Pros and Cons on leasing/renting own home out when travelling for >12 months

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xlinknz

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#258498 7-Oct-2019 13:50

We're looking to be away >12 months

Originally we intended to lease out free our hold house out for 12 month fixed term but now questioning that as when I did the numbers it would appears that 1/3 is loss in rental income tax, storage costs, property mgmt fees, extra insurance etc

We'd also loose the flexibility of coming back sooner and working >1-2 months more (3 months being the same net income as renting /leasing)

What has others experiences being?

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#2331887 7-Oct-2019 13:50

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tripper1000

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#2331928 7-Oct-2019 14:49

Had to make the same decision a few years ago.

If you set up your accounts correctly then insurance, maintenance, rates, water & management fees etc are deducted first and you pay 1/3 income tax only on what remains, so tax is not 1/3 of the income and is not as bad as some people imagine. You could in theory spend sufficient money on maintenance to pay no tax, but it has to be maintenance and not upgrades/improvements.

Many household insurance policies are void after 30 days of the house being empty (exact time frame depending on the company) so make sure you talk to your insurance company whatever your decision.

A decent property management company will match you up with tenants that can be flexible and accommodate your whims, it's a matter of laying out your requirements to begin with, and being willing to compromise on rental income to get the right people for you and your house. I have family who have tenants on a 12 month term, and it works perfectly for the tenants (and their kids schooling/school zone etc) who are demolishing and rebuilding their own house nearby. My Grandmothers house was rented out on repeating 3 month contract when she was in her end days. We found a tenant who was happy to tolerate the uncertainty for the discounted rent and they looked after the place really well.

In the end I got my brother and his wife in to house-sit which enabled them to dramatically increase their house deposit savings which may be something to consider if you have some responsible friends or family you'd like to help out.

xlinknz

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#2331960 7-Oct-2019 15:26

tripper1000:

Had to make the same decision a few years ago.

If you set up your accounts correctly then insurance, maintenance, rates, water & management fees etc are deducted first and you pay 1/3 income tax only on what remains, so tax is not 1/3 of the income and is not as bad as some people imagine. You could in theory spend sufficient money on maintenance to pay no tax, but it has to be maintenance and not upgrades/improvements.

Many household insurance policies are void after 30 days of the house being empty (exact time frame depending on the company) so make sure you talk to your insurance company whatever your decision.

A decent property management company will match you up with tenants that can be flexible and accommodate your whims, it's a matter of laying out your requirements to begin with, and being willing to compromise on rental income to get the right people for you and your house. I have family who have tenants on a 12 month term, and it works perfectly for the tenants (and their kids schooling/school zone etc) who are demolishing and rebuilding their own house nearby. My Grandmothers house was rented out on repeating 3 month contract when she was in her end days. We found a tenant who was happy to tolerate the uncertainty for the discounted rent and they looked after the place really well.

In the end I got my brother and his wife in to house-sit which enabled them to dramatically increase their house deposit savings which may be something to consider if you have some responsible friends or family you'd like to help out.

TQ for the reply :)

Yes was aware of one can 'claim' back a lot but that won't be the deciding factor for us

Good point on what need to be considered if leaving the house empty. I'll check the conditions on that e.g. alarm, someone inspecting etc

And yes house minding by someone you trust to allow them to get ahead too is an option too

Handle9

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#2332056 7-Oct-2019 16:17

Are you working while traveling or is it purely travel for pleasure? If you are working overseas and your house in NZ is still available to live on the IRD will class you as an NZ tax resident.

It gets complex if you work in a low tax country.

Handle9

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#2332080 7-Oct-2019 16:39

We've been away for around 14 months now and rented our house. As we have a fairly big mortgage it was the only way to keep the house.

It's generally been a positive experience. The biggest frustration is around maintainence and you not being there. We've had one disaster which required a digger to come in but generally it's been fine. The rent gets paid and expenses are paid out of the rent.

We have a pretty good property manager which helps and we have our second lot of tenants starting in a couple of weeks. We haven't had a gap between tenancies which is also positive.

The other gotcha is compliance costs around things like insulation and smoke alarms etc. We upgraded to 10 year smoke alarms before we left but now have to get the insulation inspected even though the house is only 12 years old and has full insulation.

xlinknz

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#2332135 7-Oct-2019 19:01

Handle9: Are you working while traveling or is it purely travel for pleasure? If you are working overseas and your house in NZ is still available to live on the IRD will class you as an NZ tax resident.

It gets complex if you work in a low tax country.

TQ for both replies :)

Just travel

If you didn't have the mortgage would you have tenanted if you knew you were away only >12 months?

Good point about maintenance whilst away if unoccupied less chance of that occurring esp. major jobs

Handle9

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#2332142 7-Oct-2019 19:09

xlinknz:

Handle9: Are you working while traveling or is it purely travel for pleasure? If you are working overseas and your house in NZ is still available to live on the IRD will class you as an NZ tax resident.

It gets complex if you work in a low tax country.

TQ for both replies :)

Just travel

If you didn't have the mortgage would you have tenanted if you knew you were away only >12 months?

Good point about maintenance whilst away if unoccupied less chance of that occurring esp. major jobs

I quite like money so yes I would have tenanted it for sure. To put it context my rent is just under 40k per annum so it's a sizeable amount of money. Even if 35% goes elsewhere it's still $26k for effectively minimal effort. I approve the property managers requests for maintenance and they just happen.

The maintenance would have needed doing at some point (blocked sanitary drain) you just can't DIY when you are away.

I also think that it's not great for a house to be vacant for too long.

My house is a largish (4 bed 215 sqm) family house in a family based area so the level of rent disqualifies many of the types of people who may have caused problems.

To me the key is a good property manager, the rest is fairly straight forward.

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#2332217 7-Oct-2019 20:41

pro = $

con = IF you get bad tenants - let your imagination loose - from cooking drugs to destroying house but most though not all scenarios covered by insurance

in terms of hassle a lot of them can be delegated out eg property manager, accountant etc