Property investor advice with Opes Partners

Ed McKnight and Andrew Nicol from Opes Partners talk to the Relab team about what the Government's recent tax changes mean for property investors. We’ll see the real numbers of how a property investor's portfolio may be impacted, along with the 5 strategies you can use to combat the tax changes.  

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Transcript

Stacey: 0:56

Kia ora koutou and welcome to the property collective podcast brought to you by Relab. I'm your host, Stacey Fairclough content manager here at Relab. In today's episode, I'm joined by Ed McKnight and Andrew Nicol from Opes Partners. And they will be providing us with some amazing advice for property investors in response to the government's text changes for property investment. This is a really great chat with insight into the different choices investors have when it comes to the new rules. Let's get started.

Ed: 1:30

Fantastic. And Stacey, thanks so much for having us here today at this Relab webinar. Really excited to be here. Now, before we get started, I need to say, Andrew, you need to stop rustling your papers because it's coming. He's terrible, isn't he? Now we've got a banger for you guys today all about the government's tax changes. Now we've specifically gear this. Around how it's gonna impact property investors. And what we want you to take away as real estate agents and developers is how you can start advising the property investors that you are working with. So if you're a developer building for investors, this is gonna give you a really good sense of the choices that property investors have. So there's gonna be really valuable. Now let's run into this. So we're talking about how the government's tax changes are gonna impact property investors. Now, you might be wondering, well, why am I listening to these two attractive gentlemen? Well, first of all, this is Andrew. He is an authorized financial advisor. Just financial advisor these days is what's called, he is the host of the Property Academy Podcasts, New Zealand's number one. Business podcast with over 800 episodes released. He is a prolific property investor and what we're calling Rupert Murdoch 2.0. Now, Andrew, just tell everybody why we're bothered writing that.

Andrew: 2:49

So, so, uh, in the original lockdown, the one that, um, new is one, even remember now I think that you've taken your stride. Um, we purchased a magazine, um, Juno Investment Magazine because they were, they were, um, they were gonna close the doors and we thought we can't have that. It's a great magazine. So we bought that. We now bought New Zealand Property Investor Magazine

Ed: 3:07

and we is Andrew still there or is it me? Who's who? Who has lost internet? I can't hear him either. Oh, well, I'm gonna take over then and we'll just see what happens when Andrew comes back online. Sounds like he's coming on there, but we call him, uh, Rupert Murdock 2.0 because of both the ownership of New Zealand's two main investing magazines. Now, in terms of being, my name is Ed. I'm an economist at Ops. Partners, also co-host that Property Can podcast with Andrew. I'm a. Property investments itself and in prolific data. Now we're specifically talking about the government's tax changes as they relate to property investors, and the reason we're talking about it is that they are hefty. So the dis, the discussion document, which came out in about July this year was 143 pages long. The initial legislation has been released, and again, it's over a hundred pages long. So what we wanna do in this short session today is take you through what you need to know, and most importantly, what your clients, if you're a real estate agent, or your purchases, if you're a developer, can do in order to respond to these tax changes. So there are three things we're gonna. The impact of the changes, the opportunities that are presented for property investors, and then if you've got an existing portfolio or if an investor has an existing portfolio, what are the things that they can do to respond? Andrew, take us through the impact of these tax changes and the difference between how your tax was calculated before compared to how it will be now.

Andrew: 4:39

All right. Right. So we've done a bit of a case study. Let's say you've got rented, uh,$675 a week, so 35 grand a year, and you've got operating costs, your rates, insurance, maintenance, all those kinda things, 10 K and your interest costs, and a mortgage at three and a half percent of$29,000. So the vast majority of your costs are interest, which is pretty normal for most investors. Your profit on that scenario is negative$4,000. So you're making a loss, so your taxes. All very easy. Everyone understands that your cash flow, uh, per week is negative$77. Um, so negatively geared by$77 a week. Everyone's happy. You can afford to hold that property, everyone, No, no issues. Now, the way that the government are looking at it now is they're moving your interest to below the profit line. So what that means is, There we go. Your rent minus your operating costs will equal your profit. I know it's not your real profit, but that's the profit that the IRD are gonna consider taxable. So in this case, it's$25,000. Now if you are paying 33 cents in the dollar there, that's$8,250 you're gonna pay in tax. So, You were paying nothing before. Now you've got 8,002 50, your interest cost of course is still gonna come out. That means your actual cost per week is negative Cash flow, two$36 a week. So you're going from$77 to negative to hundred$36 a week,$159 worse off per week from a cash flow perspective, which is massive.

Ed: 6:10

And so let's just compare that as well between that before and after. So

Andrew: 6:15

your tax before was nothing because you were making a loss. Your tax now, even though you're making that same cash flow loss is two$8,250. So you've gotta pay that over and above. Your cash flow goes from$77 a week, negative to negative$236 a week. So as I said before, massive increase and the amount of contribution you have to make towards a rental.

Ed: 6:39

And I think the key thing to get across is, while we've blasted through these numbers really, really quickly, this is the slide that you really want to think about. The first thing to note is that those interest costs are being moved below the profit line, and it's not actually necessarily an increase in the tax rate. It's not an increase in tax rate at all. It is a change in how profit is calculated, resulting in more tax being paid. And the key thing. Or the, the reason that a lot of people, I don't think have got their heads fully around what these interested deductibility tax changes mean is because they are quite complicated to explain that it's not actually an tax, it's an a change in how the profit's calculated. We've probably

Andrew: 7:23

been, um, so lucky to have, uh, such low interest rates for the last three, while that it hasn't made as much of an impact, but as those interest rates increase, this is gonna significantly affect your ability to hold onto any properties that you already have as rental

Ed: 7:37

properties. Well, actually that's a good point, Andrew, to then ask, well, how can people estimate really simply the impact of these tax changes? So

Andrew: 7:47

basically your interest rate, if you wanna work out what your cash flow is gonna look like, you need to multiply your interest rate by one and a half, 150%. So that extra 50% will, um, uh, accommodate that 33 cent dollar 33 cents on the dollar tax rate. Now, if you're on the 39 cent tax rate, it's

Ed: 8:06

even higher. Absolutely. And let's just compare as well the difference between two cash flows. Just explain what we've got here, Andrew, and the difference it makes.

Andrew: 8:18

This is, uh, this is taken from our return on investment calculator. So this shows the cash flow over a 15 year period. The left hand side shows you your positive years of, of cash flow, and then you'll see some negative years in there as well. That's when we're allowed for interest rates to go basically. Now if you see, uh, the second one, and actually just tell me, is this based on a phase out of, uh, an existing property purchased prior to the 27th of March or after?

Ed: 8:43

This is a phase.

Andrew: 8:45

Phase out. So, so this, this, what that means is if you bought an investment property and you've already, you already own it, prior to the 27th of March, and the, the, um, IRB considered that old now by compliance came out after 27th of March, 2020. Then, sorry, uh, before that then what that means is you're interested, deductability is phased. Over, over a four year period. Um, if you buy one today, an old property today, there's no deductibility. So basically the entire, uh, 15 years will be negatively geared. That'll be red lines. So you are paying an extra hundred thousand dollars in tax that you were prior to the government's changes over that 15 year period. So look, the impact is pretty large. It's pretty scary. It's enough to make you think, Why are we investing in property again? But what I need you to remember is that there are opportunities here and there are a lot of opportunities. There are some places in property investment that don't make sense anymore, and we'll talk about what those are, but there are opportunities. So let's go through these and talk about the three critical opportunities that you as. Developer or you as a real estate agent, need to be aware of. And the obvious one is new builds. So new builds are exempt from the changes. And what I just wanna go through today are three key things that you need to know about new builds because there was initial stuff that came out in the consultation document, the discussion document where the government said, We're thinking of doing this. Now that got widely reported, but when the draft legislation came, Some things had changed and so some stuff that you might have read in the New Zealand Herald or on stuff dot code at NZ three months ago that may no longer be relevant. So I wanna take you through the basics of the three things you need to know about a new build. And the first thing is the cutoff date for what's considered a new build. Has actually been moved back since the initial discussion document. So in the initial discussion document, what they said was 27th of March, 2021. If the ccc, if the code compliance came out on 27th of March or afterwards, it's a new build. Any time before that, even if it was. The day after they announce the policy, that wouldn't be considered a new bill. Now the really cool thing in the legislation is that that has been moved back by gear. So it's been moved back from 27th of March, 2021, back to 20, uh, 27th of March, 2020. Now you might be thinking it. That's very technical. Why are you telling me this? Well, it has a big, big impact, and that impact is. People who are gonna feel that impact are about 550 of the investors that we've specifically worked with who have bought new builds. And I'm sure if you're a real estate agent watching this, there are gonna be some people who potentially purchase through you who, uh, didn't come under the previous definition, but will, under the new definition, we're estimating that those 550 investors that we've worked. I gonna pay about 37 million less in tax over the next 15 years by that small change and what the cutoff date is. So while you think, oh, it's just a change of the year, it's massive in terms of its impact if people have been purchasing new builds. The second thing that I want to let you know about is that this tax incentive lasts for 20 years and is transfer. Now this is really important. So let me just tell you what this means. Let's say code compliance comes out on 2022. That exemption the, the ability to claim those lower taxes than would otherwise be. The case lasts for a total of 20 years before converting over to an existing property. Now, in the discussion document that came out, they didn't know what it was gonna be. They didn't know whether it was gonna be five years, 10 years, 35 years, and definitely. A rule has been put in place. It's gonna be 20 years. Even if you were to sell that property 10 years in, hey, the exemption still carries on for the last 10 years. Now, that's important for you real estate agents who are thinking of selling a property that was bought as new because that means that you can still sell that property to an investor or some other purchaser who would otherwise be caught under the in deductibility rules. It also is really good. Sorry, just one thing to add there. Just one thing that, uh, I was talking to a real estate agent about this week is, um, the definition of new is different from an i r D tax standpoint than it's from the bank. So when a bank takes on that property, it is considered existing, and so you need to have a 40% deposit. But from a tax perspective, it's still got that interest in adaptability. So they're two different things. Just something to be.

Ed: 13:43

That is a very good point, Andrew. And the other place where this can be really beneficial is that let's say a first home buyer purchased a property, coco compliance comes out 2022. If they move into it for a year and then decide to turn it into a rental that. Tax incentive is still there. So in the initial documents they were thinking, Well, if somebody lives in a, in an owner occupy, maybe we take off that exemption, maybe we take off that tax incentive. No, it sticks with the property for 20 years. So I just wanna point out what the rule actually are today since there were a whole heap of different, uh, potential rules or things up for discussion that have now actually been decided. So what do we know? First of all, the cutoff date has been moved back second. It lasts for 20 years. And the last thing that I just wanna mention as well is that you can add a new build to a new, to an old property. And we'll talk more about this in the future opportunities, but I just wanna give you an example. Let's say that you've got a house on the front of a section and you've got somebody who decides to build a minor dwelling on the back of that. Well, any interest associated with the minor dwelling will be tax deductible, but any interest costs associated with the front house will not be considered tax deductible after the phase out. So there is an opportunity here. Let's say that you are somebody who wants to help. Homeowners or property investors build minor dwellings on the back of their properties. This is a big, big opportunity for you because you can encourage people to build minor dwellings on the back of their properties in order to increase the cash flow and pay for that extra tax, assuming that the numbers will work out that way. So there are three really good opportunities there, specifically around new builds. But that doesn't mean that new builds have all the opportunity. Even though they're the ones that have got the major media attention. So Andrew, talk to us a bit about five other exemptions from these scary tax rules. Sure. So

Andrew: 15:42

the first one, Drum roll please. Uh, as new build conversions. So say you've got a house at the moment where, uh, it's a large four bedroom house. And, um, I've seen this quite, I've seen this quite a lot, particularly for, um, old investors where they really wanna get as much rent as possible. What they'll do is they'll divide the property into two, two bedroom units, for example. Now each property has to have its own facilities, but so long as you can still get two dwellings out of. That property is now considered new, um, and new code compliance has to issue on it, but that's, that's how you then create a four bedroom house into two, two bedroom jellies with tax deductibility. The second one. Its relo because again, a big part of this is trying to encourage more stock onto the market. He why you are exempt. So if you can find a property, um, that's in the middle of nowhere, it's gonna be demoed anyway, and you can relocate that, then all of a sudden that's deductible as well. Third, Student accommodation and boarding houses. So they're exempt because they kind of fall within their commercial arena as well. So if you've got a student accommodation boarding house, Um, Ed, actually, just on that note, um, the second discussion document didn't have much about

Ed: 16:58

this. Is that right? There wasn't a clear definition of what boarding houses are, unfortunately. Yeah. But what I do know, particularly down in Christchurch, since this legislation has come into place, the market for boarding houses or since it was say the market for boarding houses has taken off and there are some, uh, investment specialists, real estate agents, down. Christchurch, which is a market that we're quite familiar with, uh, who are doing very, very well selling these sorts of properties, given that they have a tax incentive around them as well.

Andrew: 17:33

And let's just ask the question, uh, what are the exemptions for new builds key deduct interest from, uh, interest? Um, yes, the interest for your loan is deductible on a new property. It's not for an existing property, Anna. Uh, and number four, exemption number four. It's for hotels. Um, again, I guess this falls under commercial, uh, a little bit more than it would a normal residential property, so that to is exempt. You can claim the interest on, on any loan that you've got for hotel. Next one, final one. As if you rent your property to the likes of Kaya Aura or community housing. So Auckland City Mission or Salvation Army, if you are providing to that emergency housing stock that we, uh, need desperately, 25,000 properties are in need, uh, through these, uh, uh, emergency housing, uh, uh, providers. Then you get interest as well. So if you own the property right now and you say, Hey look, I'm happy to give this to the Salvation, Salvation Army to to rent out as emergency housing, you can claim the interest on the loan.

Ed: 18:36

And so those five key. Exemptions or five key opportunities again for you to be advising your investors on. Obviously new go new was given, but then we also talked about things like your hotels, your social housing relocates, dividing up properties, and then student accommodation and boarding houses. So this just gives you a bit of a sense, even though we've run through this, you know, in record time, there are opportunities out there that is, is not the end of property investment as we know. But those property investment dollars are likely to go into very specific and new areas in order to be able to make sure that property investors aren't paying that additional tax out of their own back pockets. The last thing that I wanna talk to you as well about those opportunities, it's not just the new builds, it's not just the exemptions, but also renovations. So there is a fear. This is the end, as we know for existing investment properties, people purchasing those existing rental properties. But if you are able to purchase a property and significantly renovate it to the point where it's cash flow, the rent that it generates has dramatically increased compared to your mortgage, then you will still be okay. You can still be cash flow positive as a property investor, but you really need to, what we. Cash flow hack, cash hack those investment properties to get the rent up. So if you are a real estate agent watching this and you're thinking, Well, I've gotta run down property that really no homeowner's got, who's gonna do it up? That can still be a valid path. We lost in.

Andrew: 20:23

Lost you there for a second there, buddy, but

Ed: 20:25

you're back again. But there are some specific things that those investors can do in order to get that rent up. And I wanna take you through now our top six steps, our six cash hacking step to get that up. The first one is to, Oh, thanks. Perfect. Thank you for letting me know that Andrew.

Andrew: 20:49

Sorry guys. Technical difficulties. And it's so much harder with Ed Ed's, uh, Ed's still an Auckland lockdown. This is your day of freedom though, isn't it, buddy? It's

Ed: 20:58

Freedom Day, I feel like. Um, is it Mel Gibson on Braveheart where he goes, Freedom, is that right? You, you're into baby's. Oh, I've never seen Braveheart. It's too, it's too many love. Actually, that's terrible. You'll be balling your eyes out at it. It's a banger. Now, the six principles of cash flow hacking, so you can get that rent up. First thing is adding an extra bedroom. Now if you wanna know how to do this, Either check out our Instagram. We are at Oprah's Partners because two days ago we released a post specifically about how to add extra bedrooms to properties and also how to identify the floor space needed in order to be able to say, Does this property have enough? Space in order to add this in, and I'm sure Stacy will be able to tell you as well. There's probably a feature on lab that teaches you how to do that when you're doing due diligence as well. The second thing is to assess your rental options, and what I mean by that is could you start using a room by room rental option or a boarding house model in order to get the rent up? Because if you turn your property into a multi income property, then you are more likely to achieve a higher rent compared to if it's a single income. Kitchens and bathrooms as well. Great place to target that spending, as well as updating fittings like light shades, door handles, the front step, all of those good things. And then doing an internal paint refresh as well, that tenants are really going to value more so than an external paint job. That's where we'd really target our spending, as well as bringing up the carpet, trying to revitalize it, whether by replacing it or by cleaning it and giving it a refresh as. So really what we've talked about here is I've tried to give you as many ideas as possible of things that you can do or things you could advise your clients of, whether you're a real estate agent or a developer, in order to start to combat these changes. For developers, it could be encouraging investors to build minor dwellings on the back section. For you real estate agents, it could be encouraging these investors to renovate these properties in specific ways or to start targeting investors, spend into specific exempt properties like your boarding houses, like your hotel rooms, like your student accommodation. So, I know through it quickly, but you might wanna re-watch it in order to be able to get down all of those opportunities as well, cuz there are some opportunities there. Now a big question, Andrew, that a lot of people are probably asking is, Well, what about my clients who have an existing portfolio? What do they do with their existing properties? Yeah, and

Andrew: 23:41

this is where we've introduced, we, we've set up a thing called the five Rs, and I think this is really important even before the government changes to, to, uh, always be disciplined enough to go through and do this with your portfolio. So, uh, our number one is review. Um, we're big on making sure that your rental property or your investment is right in five years, um, as it was the day that you bought it because, um, things change. Uh, uh, you might have brought in a market that maybe isn't performing the way you wanted, would be an example of some somewhere. Um, and the way that we think you should review your properties is really get down to the numbers. And so we've created a thing called a Return on investment calculator, um, which we call the holy gra. Spreadsheets where you can download this for free at Opus Partners dot. Opus Partners go NZ slash roi. Um, the spreadsheet you're entering all your details of, um, up to three properties and you compare them and it will give you a return on investment. It'll give you the cash flow, it'll show you what the numbers look like moving forward in 15 years. You can put in higher interest rates and inflation. Rental inflation, um, all of your costs, and it will give you your cash flow. But then it helps figure out, okay, if I, if I need to make a contribution, um, what does it have, what does it have to look like over that period of time? So download that and have a play. It's an awesome

Ed: 25:00

toll The second. Oh, you've beat me to it. Our number two is to increase your rent. So right across the country, rents are increasing massively. So I'm gonna put in front of you the August to August data from the Trade We Rental Index over the last 12 months. So you can see Tar Nike rents, the median rent is up 19%. Canterbury, 11 and a half percent, almost Wellington, 9%. As a country, almost 8%. So rents are on the up and up. So big thing is if you haven't increased your rent in a while, make sure you are checking that rent. What is the market level for your investment properties? Because what you wanna do is continually bring that property up to the market level so that when you're taxed more for your existing property, that you are sharing that with your tenants so that you are not just the one who's being hit in the back pocket there. What's our number three, Andrew?

Andrew: 25:57

Uh, number three is restructure. Now, um, in the new legislation there are a few golden nuggets, and one of them is that you can transfer properties from entity to entity without, um, affecting your bright line or reaching your bright line. So what that might mean is that you talk to your accountant. Great example is your properties and your name. At the moment, you're on 39 seat, uh, tax. You could actually look at transferring that into a trust and, uh, reducing that tax rate down to 33%. So just one example, you need to get tax advice before you go doing this legal advice potentially, but just an idea. Um, and that's a really good golden nugget. It is a silver lining with, with these new tax changes.

Ed: 26:38

Our number four, coming back to that is renovate. Now we've already talked about what that means, but using those six key cash flow hacking steps in order to increase that rev, that rent, increase your revenue, and so that you are not being hit in the back pocket for those taxes. But if you've been through these four R's with your existing properties, whether for your clients or whether for yourself, Everybody on this call is probably an investor as well, or looking to become an investor. If you've reviewed that proper entity, you've looked at your rent, you've restructured your tax situation, you've renovated it. If none of that works, that's where we come into R number five. Andrew, what is it? The final R is

Andrew: 27:21

recycle. Now I do a lot of this, um, personally and I do well, I have been doing a lot of this personally and I do a lot when I'm working with investors. And so this is where if you've got a property at the moment and it's an existing property, an old property, then you might have some equity in that that you can take out and put into other properties that are tax exempts. So, so again, those social housing, the new builds, um, relocates and I think we've got some numbers around there. So say you've got an existing property with 1 0 5, uh, 1.05 mil, uh, 600 K debt, four 50 worth of equity if you sell that property and pay 50 grand worth of, uh, sales costs, that leaves you with 400,000, which is enough for two deposits on million dollar properties at their new bill. Cause you only need a 20% deposit. So, You put that into two new builds, now you've got two properties going up potentially at 6% if they're in Auckland rather than one property going up at 6%. And from a cash perspective, it'd be highly likely that this would be a far better return on investment on just one of those properties than the two. Both of those properties be together rather than just the one.

Ed: 28:34

Perfect. And so again, those five R's again, review, rent, restructure, renovate, and then recycle as well. This is the way to review your existing properties to see whether they still make sense to Hal. So look, we're coming to the end of our half hour session before we jump into the questions. And this has been a quick run through. First of all, the impact of those tax changes, and they are massive, they're hefty, and it is gonna hurt a lot of investors once they're fully implemented. But we've also talked about the opportunities. What are some things you can do in order to put yourself in a really good cash flow or financial position? You know, we've talked about new builds, we've talked about the exemptions, we've talked about ways to renovate, and we've also talked about the way to review your existing portfolio. Now, just before we jump into those questions, We always get asked at this part of this webinar is what do you guys even do? And so I just wanna spend two minutes taking you through what we actually do at ops and who are these two guys talking at me for the last half an hour? Just so you know, we hear at Ops Partners, we are what we call property partners, and what that essentially means is we work with property investors from around the country in order to do three things because here's the. It's really tough to be a property investor. You've gotta go get the knowledge, you've gotta go figure it all out. And so what we wanna do is help people to get the guts to go ahead and give property investment to go. And we do that in three ways. We help them, first of all, plant their property portfolios. We then go and find new builds. We go and pick properties that fit within their plan, and then we also dig into the details, confirm that that is the right property for them, and they wanna go through due diligence. And the really cool thing, just so you know cuz this is the question in everybody's mind, is that we don't actually charge for that service because it's completely complimentary. And the way that works is when we secure an investor deciding, Yes, I wanna purchase a property, then we get paid a fee from the developer. So if there are any. Developers on this call who wanna find investors for their properties, then please do hit us up. Uh, or if you are interested in coming in and seeing us for a portfolio planning session, that'd be really cool too. I will just say that if you did wanna come in for a portfolio planning kitchen, it's pretty cool. It's where we use a piece of software. Called My Wealth Plan, in order to plan out that property portfolio for those investors. So, uh,

Andrew: 31:05

that BS as is, is a 40% deposit for investing a new build rather than 20%? No. If you buy a new build, Bing, um, so long as the property is brand new, direct from the developer, you only need a 20% deposit from the bank side of things, uh, usually it's 10% if it's off plans, and then the other 10% at completion, 80% line from the bank. That money can come from other assets, so that's quite normal for people to borrow. A hundred percent, but 20% reliance on your house. If you buy an existing property, you need to have a, you need to have a 40% deposit. Uh, question about, So yeah, so the, so the interest for a new build is tax deductible. Uh, the, the, uh, the interest on a old property is, Perfect. Fantastic. Now let's dive into the questions, Andrew, but just before we do that, I do just wanna say, if you want to learn more about property or you, you, you wanna dig into more of what we talked about today, there are a couple of key things you can do. First of. Start listening to the Property Account Podcast because every single day, every single day we release a brand new 15 minute episode to teach you something new about property investment here in New Zealand. A lot of real estate agents, um, message me, say they get a lot of value out of this. Episode 813 went live this morning. Um, also subscribe to our YouTube channel. Every Wednesday we release a new video on there. You can just Google Opus Partners YouTube. It's the first thing that comes up. And then follow us on Instagram. We are at Ops Partners. But look, let's dive into questions for the last 11 minutes and just say, Well, what our thought to know, we're gonna be around here answering those question. So Anna's asked, How long do you have to own a new build to avoid capital gain? To avoid the bright line, Anna, you have to own it for five years. So that's another thing that the, the, um, government have decided to be a bit softer on. Uh, so the bright line of five years still applies if your building is new. If it's an existing property, it's now 10 years. As you probably know, uh, Knight asked the definition of a new build. Uh, so the way that the ba you

Ed: 33:13

answer that. Oh, the definition of the new build is based on when the code of compliance was re released. So if code of compliance was from the, uh, from 27th of March, 2020 or after, that is gonna be considered a new build, uh, as it per, the title is based on the code compliance coming, coming. Uh, now Louise's got a great question, which is, I have a holiday home and decide to rent it out. Does that reset the bright line? No, because Bright Line, Bright Line is based on when you purchased that property. Now, because it is not your main home, that means that you do not have the main home exemption. So if you purchase an existing holiday home right now, that's gonna have a 10 year bright line test. So if you sell it before. Any capital gains, you will start to pay tax on those gains. Uh, if it's your own home, of course you don't pay it because there's an exemption for your own home. Uh, what's interesting in terms of your holiday home is that some people do get to claim, uh, interest deductibility or had in the past, I should say, because it was considered, uh, because if you rented that property out, but under the new rules, it's an existing property and so those interest costs, you won't have that deduct.

Andrew: 34:35

Uh, and Lloyd has also asked what happens if it's a new build. So if it's a new build, then it falls under the new build definition. Uh, the, the interest will still be deductible, uh, and, uh, you know, any rules around how long you have to have rented it out, how many days you have to rent that out for cause that's something that I

Ed: 34:53

haven't come across yet. Yet. Yes, yes. There, uh, I can't remember it off the top of my. But there are set guidelines from the I R D, which you can Google that says how many nights you've got to rent it out for. It's quite a few nights because of,

Andrew: 35:07

Yeah. Cause of course Louis, um, they, they will, they will not be wanting you to rent it out for one night a year and then claim all the interests on it. So, um, yeah, they'll be, they'll be prescribed amounts on that to make sure that's a genuine holiday home that's rented out probably the majority of the time.

Ed: 35:23

Fantastic. Well look what, because we don't have any more questions, we're gonna wrap that up there. I'm gonna hand it back to, uh, our good friend over here, Stacey from, to wrap this up for us.

Stacey: 35:36

Cool. Thank you everyone for joining us and thank you Ed, um, Andrew for coming on. Don't forget, you can do your high level due diligence on lab. We've got our subdivision calculator, our, lab planning report. So go check that out. I think cuz it'll be great in conjunction with what the guys are. Our partners do. Yeah, so thanks everyone, and I will wrap that up there.

Andrew: 36:02

Thanks guys.

Ed: 36:02

Thanks for having us. Bye now.

Stacey: 36:04

And that's a wrap. Thanks to my guests Ed McKnight and Andrew Nicol. This was such an awesome chat about the options investors have and how they can be in control of their own investment journey. Thanks so much for tuning in. Mā te wā.