Hi,
We are new at this. We would like to purchase an investment property as we finally paid off our house.
Our house is worth $900k ( Melbourne) but we have no investment. We bring in $60K p.a after tax. We were told that we should invest in commercial property rather than residential property. What are your views?
We were told that commercial has better yield than residential- how does capital growth compare between commercial and residential properties? For example: How does capital growth compare say between an strata office worth $300k in Hawthorn and say a flat/apartment for same value in Hawthorn?
They say that residential property value doubles every 7 years (in a good location). Does this also apply to commercial investment?
As we have never owned an IP before we are wary of pitfalls and risk- so we aim to borrow $300k to purchase an IP.
How do you minimise risk and yet build wealth?
Your advice and thoughts would be appreciated.
Any recommendations on good books with step by step instructions?
Thanks.Thanks Elka ,
The article answered my question re capital growth and is very informative. Will explore further.
We were told that if you sell your commercial investment property at retirement-it will attract no capital gains tax whereas residential investment property would. Or have I misunderstood?
What is the amount you pay for capital gains tax anyway?
Cheers.
5ijts5ijts wrote:We were told that if you sell your commercial investment property at retirement-it will attract no capital gains tax whereas residential investment property would. Or have I misunderstood?
What is the amount you pay for capital gains tax anyway?I am no expert in this area but think that statement may have been made in relation to property owned within a SMSF (both commercial and residential) or business property you transfer to your SMSF on retirement.
Commercial property attracts CGT just like residential when you sell.
Very basically the difference between what you bought a property for and what you sold it for, after taking into account all expenses associated with both processes, is your capital gain. If you have owned the property longer than 12 months you get a 50% discount and this amount is then added to your other income for the year and taxed normally.
Obviously if you can manage to have lower income that year or have many deductions, you will pay less tax. The other possibiity is to spread the ownership so that the CG will be spread.
The easiest way to do this is via a trust as it gives you full flexibility to both allocate the income each year and the CG if you sell. However, seeing as you will be negetively geared, a normal discretionary trust is not a good idea as all losses will be trapped in the trust and you will loose the tax advantages.
You might like to consider going to a property savvy accountant or financial planner before you buy anything. If you set up the right structure at the begining, both ownership and financial, it can save you heaps down the road. Depending on your age you may want to consider a SMSF too. Having a plan before you start is a great first step.
Hope this helps
ElkaHate to say the statement about selling a commercial property on retirement is incorrect.
You will pay CGT exactly the same as you will if the property was residential.
My opinion would be to start with a small residential IP and then move forward from there.
More importantly is to ensure that you structure the loan correctly.
Try and avoid cross collateralising the loans as this may prohibit from going forward down the track and can cause all sorts of complications. Your lender will try and encourage this as it locks you in to them and makes it very difficult to see alterantive finance down the track.
With no other liabilities you should ensure the loan is flexible to incorporate an offset account to reduce the interest amount charged.
A good mortgage broker should be able to assist you in setting up not only the loan but also advising on the entity in which you may wish to purchase the property in.
Richard Taylor | Australia's leading private lender
Thanks for the comments guys.
Getting cold feet now. Perhaps we'll look at residential property for investment.
Thanks again.
Cheers.Hi 5ijts,
If you want to find out more about commercial p[roperty have a look at http://www.gal.com.au Chris Lang who runs this business is in Melbourne, so is easy to contact but there is plenty of free info on his site as well.
Regards
Alistair
Hi, you're in an enviable position as you can borrow at home loan terms.
Hypothetically, let's say you borrow $300000 and buy IP [doesn't really matter if it's residential or commercial except that you'll have to hunt high & low for a commercial property @ $300000]
At 5% yield, the income = $15000 p.a. Add $4000 outgoings i.e. $11000 -ve gearing of $16000
Tax deductions = $6000 approx Depreciation = $5000
You have a neutral gearing position that allows you pay down your homeloan to receive whatever interest benefit you can get. It's the best example of accelerated saving in a low risk environment.
The homes are out there. I was just told of 4 new 2-storey townhouses at Salisbury N selling at $280000.
I'm not the vendor, I've no interest in the sale. It's just that I'd find it hard to build a 2-storey house for that price.
Incidentally, there's also one in Sydney. It's on one of the threads. I just read it yesterday.
good luck with your research.
KYTo correct or clarify my earlier post about the sale of a Commercial Property on retirement.
If the property is sold as is then CGT is payable.
However you are able subject to a million and 1 restrictions able to Transfer the Asset into your SMSF and it will be Tax free.
You are not however able to Transfer a residential property to a SMSF in the same way.In saying all of this, if this is your end goal then it is probably worth considering taking out the loan in the name of the SMSF from day 1. You can gear to a level of 85% LVR now anyway and may save you a few fees along the way.
Richard Taylor | Australia's leading private lender
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