All posts by Timothy Yun

Commonly Overlooked Expenses That Property Investors Can Claim

Correctly claiming expenses is something every responsible business owner should be doing, and investment properties are no exception. So, what exactly can you claim for? Below are three commonly overlooked expenses that property investors can claim for on their rental income.

Travels to the property

Even if you are using an agent, many property investors like to visit periodically. It may be to see the scale of maintenance work required or simply tagging along to the agent’s routine inspection to get a better sense of certain wear and tear items. All these travels, back and forth, are claimable expenses.

Gifts for tenants

Many savvy properties investors know that a happy tenant is an asset. Making sure you manage a positive relationship with your tenants goes a long way. That’s why some landlords take the time and effort to prepare a small gift for new tenants when they move in to their home for the first time. Or, for existing tenants, many landlords prepare a small gift when the holiday seasons draw near. These gifts can be (and should be) claimed as expenses by property investors.

Agent fees

More often than not, being a property investor is a busy job all on its own. You can be forgiven for trying to avoid the hassle of keeping every single receipt and invoice for expense claiming. Using a property manager, several minor expenses such as advertising, background checks, credit checks, fees for drawing up tenancy agreements, and court costs can all be wrapped up into one easily trackable agent fee. This agent fee is tax deductible, so essentially you’re wrapping all these small tasks into one simple one.

Further information

There are many more expenses that you can claim for:

  • insurance
  • rates
  • accountant fees
  • repair and maintenance
  • fees for arranging a mortgage to finance the rental property
  • fees for drawing up a tenancy agreement
  • mortgage valuation
  • court and other legal fees
  • eviction fees
  • mortgage repayment insurance
  • depreciation
  • legal fees involved in buying a rental property

You can also deduct interest on money you have borrowed to buy your rental property. You cannot deduct this if you have used some of the money:

  • for something else; or
  • to top up the mortgage for another purpose.

Expenses you cannot deduct from your rental income are:

  • capital expenses
  • purchase price of a rental property
  • mortgage repayment principle
  • additions or improvements to the property
  • repairing or replacing damaged property, if the work increases property value
  • real estate agent fees charged as part of buying or selling the property
  • depreciation on the rental’s land or buildings
  • your time cost when you do repairs and maintenance work
  • legal fees involved with selling the rental property (unless you’re in the business of providing residential rental accommodation)

The difference between repairs and improvements can be complex. If you are unsure about whether work done on your property is repairs or improvements, talk to a tax agent.

Healthy Homes

There is another question that is commonly asked by property investors, recently. That is: “can I claim the expenses incurred while trying to meet the Healthy Homes Standards?

The Inland Revenue Department (IRD) answers that question as follows: “costs of a revenue nature are generally deductible in the income year they are incurred and these may include the costs of repairing items that would otherwise meet the standards if operational or in a reasonable condition… (or) minor additions or alterations that do not change the character of the building.” This is good news for property investors and they should definitely claim any such expenses. If you’re looking to find out more details about this matter specifically, you can always refer to this document supplied by the IRD.

For further information on claimable expenses in general, check out the resources at IRD’s official website.

Post-COVID-19 Strategies for Landlords – You Need to Act Now

The COVID-19 emergency has transformed many industries and sectors. The property and private rental market were not immune to these transformations.

There are some realities that haven’t changed, not least that people will always need somewhere to live. This gives our industry as a whole a high level of resilience, resilience that other sectors and industries don’t have.

That said, individual landlords can still be impacted by the transformation that is taking place.

The Short-Term Rental Example

Just look at what is happening with the short-term rental market as an example. With tourism closed down, many property owners who adopted the Airbnb business model had no choice but to change direction.

This has flooded the rental market with excess properties, both apartments and houses. As a result, tenants now have more options, which could put downward pressures on rents.

This is not helped by the wider economic situation where people have lost income and jobs.

Plus, the impact of the above scenario will spread beyond short-term rentals into the market more widely.

What You Should Do to Protect Your Investments and Income

A lot of the advice and guidance for landlords up until this point of the COVID-19 emergency was about getting through the lockdown situation, following the law, and working together with tenants.

We now need to look to the future. What will your portfolio look like in 12- or 24-months’ time? What about your rental income? What about profitability?

To protect all three – portfolio, income, and profitability – all landlords in New Zealand must adapt to new strategies. Here are some of the things you should consider in post-COVID-19 New Zealand.

Focusing on the Long-Term

Low-risk investors who focus on the long-term and who have strong balance sheets will have opportunities over the coming months. Predictions are that house prices will fall. Combine this with low-interest rates, and there could be the option for some investors to expand their portfolio.

Changing Mindsets

Property managers, landlords, insurance companies, and others involved in the private rental sector will need to consider a change of mindset. This includes moving from an adversarial approach with tenants to one built more on relationships and trust-building.

The most successful property managers are also likely to evolve more into an asset management role. So, instead of the endless rotation of inspections and new tenancy agreements, the service will become more about helping landlords maximise the overall profitability of their portfolios.

After all, net rental income is only one part of a property portfolio’s profitability calculation.

Changing the Approach to Inspections

Following on from the above point, our industry needs to use the changed mindset to take a new and modern approach to inspections.

The existing system may have suited a previous era, but it is not fit for purpose in the post-COVID-19 era.

Some ideas on this topic have already been floated by others in the industry. They warrant much wider consideration. This includes:

  • Remote inspections replacing in-person inspections
  • Less frequent inspections
  • More flexible approach to inspections where the frequency is based on a risk assessment, i.e. the riskier the tenant, the more frequently inspections take place

Utilising Smart Home Technologies

Even before COVID-19, other industries were going through change driven by customer demand and the availability of new technologies. These changes are known by various terms including the Internet of Things, Industry 4.0, and digital transformation.

The private rental sector has some catching up to do, and this is the ideal time to do so. By embracing smart home technologies, you can improve the service you offer as a landlord to tenants while also protecting and enhancing your investment.

There are challenges, most notably privacy, but it is an area worth exploring further, given the potential benefits.

Adapting to Change

The central theme of the above is that things are not going to be the same in the months and possibly years ahead. In fact, the sector might never go back to the way it was before COVID-19. We need to adapt to these changes with minimal delay.

Please don’t hesitate to contact us on 022 010 7099 for further information on this.