Forum Replies Created
Adding a minor dwelling to a property is a great way of adding value and improving cashflows.
Converting garages to granny flats or sleepouts, sub dividing back sections, dividing a house to become 2 residences are all ways of adding value. You already own the land so you then only have to do the figures on the building costs. Just ensure everything is legal.
Cheers
JeffThe question you have to ask is “can the existing system be repaired?” If it can and you replace it it is a capital expense which must be depreciated. If it can’t be repaired and you “up grade” the system it is also a capital expense.
If it can’t be repaired and you replace it with the same you may get it through as repairs and maintenance but if you don’t claim it you won’t get it.
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JeffHi Wayne,
The right of renewal option allows the tenant to renew under the same terms and conditions as that set out in the original lease provided they have complied with those terms ie paid the rent, looked after the property etc etc.The lease normally has a rent review clause in it which will determine how the rent is reviewed eg in line with CPI of registered valuation
This clause will also refer to specific dates and not necessarily on review date.In many cases the lease maybe renegotiated for various reasons. The tenant may require some upgrades or extensions or want to do something else to the property which is not covered in the original lease. If this happens you can renegotiate relevant clauses or if both parties agree – start again.
Check the lease for any “holding over” clause or similar. This basically means that if the tenant does not formally renew for the next term within the specified time frame, then they go on a month to month lease under the same terms and conditions. This is not always a bad thing for the landlord, I once had a struggling restaurant as a tenant who could not renew so we left him on a month to month to allow him time to sell – which he did. Everyone won.
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JeffChattels that appreciate could be antique furniture, art or sometimes you just get a good bargain and end up selling the chattel at higher than cost. These are anomalies though. The common depreciable asset that appreciates is the building itself.
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JeffPerhaps they should tinker with the oil prices instead of interest rates. That way I could go back to diesel heating instead of chopping firewood.
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JeffTip: Tomakin, a coastal town on the south coast of NSW is about to boomWhat have you got for sale in Tomakin Yorker?
Jeff
Empty banks make good pubs and cafes
Make sure the sale price is not based on an over inflated rent. It won’t leave any room for growth
Cheers
JeffHi Wayne
5+5+5 lease means an initial term of 5 years with 2 further rights of renewal for 5 years at the tenants discretion.
Cheers
JeffIn NZ residential property is exempt from GST however, rates, insurance, repairs and maintenance will include GST and cannot be claimed back.
Commercial property is “Zero rated” for GST if it is a going concern. A certain percentage of the property must be rented in order to be a going concern.
If you are a commercial property investor I suggest you register for GST. If you are not registered you cannot charge GST on the rent and you cannot claim the GST back on the outgoings.
If you buy a vacant building this will incur GST however, if you are registered for GST you can then claim it back.
There’s more info on http://www.ird.govt.nz
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JeffI do agree Yack, soft landing not hard landing.
The problem with NZ is one of the highest rates in the Western world (NZ 6.0%; Oz 5.25%; US 1.25%)and inflation largely affected by oil prices.
With increased interest rates comes increased NZ dollar. A high dollar makes exports less competitive. Lower exports hinders growth. Low growth stalls the economy then what happens?
I guess interest rates have to come down to kickstart the economy again.
NZ rates have increased by 1.0% in less than a year. Household debt is already at all time highs and is now under more pressure.
As I said sometime something has to give
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JeffThe Diminishing Value method will give you more money in the hand in the first few years. How wisely you use this money determines the real advantage.
I use DV on all chattels. If you try to maintain the standard of your property throughout you will probably end up replacing certain chattels before the end of their useful life.
The cost method is only more advantageous if the cahttels tend to appreciate rather than depreciate. When this happens you may have “depreciation recovered” up to the extent of depreciation already claimed.This is treated like taxable income.
My opinion, use the DV method and use the additional savings to acquire more IP’s or reduce loans.
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JeffThis may sound stupid Diane but have you tried asking?
Firstly you need to know if the vendor is prepared to leave some money in the property, then, how much he/she is prepared to leave in, for what time period, what security would be required if any, and whether or not they want some interest on the monies left in.
If you can agree on the above then leave the rest up to your solicitor
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JeffHi G7,
I take it you’ve found a house for sale and want to move ot onto another block.First you will need to ensure it can be moved onto the block of land you have. Contact the Council as a starting point. Ask about zoning, permitting and other requirements.
If you contact a house moving company they will generally give you a price to move the house within so many kilometres and onto a base (eg stumps). The price will be more if the house has to be transported in more than one portion.
On top of that you will need to connect the appropriate facilities such as electricity, water, sewage, phone, stormwater etc.You then have other add ons like landscaping, driveways, fencing, garaging?? and maybe even some home renovation.
After doing all this you have to know the figures will stack up. It can be very lucrative and it can also be a headache – good luck.
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JeffStorage units are a growing market. There are various types for example: domestic storage for you average renter or people between homes etc; commercial/industrial storage; and vehicle storage.
Location is important in relation to your target market which is something you’ll have to assess. Easy access and security are also factors. Remember there is always a vacany rate on these units so don’t do your figures on 100% occupancy
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JeffI remember 1989 – 1995 when property prices were not moving much at all. This was also a period when I was buying heavily.
That period saw a drastic decrease in interest rates so cashflows improved while property prices had a delayed reaction.
The next 5 years will be different to that period but there is still a bargain in every market.
I will always be involved in property but as far as diversification watch what happens to oil over the next few years and what effect it has on various businesses – some will benefit, some will falter.
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JeffSustaining a competitive position in the global marketplace – and retaining successful companies, is reliant upon clearer financial and economic incentives – which the New Zealand government has still not addressed.Spot on Michael, but one thing about Helen Clark the Prime Minister, she will never be late for a Rugby Test – especially when it’s the Bledisloe Cup.
I personally would prefer her to be at the Rugby than messing around with economic policy
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JeffYack
I would love to see a loan product where the upside is fixed ie. cannot go above that figure but you get advantages of decreases in rates. eg. fixed rate = 7.29% but if rates go down your rates too goes down.There are products called “capped loans” which is what you are referring to. They are available in NZ, I am surprised you have not seen them in Oz.
If you fix for 15 years would that not restrict your ability to extract equity from that property to purchase others? Of course you can do it, but you would lose some of the flexibility you have with shorter term loans.
Think twice, act once
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JeffLook at it from the tenants point of view, if you raise the rent – will the tenant be able to find somewhere as good and as cheap? If not the chances are he probably won’t move out and accept the rent increase.
The rent is probably low because the vendor has been a little soft, may even have become too friendly with the tenant. As Minimogul suggested, use a PM.
Sometimes a lower rent for loyal tenants works out better than a few weeks vacancy – it’s simple enough to work out.
One other suggestion would be to look at wrapping the property. He’s been there long enough perhaps he should own the property.
Cheers
JeffGreat Pig
Another did his PhD but then went on to become perhaps NZ’s most well-known property guru. I took the middle line and ended up working within my field of study (electrical engineering).Is this man the reknowned “Dolf de Roos” who has never had to work for wages in his life?
Regarding the equity question I treat each acquisition differently. I build in a risk factor on some properties to take account for R&M, defaulting tenancies and renovation etc – for these purchases I tend to put in more equity. Other properties I may see immediate cashflow increases by way of rent reviews, re-tenanting, or some form of adding value – in these cases I will put in as little equity as I can.
Horses for courses
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JeffYou would probably have a number of options regarding building. What you need to do is determine the cost of each option and the return you will get from each of those options whether it be by renting or selling.
eg 1 dwelling, 2 dwellings, units, commercial ??
It depends where it is and the particular zoning as to what you can do.
Cheers
Jeff
