Property: Land vs Improvements

[duncan macgregor]

LIMEGREEN, FACTS . I bought a small block of land 40 min north of auckland exactly 11 yrs ago almost to the date. Paid $75000 cash for it and todays new valuation comes in land value $275000 plus improvements. My next door neighbour bought his for $68000 and leases it to the farmer in exchange for him paying the rates at the same time. MACDUNK

[skinny]

Pretty good MACDUNK, ex property rates I calculate the return to be 12.5% p.a. compounding and you don't have any capital gains tax to worry about either. I have to ask though, given what you know about investing in share markets today would you do it again?
I mean I think I saw you saying you tend to around 20% p.a. in the sharemarket? If so why not sell the land now and invest where you get a better return?

[duncan macgregor]

SKINNY, I cant do that skinny i built a house on my few acres. The interesting thing is the land value went up more than the improvement value on the house which is another interesting aspect.
macdunk

[foodee]

Macdunk
Tone of your post and not wanting to sell suggests you might be seen as a 'developer' in the eyes of IRD, in which case they got you by the short and curly and it is virtually impossible to declassify yourself. The tax implication would limit or make property investments less attractive in that case.
Hope I am wrong.
Merry Christmas

cheers

[pearljam]

Foodee,

Why would Macdunk be classified as a developer in this instance. From what I know a one off instance would not place him under this classification.

And if he is he can set up seperate trusts to differentiate between developing and normal rental property investment

[foodee]

Pearljam
He is a self-declared retired builder thus the above observation.
You're right different entities can be set up for different purposes but it does get more complicated.

cheers

[duncan macgregor]

PEARLJAM, Nothing complicated about setting up a trust, buying a block of land, stick a house on it and registering it gst. I also registered the property as a lemon orchard, and pine forest. The gst money paid me back for all the plantings, and allows me to claim back gst on all expences, rates machines etc. The crunch comes at sell time after macdunk kicks the bucket, but meantimes rules get made to be exploited. The more rules they make the better i like it. MACDUNK