How to minimise the impact of Covid-19 on your Holiday Home Investment...

As a result of high demand for information regarding converting holiday homes to residential rental properties, we have decided to provide some information to assist.

Many people in our area have holiday homes which have been popular with international visitors.  The demand hasn’t just diminished but come to a sudden holt with our Country’s boarder doors slammed shut to protect us from COVID-19.  Because these homes are also utilised by the owners for their holidays it has been a great opportunity to earn income when the property is not being used. 

Many owners will just continue to use their home for holidays and leave them empty between visits but there are also a large number of owners who need that income to support them financially and with the threat of economic turbulence, redundancies and long term border restrictions, income from these properties is becoming a necessity.

If you would like to discuss your potential opinions in more detail, please feel free to contact us on 027 440 0081 or email [email protected].

 

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HOW DO I FIND OUT IF MY HOME IS ABLE TO BE RENTED OUT?
If your home complies with all local government regulations and has been permitted for this it is able to be a residential rental.

WHAT REGULATIONS DO I NEED TO COMPLY WITH TO MAKE MY HOME READY TO RENT?
Homes must have compliant smoke alarms in place – details can be found here:
https://www.tenancy.govt.nz/maintenance-and-inspections/smoke-alarms/?gclid=EAIaIQobChMI4_i1qaTu6AIVU4yPCh0M5gmqEAAYASAAEgJBx_D_BwE

Homes must be fitted with insulation compliant with regulations – details can be found here:
https://www.tenancy.govt.nz/healthy-homes/insulation-standard/?gclid=EAIaIQobChMI2_vh7aTu6AIVTR0rCh0JqQhrEAAYASAAEgLb-vD_BwE

Proeprties need to be compiaint with the Healthy Homes Act and details can be found here:
https://www.tenancy.govt.nz/healthy-homes?gclid=CjwKCAjwp-X0BRAFEiwAheRui73Ldc8OJodKR8ZSVHNYS-vUdTiwsu8C5-moy9Ugrj1QFMOyTzG5DxoCu8AQAvD_BwE

SHOULD MY HOME BE FURNISHED?
If you have decided that your property will be rented out for the foreseeable future, we would recommend you provide it unfurnished.  Most people will have their own furniture.  You could offer furniture as an option.

EXPECTATIONS
Most tenants will be looking for a long-term rental – this is longer than 12 months.  If you will require your property for your own use at Christmas time you need to be open about this.  Your property will not be so attractive to potential tenants if it is not going to be available to them during the summer holidays .   Good tenants are looking for a home, somewhere they can set themselves and/or their families up securely and with a long term view for living, schooling and forging their lives.  There are always unexpected situations that come up that may uproot a tenant and cause them to have to move on but a tenancy should been seen for the most part as a long term commitment.

I WANT TO RENT MY HOUSE OUT WITH ZERO RISK
Just as with any investment, there is always risk associated with it.  It would be dishonest to tell an owner that there is no risk involved. 

There is a range of advice to mitigate your risk including:

• Use an experienced Property Manager
• Run Credit, background and Tenancy Tribunal checks
• Reference check the tenant with their most current and previous landlord
• If you are not using a Property Manager familiarise yourself with the Residential Tenancies Act 1986 and ensure you and your tenant comply with your responsibilities (avoid the serious consequences of acting outside of legislation).
• Ensure your tenancy agreement includes the relevant terms and conditions.
• Maintain open communication with your tenant.

 

TAX IMPLICATIONS

As with most investments, there are things you can and cannot use as part of your Income Tax Return you file each year and a rental property is no different. Below is some details regarding tax benefits, the do's and do not's. We will always recommend also having a discussion with your accountant in detail.

Expenses deductible from your rental income include:

• Mortgage repayment insurance
• Accounting fees for the preparation of accounts for your rental property/ies
• Rates and insurance
• Depreciation (but not building depreciation).
• Interest paid on money borrowed to finance your property
• Fees or commission paid to agents who collect the rent, maintain your rental, or find tenants for you
• Repairs and maintenance (except if they substantially improve the property)
• Motor vehicle and travel expenses

Expenses you can’t deduct from your rental income in your tax return:

• Costs of repairing or replacing any damaged part of the property, if the work increases the property’s value
• Real estate agent fees
• Purchase price of the property
• The capital portion of mortgage repayments
• The costs of making any additions or improvements to the property
  

Different tax rules for holiday homes

As the Inland Revenue Department explains, if your holiday home is rented to the public for short-term stays, you need to be aware of “mixed-use” asset tax rules and exemptions, and how private use differs from income-earning use. There are also rules (which could save you money!) around staying at the property for repair work, and rules if you earn less than $4000 from rental in a year on the property.

More information can be found via https://www.ird.govt.nz/property/renting-out-residential-property/residential-rental-property-deductions or speak to your accountant.