by bravo