Investment - Commercial - residential property

[fungus pudding]

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.

[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.

[fungus pudding]

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.'

[JBmurc]

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

[fungus pudding]

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.

[Harvey Specter]

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

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

[fungus pudding]

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.

[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...

[fungus pudding]

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.

[JBmurc]

right many thanks