Property investor to Developer

[boxer]

Currently have a property in Purakanui which is just out of Dunedin in lovely settlement. Has old 2 bedroom bach, no bathroom or power ever been connected. I am servicing the mortgage but would like to rent out property. Land price was 90k for 1300sq m. If I build a small house spending around 150k (incl septic & pwr etc) would I go into a different tax bracket because I've developed the property?
Also just bought a property on West coast at Te Waitere (south of Kawhia) beautiful spot. Has 2 b/d bach and 3 b/d house. My retirement/long term investiment. Can't get tenants though because of distance from public facilities. Suggestions?

[CJ]

YOu would be taxed on income less expenditure, it that puts you into the next bracket then yes, if not then no. The developer thing is only relevant if you sell it. One property will not make you a developer, but if you build with intention to sell, they you will (f caught) get taxed on any profits which may put you into the next tax bracket.

If you cant get tenants, I assume you are looking for capital gains??? My suggestion is enjoy it as it will be a drain on your pocket.

[ragwort]

Hi Boxer

I'm not too far away from your Te Waitere property. Have been looking myself at this area. CJ is right in that it's only an issue when/if you sell. If this was going to be the case, you would look at setting up a laqc company and selling to that company the property you intend to develop and sell. This way any realised profits will be taxable to the company at a max of 33% as opposed to the personal rate of 39% (assume you are in this tax bracket) You would probably need to keep your Te Waitete property separate from this company so as not to tangle it up with the other that will be developed. There are many variables and it depends largely on your personal circumstances such as debt levels etc.

[Winston001]

Purakanui is a lovely spot but I'd be suprised if you'd yield a decent rent. Should be a good long term investment.

Apart from that my immediate reaction to your post was - septic disposal problems. 1300m2 might not be large enough in 2006 for a septic tank and if you build, the DCC will want modern sewage disposal. It can be done but requires pumps and engineering.

Check "hypothetically" with the Council.