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  1. #1
    FEAR n GREED JBmurc's Avatar
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    Default 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
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    Quote Originally Posted by JBmurc View Post
    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.

  3. #3
    FEAR n GREED JBmurc's Avatar
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    Quote Originally Posted by fungus pudding View Post
    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
    Last edited by JBmurc; 26-03-2016 at 01:38 PM.
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    Quote Originally Posted by JBmurc View Post
    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.
    Last edited by fungus pudding; 26-03-2016 at 01:52 PM.

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    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
    Last edited by JBmurc; 27-03-2016 at 12:59 PM.
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    FEAR n GREED JBmurc's Avatar
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    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?
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    Quote Originally Posted by JBmurc View Post
    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.

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    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.

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    Quote Originally Posted by voltage View Post
    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.

  10. #10
    FEAR n GREED JBmurc's Avatar
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    Quote Originally Posted by fungus pudding View Post
    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 ???
    Last edited by JBmurc; 30-03-2016 at 01:17 PM.
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    Quote Originally Posted by JBmurc View Post
    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.
    Last edited by fungus pudding; 30-03-2016 at 02:28 PM.

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    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.

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    Quote Originally Posted by Harvey Specter View Post
    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.'
    Last edited by fungus pudding; 30-03-2016 at 02:05 PM.

  14. #14
    FEAR n GREED JBmurc's Avatar
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    Quote Originally Posted by Harvey Specter View Post
    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
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    Quote Originally Posted by JBmurc View Post
    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.

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