Investment - Commercial - residential property

Looking to take another investment in property after downsizing our personal Morg... to zero (thanks to buying a cheaper family home)

and with interest rates at record lows and looking like staying there for much longer i would like to add in some passive cash-flows

talking with the banks we should be able to borrow upwards of 700k

come across a few commercial properties one mixed use(retail/food/apartment)... another industry (has placemakers on lease)

I've also been keeping a good eye on the higher yield residential market down south ...

I personal don't see the point investing in property unless the yield is high 8%+ ...so most likely I'm not looking at great Capital Growth areas..in Central Otago

I am swaying towards commercial ....which even if I do go down the residential road will most likely have to be a block of flats so most likely classed as commercial ...

the Neg I see towards Commercial....must pay GST on top of company TAX rate ....less Capital upside ...more risk of nil income on lost tenant or bankrupt business etc

But then thinking of trying to get the same income to Capital in Residential houses ....I'll be buying many old houses dealing with many more tenants in the likes of Invercargill -Dunedin ...etc


in no hurry ....but do like the idea of $300-$400pw in passive income

Quote:

---

Originally Posted by JBmurc

Looking to take another investment in property after downsizing our personal Morg... to zero (thanks to buying a cheaper family home)

and with interest rates at record lows and looking like staying there for much longer i would like to add in some passive cash-flows

talking with the banks we should be able to borrow upwards of 700k

come across a few commercial properties one mixed use(retail/food/apartment)... another industry (has placemakers on lease)

I've also been keeping a good eye on the higher yield residential market down south ...

I personal don't see the point investing in property unless the yield is high 8%+ ...so most likely I'm not looking at great Capital Growth areas..in Central Otago

I am swaying towards commercial ....which even if I do go down the residential road will most likely have to be a block of flats so most likely classed as commercial ...

the Neg I see towards Commercial....must pay GST on top of company TAX rate ....less Capital upside ...more risk of nil income on lost tenant or bankrupt business etc

But then thinking of trying to get the same income to Capital in Residential houses ....I'll be buying many old houses dealing with many more tenants in the likes of Invercargill -Dunedin ...etc


in no hurry ....but do like the idea of $300-$400pw in passive income

---

Take a hard look at the listed property trusts. In my opinion as a property investor of many years in residential, commercial- industrial these things are hard to beat. Don't overlook the PIE status.

Quote:

---

Originally Posted by fungus pudding

Take a hard look at the listed property trusts. In my opinion as a property investor of many years in residential, commercial- industrial these things are hard to beat. Don't overlook the PIE status.

---

Yes but i don't think the bank will loan me anywhere the amount of funds to buy LPT ...I've already got 150k loaned into the ASX

ANZ bank only values their own shares @ 5%-10% I'd say LPT be much the same ...stupid I know but thats the banks they just love bricks n mortar Vs paper assets etc

I'm basically looking for extra income from loaned funds in the property market ...so very low amount of my own free Capital ....but instead use homes Equity

Quote:

---

Originally Posted by JBmurc

Yes but i don't think the bank will loan me anywhere the amount of funds to buy LPT ...I've already got 150k loaned into the ASX

ANZ bank only values their own shares @ 5%-10% LVR I'd say LPT be much the same ...stupid I know but thats the banks they just love bricks n mortar Vs paper assets etc

---

I understand that. LPTs have borrowed anyway so there's some gearing. I sold off a commercial bldg. and stuck a fair chunk into LPTs dribbled in over a few years. The benefits to someone who doesn't want to borrow anymore and is just looking for somewhere to dump the excess, are immense. After cutting my teeth in the 60s with residential including student houses (I'm in Dunedin) I got out of that and turned to commercial. Much much easier, but certainly can have its ups and downs, with bankruptcies, vacancies etc. I've had'em all! Your tax comments confuse me. Why company tax? And GST is paid in addition to rent by tenant - they don't care as it's an input claim for them, and it's an advantage to you because you can keep your loan a tiny bit lower while you accumulate the IRDs money (or do what I do and run an online bonus bond account to holdthe funds till due to pay out - never done any good, but it's not my money). One bit of advice Forget about being an absentee residential landlord - particularly with students. Believe me - I know!!
Anyway, good luck.

Yes understood on the TAX ....need to talk with the accountant round my company structure that trades in the sharemarket (non GST) if i can use it to buy a commercial property as well (he did state it would be fine for residential) ...as it has tax credits that would save a good few dollars in TAX

Have owned a few residential rentals in the past ...can be a major hassle at times.... as to why I'm thinking about Commercial where it seems the tenants take care of pretty much everything outside keeping the building weathertight

Sounds like my share trading company can also buy Commercial property ....which is brilliant

Now one property I'm very keen on the owner isn't sure round GST on sale etc ...he stated he never claimed any when he purchased 20yrs+ ago so I wouldn't think he wouldn't have to pay any on sale zero-rated ?
Could I then claim GST on purchase?

Quote:

---

Originally Posted by JBmurc

Sounds like my share trading company can also buy Commercial property ....which is brilliant

Now one property I'm very keen on the owner isn't sure round GST on sale etc ...he stated he never claimed any when he purchased 20yrs+ ago so I wouldn't think he wouldn't have to pay any on sale zero-rated ?
Could I then claim GST on purchase?

---

If he is GST registered he probably bought it zero rated, which is probably why he didn't claim it. Or is the rent under threshold where registration is compulsory? Has he been paying GST on rent? You need to check this with your accountant.

fp, i find your thoughts on LPTs very interesting and will be selling a rental soon and need to put the money somewhere. They are fully priced and when interest rates rise will LPTs drop in value? Also as you mentioned they already have gearing so they are not really suitable to use borrowed money to gear further. Would you recommend to buy a parcel in each of the LPTs.

Quote:

---

Originally Posted by voltage

fp, i find your thoughts on LPTs very interesting and will be selling a rental soon and need to put the money somewhere. They are fully priced and when interest rates rise will LPTs drop in value? Also as you mentioned they already have gearing so they are not really suitable to use borrowed money to gear further. Would you recommend to buy a parcel in each of the LPTs.

---

Yes, LPTs could drop as interest rates rise, they will rise as rents are reviewed. They could rise further as bank depositors look for income sources. They are subject to the pitfalls of commercial property and the ups and downs of the share market, which is also subject to interest rate changes. A lot of these risks apply also to the property you are considering selling and the real estate market and other investments in general. If you do consider buying some, why not a few in each of five or six of them indeed. If you get a spread of PFI, STR, KIP, ARG, PCT and GMT you will have a good spread of office, retail, industrial, light industrial (service industries and warehousing) and a small number of development projects. There are a few others but those ones seem to be well managed with prime properties. You might also consider rym, sum or vhp who are in the retirement sector. As far as borrowing to buy I can't see any real problem as long as you are getting a return over borrowing costs and are happy that interest rates will stay low for some time. You wouldn't want your mortgage costing more as your investment weakened. I did what you are thinking of after selling a building. I plonked a large sum in and just consider it as another building. Comparing the risks - I think a spread of lpts is far safer than owning a commercial property because of the spread of buildings. And far less hassle and a higher return than residential. I think though it's all about what you are trying to achieve. In my case I had enough income without the LPTs - been retired for years - but like you needed a home for some money. Real estate is all I know, but couldn't be bothered with hands on any more. I chose LPTs (after a couple of bad experiences with proportional title schemes). I couldn't be happier. Steady income, nothing to think about, not even any need to keep records, reasonable capital growth and instantly liquidated. As far as being fully priced - they are in terms of the NTA as they all sell above their NTAs. In other words if the buildings were sold and cash distributed you would lose capital, but perhaps it just shows that buyers for shares in the trust are far more plentiful than buyers for multi-million dollar buildings. In other words they may always hold a premium over the NTA, they have for the last few years since I started watching them. I hope that is a bit of a help - if anything else, sing out. Good luck.

Quote:

---

Originally Posted by fungus pudding

If he is GST registered he probably bought it zero rated, which is probably why he didn't claim it. Or is the rent under threshold where registration is compulsory? Has he been paying GST on rent? You need to check this with your accountant.

---

yeah the income from the mixed commercial property is under 60k p.a ...still it looks like it will be closer to 70-80k with a garage turning into another tenantable space.... so will have to be registered .....so would I be right if the current owner isn't GST reg...I could BUY and then register for GST on the likely higher income I could then claim 15% of the total value paid for the property ???

Quote:

---

Originally Posted by JBmurc

yeah the income from the mixed commercial property is under 60k p.a ...still it looks like it will be closer to 70-80k with a garage turning into another tenantable space.... so will have to be registered .....so would I be right if the current owner isn't GST reg...that if it brought is then registered for GST on the likely higher income I could then claim 15% of the total value paid for the property ???

---

If you have those details correct, then yes. But you would not be buying it zero rated. (That means GST is included but at zero percent and it's simply a mechanism to avoid one party paying and the other claiming it which is normal practise, but exceptions exist with buildings and going concerns to avoid this with large sums of money bouncing around unnecessarily) You would just buy it inclusive of GST as you are going to claim that GST.
That is how it was last time I was involved with a similar transaction and I'm not aware of any changes, although I'm no longer daily hands on with such things, but ring the IRD, GST dept. - you do not need to identify yourself - and flick it past them.

This will tell you more:
http://www.prlaw.co.nz/article/83/11...-Transactions/

'The Vendor can’t say the Purchase price is “Plus GST (if any)” because he is not registered. So the Purchase price will be “Inclusive of GST (if any)”. And the Purchaser will be able to claim the GST in his next GST return.'

P.S Be aware that if you register and claim then you will have to pay GST on rent received. You may be able to increase rentals by the GST which tenants can claim back if registered.

There is now complusory zero rating on all land transactions (too many dodgy developers) so the sale of the property will be zero rated anyway - you wont be charged GST and you wont be able to claim it back.

if your rents are above $60k, then you need to register.

If you do registered your share trading company, the GST position might get a bit confusing as you will have mixed supply (ie. rental is GST supply but share trading is an exempt supply) so your GST claims for expenses shouldn't be for the whole amount. Not exactly sure how it works but sounds complicated.

Quote:

---

Originally Posted by Harvey Specter

There is now complusory zero rating on all land transactions (too many dodgy developers) so the sale of the property will be zero rated anyway - you wont be charged GST and you wont be able to claim it back.

if your rents are above $60k, then you need to register.

If you do registered your share trading company, the GST position might get a bit confusing as you will have mixed supply (ie. rental is GST supply but share trading is an exempt supply) so your GST claims for expenses shouldn't be for the whole amount. Not exactly sure how it works but sounds complicated.

---

I'm not up to date on this, but I though zero rating became compulsory if the transactions were between two registered parties.


Scroll to What if the Vendor is not GST-registered but the Purchaser is?

http://www.prlaw.co.nz/article/83/11...-Transactions/

'The Vendor can’t say the Purchase price is “Plus GST (if any)” because he is not registered. So the Purchase price will be “Inclusive of GST (if any)”. And the Purchaser will be able to claim the GST in his next GST return.'

Quote:

---

Originally Posted by Harvey Specter

There is now complusory zero rating on all land transactions (too many dodgy developers) so the sale of the property will be zero rated anyway - you wont be charged GST and you wont be able to claim it back.

if your rents are above $60k, then you need to register.

If you do registered your share trading company, the GST position might get a bit confusing as you will have mixed supply (ie. rental is GST supply but share trading is an exempt supply) so your GST claims for expenses shouldn't be for the whole amount. Not exactly sure how it works but sounds complicated.

---

Yes I agree round the mix with the Share trading company does look complicated...personal I think it would average under 60k if you didn't
load up the flat ....so would work best ...non GST paying

Quote:

---

Originally Posted by JBmurc

Yes I agree round the mix with the Share trading company does look complicated...personal I think it would average under 60k if you didn't
load up the flat ....so would work best ...non GST paying

---

Except registering would give you back approx. 13% of the purchase price and leaves you free to increase the rent. And I presume you could GST register in your own name so to avoid confusion with company. Not sure what you mean by load up the flat.

Quote:

---

Originally Posted by fungus pudding

Except registering would give you back approx. 13% of the purchase price .

---

except compulsory zero rating on property purchases. Been in a few years.

Quote:

---

Originally Posted by Harvey Specter

except compulsory zero rating on property purchases. Been in a few years.

---

The changes a few years ago (2011)make it compulsory to zero rate between 2 registered parties. A non registered vendor cannot zero rate. He or she sells inclusive of gst and the purchaser can claim it back. I posted links after your previous post. Plenty of info online about the changes.

Yes for sure guess you have to weigh up the different options.... GST reg will mean a lot more accountant costs , also be paying 15% more tax on my nett profit p.a ? then when I go to sell I'd be paying 15% extra tax ?

Also if I just purchased for rental income (sub 60k) wouldn't I also not have to pay any Capital Gains tax say in 10-15yrs time ..where if I buy reg GST ...I'd be paying TAX+GST ....

will certainly be going over with the accountant before any offers

p.s ....loading the flat up ...the current owner has like 10 tenants in the small 4bed unit...

Quote:

---

Originally Posted by JBmurc

Yes for sure guess you have to weigh up the different options.... GST reg will mean a lot more accountant costs , also be paying 15% more tax on my nett profit p.a ? then when I go to sell I'd be paying 15% extra tax ?

Also if I just purchased for rental income (sub 60k) wouldn't I also not have to pay any Capital Gains tax say in 10-15yrs time ..where if I buy reg GST ...I'd be paying TAX+GST ....

will certainly be going over with the accountant before any offers

p.s ....loading the flat up ...the current owner has like 10 tenants in the small 4bed unit...

---

Yes. You need to talk to your accountant. GST does not change the tax on your net profit, and won't change the net profit either if you can add GST to the rent, which the tenants claim back anyway so is probably no increase to them. Depends on the current situation and their GST status. From what I understand from your details there could well be an advantage in registering. 13% refund from first GST return for one.
We do not have a capital gains tax, but sometimes income tax is payable on capital gained. Whether you are GST registered or not is irrelevant to any tax on sale - it depends on intent at time of purchase. The 10 or 15 years doesn't come into it. If you buy and intend to sell in 100 years your capital gained is taxable, but if you haven't blatantly traded and sell because of a change in circumstances you almost certainly will not be taxed.

right many thanks

Stupid question ....and being lazy

Roughy how much to rebuild a small commercial building in Wellington (per sq metre). Basic 200sqm warehouse concrete/block iron roof two story

Just checking if insurance adequate

Thanks

Quote:

---

Originally Posted by winner69

Stupid question ....and being lazy

Roughy how much to rebuild a small commercial building in Wellington (per sq metre). Basic 200sqm warehouse concrete/block iron roof two story

Just checking if insurance adequate

Thanks

---

How long is a string of sausages? Facilities will make a big difference. I'm not up to date, certainly not with Wellington. There is a huge variation in concrete prices in the different centres. That's not much help but any builder will give you a rough enough figure, or if you have a pet valuer they have a chart of per meter rates which he might send you for nix. I'd take a stab but for the two storey factor. Surely it's not all concrete block? The other thing to consider is whether you would rebuild in block. These days tilt slab construction is far superior.

P.S. Never apologise for being lazy or any other attribute. :D

Quote:

---

Originally Posted by fungus pudding

How long is a string of sausages? Facilities will make a big difference. I'm not up to date, certainly not with Wellington. There is a huge variation in concrete prices in the different centres. That's not much help but any builder will give you a rough enough figure, or if you have a pet valuer they have a chart of per meter rates which he might send you for nix. I'd take a stab but for the two storey factor. Surely it's not all concrete block? The other thing to consider is whether you would rebuild in block. These days tilt slab construction is far superior.

P.S. Never apologise for being lazy or any other attribute. :D

---

Thanks

I'll get the builder to 'assess'

Come to think about it it is tilt slab with steel beams etc .....and pretty basic interior

Well after making muti offers for the PGG commercial properties I ended up getting outbid .....pretty much every decent property I have looked at in recent time has been brought by a Auckland investor ...so have given up on the yield investment at this stage ...

And ended up buying two side by side lake view sections here in central otago 50k under most likely R.V(using neighboring sections) when titles come due early 2017 ....
(10% deposit now) just down the road from our new home ...looking at many options (spec build, sell after title, build new home)

disc- any ST members wanting a nice freehold holiday - retirement home late 2017 ...drop me a PM

Quote:

---

Originally Posted by JBmurc

Well after making muti offers for the PGG commercial properties I ended up getting outbid .....pretty much every decent property I have looked at in recent time has been brought by a Auckland investor ...so have given up on the yield investment at this stage ...

And ended up buying two side by side lake view sections here in central otago 50k under most likely R.V(using neighboring sections) when titles come due early 2017 ....
(10% deposit now) just down the road from our new home ...looking at many options (spec build, sell after title, build new home)

disc- any ST members wanting a nice freehold holiday - retirement home late 2017 ...drop me a PM

---

Well done and good luck with the purchase. Pretty hard to go wrong with Central Otago's future. I have been trying to find the post where you quoted price and yield of Wrightson's building in Gore. Be grateful if you could quote the figures again. I'm trying to find yields that Gore properties have sold at. Or even if you know price/income of anything on market at present.

the Gore PGG sold at think it was a 7-8% net yield .. in the end I was trying to go for the Tapanui 10-11% net yield ...but not to be ..

yes Central Otago(southern lakes+central) is booming during the peak season our population would surpass Dunedin's (120k) many thousands
of sections coming on stream in the near term ...Hanley farm the latest ...doesn't look like the growth here is slowing down

Quote:

---

Originally Posted by JBmurc

the Gore PGG sold at think it was a 7-8% net yield .. in the end I was trying to go for the Tapanui 10-11% net yield ...but not to be ..

yes Central Otago(southern lakes+central) is booming during the peak season our population would surpass Dunedin's (120k) many thousands
of sections coming on stream in the near term ...Hanley farm the latest ...doesn't look like the growth here is slowing down

---

Thanks. Found your post which says Gore sold at 1.3 mill on rent of 123,000 (according to listing). That looks like 9.5%. I found listing still on trademe.

Now looking to buy PGG Wrightson Wyndham, Southland ... 10.55% net yeild.. 10yr fixed term lease (25yr total)

over 484sqm of buildings 1960 to 2010 min NBS-67%.... on half arce of main street land ....

Hi JB, Interested in you comments on central otago property. I'm located in BOP so not too familiar with the state of the market down there. Is the market quieter lately or still pumping ?

Quote:

---

Originally Posted by ynot

Hi JB, Interested in you comments on central otago property. I'm located in BOP so not too familiar with the state of the market down there. Is the market quieter lately or still pumping ?

---

Well there is still many new houses getting built and sections selling all at much higher levels ... here in Cromwell region (where we moved from Qutown) just under 2yrs ago we secured a property here 280sqm 208 brick for 550k ....a few weeks ago westpac valued at a 45% higher value.. (as to why I can now BUY the above post PGG building at 4.35% 2yr fixed rates using the free equity)

Pretty much next to nil rental properties in Central Otago usually 1-3 advertised for whole area ...the lakes district Qutown- Wanaka $700pw+ will get you decent enough family rental ... so very tight rental market ...

I just can't see the growth in values continuing even though I see developers are trying http://hpgroup.kiwi/pricing/

when we purchased early 2016 you could have secured many section in the cromwell township for 120-150k 600-700sqm

Alexandra prices have also continued higher but you can still buy at decent levels ...and come across this lifestyle sections at the right price 260k etc better buying in the region next door to the local GOLF Club ...https://www.trademe.co.nz/property/r...2Z9cJ8aU%2fowQ


Queenstown / Wanaka pure madness pricing still but have much more listings at crazy high prices ... I'd hate to know the average debt loads many of the locals are under>>>

....I really don't see a major correction more so flatline and any force sales being soaked up my sideline buyers ...no other place in the country I'd rather live(and as do so many others as to demand Vs supply)