Hi fellow investors!
I have finally decided to pluck up the courage and buy my first IP, which is a fairly new commercial property on CBD land in QLD. It has sat on the market for at least 18 months and I am currently negotiating with the RE. My first offer was turned back and now 2 days later, the agent is phoning to "touch base" – which I think is a good sign the vendors are keen to sell??
The asking price is $800K – Im willing to pay $700K and Im considering to negotiate a deal whereby I would get a mortgage for $500K and set-up a private loan from the vendors for $200K with interest at rate of inflation only (this was an option as advised by the RE)
Therefore, as my mortgage is for only $500K and the rest is private loan, does this mean that the purchase price of the property becomes $500K and you only pay stamp duty / land tax on this amount??
Just interested if anyone has any advice on this, or any other other creative strategies for financing a deal?
Regards
RussYou pay stamp duty on the value of the contract for sale ie $700k, you wil pay stampduty also on your mortgage of $500k (and possibly another one for $200 k for the private loan).
Thanks for the reply Scott
woodsy1 wrote:Hi fellow investors!I have finally decided to pluck up the courage and buy my first IP, which is a fairly new commercial property on CBD land in QLD. It has sat on the market for at least 18 months and I am currently negotiating with the RE. My first offer was turned back and now 2 days later, the agent is phoning to "touch base" – which I think is a good sign the vendors are keen to sell??
The asking price is $800K – Im willing to pay $700K and Im considering to negotiate a deal whereby I would get a mortgage for $500K and set-up a private loan from the vendors for $200K with interest at rate of inflation only (this was an option as advised by the RE)
Therefore, as my mortgage is for only $500K and the rest is private loan, does this mean that the purchase price of the property becomes $500K and you only pay stamp duty / land tax on this amount??
Just interested if anyone has any advice on this, or any other other creative strategies for financing a deal?
Regards
RussHi,
If it’s been on the market for such a long time, it means there is most likely something wrong with the place- and no it doesn’t mean they are keen to sell- it’s more they want to sell and they dont have any another buyer.
Most common problem with commercial deals
1. Lease terms
2. Strata
3. Council or “building managements” limitations or by laws
4. Zoning
5. Business limitations
6. Building /Business typeDont buy just because the “numbers or rental yeild” adds up…the overall pictures needs to make sense.
Read for a bit more info here- https://www.propertyinvesting.com/forums/getting-technical/finance/4336761
If you purchase price is well under the market the ATO will ask you to pay Stamp duty on the purchase price OR the market price which ever is higher.
You only pay mortgage stamp duty ( different to standard stamp duty) on the $500k part…the $200k private loan is Mortgage stamp duty free.Lastly i would encourage you to get a pre-approval done with the bank; not one of those 30 min quick pre-approval or 24hr turn around one… those are rubbish as they are “conditional pre-approval” …but instead get a unconditional pre-approval subject to valuation- that way you know IF you can borrow or not and what the limitations are.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
You might also consider buying it jointly or wholly inside a smsf – lower tax rate & capital gain rate capped as well.
As it is commercial property, there are no issues with transfer between you & your fund.
Hi Michael……thanks also for the reply.
The property sits on 2 titles of land (1200SqMtrs) in the CBD and is zoned commercial. Built by very reputable builders in 2004 and has good street appeal. Landscaped grounds and car parking for 6 cars in situ. Oposite a fairly new supermarket and 100 metres from a nice beach – partial seaviews from upstairs. Land available for poss future development (more shops etc as town grows)
Basically I think I have a good idea why the property has sat so long. It has a strange layout inside – not really suitable for anyone wanting to buy a residential home and also unsuitable for most business types. I would be looking to operate my own business from within and it suits my requirements nicely, so my company would be leasing from myself, not me leasing to other tenants. Property is currently vacant and caretaker is maintaining grounds etc.
BTW, did you say that when purchasing commercial property as investment, that you only pay stamp duty on any mortgage you take out on the property (i.e. if you were lucky enough to finance 100% costs, you wouldnt pay stamp duty??) – perhaps I misunderstood?
Anyway, thanks for your advice so far, much appreciated
Regards
RussYou pay stamp duty on the contract of sale & the mortgages unless there are some exceptions in Qld.
There is 2 type of stamp duty- Purchase Stamp duty + Mortgage stamp duty ( yes it’s stupid to have similar names) ..the latter one is only payable to Commercial properties ( Residential property no longer had to pay this part as of 2007 when it was abolished) – a side note it will be fully abolished even for commercial property as of 2012 July.
SO Yes you pay Purchase stamp duty on the full sale contact amount + you pay Mortgage stamp duty on the “mortgage part”- so yes if you had 100% Cash, you only pay the Purchase stamp duty.
Cost?- around $26k for Purchase Stamp duty and $6k for Mortgage stamp duty
If the place is currently vacant- it could get a bit nasty in term of financing.
ALSO be aware EVEN though you want $500k from the bank, the bank will still consider the 200k vendor finance in their calculation and serviceability.Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
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