Investment - Commercial - residential property

[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

[fungus pudding]

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.

[JBmurc]

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

[fungus pudding]

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.

[JBmurc]

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

[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?

[fungus pudding]

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.

[JBmurc]

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 ???

[fungus pudding]

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.

[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.