It’s a stupidly large number. And you can check my maths here.
Let’s be clear. She’ll still have negative cashflow under National while interest rates are high.
But over the long term, her cashflow will be much better. That's down to one thing. Her tax bill will be smaller.
This change is significant. It will draw more investors into the market, even though interest rates are high.
Some investors who’ve sat on their hands will re-enter the market.
Will property prices skyrocket? No.
I think they’ll go up a bit over the next year (maybe 5%). But while there will be more demand, there will also be more supply.
Once the bright line test changes, more properties will come on the market. Some investors will sell and pay down the mortgage since interest rates are high.
But you’ve also got to remember that National wants to slowly bring back interest deductibility. While Act wants it back straight away.
So, some investors will hold off buying until the taxes are fully repealed.
They might think, “my cashflow will be better if I wait until interest deductibility is fully phased in.”
That’s not necessarily true.
Let’s look at the example of our New Plymouth investor again.
If you bought that same property ($500k renting for $540 a week), here’s what the cashflow looks like in the first year –