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Consider the other side of the coin, if you pay cash & don't include the expense in your cost base, then you will be up for the cgt on the value of the work, it will come out of your pocket at some stage. (Just like the owner-builder who does a heap of work on their own house, which they have not lived in. When it comes to the sale, there is all of this unpaid work which adds to the capital value but there is no expense to reduce your profit).
2 trains of thought – if you are not pushed for a sale ie not currently looking at selling (and not fussed either way if you do or don't sell), then a premium of 10% ie $50k may be worthwhile as a trade off for not selling to anyone for the option period. The risk is that they don't exercise the option (no great loss if you don't need to sell & an extra $5k in the pocket).
On the other hand, if you want certainty, the quick sale (on the standard settlement time – 42 days) would suit. This is a 'no-risk' sale, provided the buyers sign a S66W (no cooling off period).
You will need to satisfy yourself of the value of your block – you will need to ask a few agents how much development sites for x number of units sell for in the area (ie cost per site). In your case you will need to determine, is $80-90k/site a low-ball or realistic figure?
You will also need to confirm with council the number of units that you can get on your block (or on two blocks). If necessary work backwards – ie selling price of units less 1/11 for gst. Then assume profit/overheads margin of 20-25% (so divide by 1.25 or 1.3). Subtract the construction cost, say $180-$200k per unit. What is left is the cost of the site. So, say a 3 bed unit sells for $440k, you get six on the site. Gross realisation is $2.64m, incl $240k gst. Take out profit, 25% or $480,000. Construction cost, 6 x $200,000 or $1.2 m. This results in a land value of $720k or $120k per site. If you know how much new units sell for in the area, adjust the price accordingly.
Gut feel, there is alot more in this deal, get the purchaser up around the $105-110k/site on a quick sale (or $120k + for the option) and run.
Thanks for that, see your mail.
SNM
Investment in commercial property is not everyone's cup of tea. Firstly, vacancy periods are generally much longer than with residential property (ie can be 12-18 months) as it varies with the economy rather than other factors, so you must be able to cope with repayments over these periods. Banks will only lend 60-70% unlike residential (but they probably will lend more if you use your house as security – many arguments for/against). Capital gains are generally lower than residential property.
Having said that, the returns are generally much greater (which reflects the greater risk that you take with this investment class).
He might be a buyers agent but I dare say this time he is working for the vendor.
You should be able to progress the issue with the Strata Manager who deals directly with the Executive of the Body Corporate. If nothing else, they are engaged/paid by the BC (which is all of the owners) and should be able to provide the answers that you need.
A couple of issues to be aware of:
how do you share the cost of power as each will use different amounts, you may have to have separate metering? (Water split isn't as big a problem as staff will probably only be 1 per office). A/C split based on floor area.
Are there common areas/services eg: reception/ist
Will each office office be lockable/secure?Whether to use an agent? I'd probably suggest not to worry (they sure won't), finding your own tenant may be easier eg use of local noticeboards in shopping centre/local paper etc.
If it is that big an issue, once you have achieved a da take the condition to the land and environment court (it can't be that big an issue, for you to design around or for council to move to some lesser requirement eg S94 contribution).
- Formulate your goals & timeframe
- Determine your risk profile (do you want resi/industrial/retail/offices/service stations/marinas etc), where, how many and what mix.
- The profile will determine how much you can borrow. (You can borrow a higher % for resi compared to commercial property however the return may not be as good).
- Are you investing for capital growth, cashflow or both?
- Determine the legal structure of ownership (trust, smsf, company, personal etc) and the implications of each structure – you will need to discuss this with your legal/accounting bods.
Eg: if you were to invest in Residential Property, $1M (would allow you to borrow an additional $4M approx using 20% deposit), ignoring stamp duty etc. That is a sizeable portfolio even when the median house price in Sydney is $600k. Would you feel comfortable with $4M of debt? Would you consider borrowing less but paying more tax (as your properties would be positively geared)?
Alternatively, you might throw $1m into commercial property however you could only borrow an additional $1.5M (total $2.5M investment). This may get you a small shopping centre in the bush or a few industrial units or a small office building etc. How are you going to handle vacancies (these are usually longer than residential vacancies)?
Then again, you might think up of a mix of investments which will suit your profile – some resi for stability, commercial/retail for higher returns or vary the investment strategy buy using your new investment structure (trust or company) combined with your super fund (super fund will only pay 15% tax on its net income).
The licensing required will also depend upon whether or not you intended to be the builder or just the developer. If you are only the developer, engaging the architect, engineer, other consultants and the builder then you probably will not need to hold a builder's licence. On the other hand, you intend to control (including project manage) the works, or act as principal contractor etc then you will need to hold the appropriate licence (this varies from state to state, in some states you only need a licence for residential building work).
As Richard points out, if you intend to sell the properties without engaging a real estate agent, you will be required to hold a corporate real estate licence (with someone fully qualified as the licensee).
You should be able to request a compliance certificate (whether you put it on the vendor, who can refuse) or you request it & a copy of the DA drawings from council (under Freedom of Information or usual requests). If there is insufficient parking, then it is just something that the council will have to work through with you (the building is approved for X m2 of building & parking spaces. It is possible that the division of the property into the smaller tenancies is non-compliant or has not been approved by council. In this case, it may pose a greater risk to yourself with regard getting a DA for the separation of tenancies or having to demolish the walls.
keiko wrote:okay how about a free site with software where i can keep each property upto date with $ spent per building also where it can let me know when rent is due and also when a lease will be expiring etcHave a play with Rentmaster http://www.rentmaster.co.nz It comes with a free trial which should be sufficient to check if it does what you need and at $135Au it is better value than many others on the market.
The building was constructed under the planning act & building ordinances which were appropriate at the time, if council has provided a S317AE certificate (occupancy cert) at the time of construction, then the building complied. There would have been some requirement for parking even back then (possibly 1 space/200m2 or whatever) however there may have been a greater reliance on public transport rather than car usage.
You may be correct that council would not allow you to build the same building today without appropriate parking however this could be achieved by having a mezzanine for the office or underground parking.
The sharing of spaces is not uncommon (tandem is one car behind another and requires the latecomers to move their cars during the day).
Look for a 'local' accountant ie one around Bondi as there is quite a dearth of Kiwis living in the area.
That was exactly my question TCL. Is there a story behind this one, do expats/OS purchasers pay more or get some other benefit?
vita22 wrote:(Scott, my shorthand is still in want of education – what does SMSF stand for?) Greatly appreciated! Vita22Self-Managed Super Fund
Can a discretionary trust (or other trust) distribute to a SMSF or other SF (so that it only pays 15%). Does the SF need to be a beneficiary of the trust or is it good enough that it is my SF?
Unreal wrote:So, for a negatively geared, long term investment it would be a good thing? Just not a short term, money-maker?
Before you buy, consider your exit strategy. That is, do you have to sell thru DHA or can you sell on-market? Will it be harder to sell as it has a long term lease in place? Will it be sold at a more attractive yield (higher yield or return = lower price) due to the longterm tenancy agreement?
Why pay for it (ie don't offer $ unless it is asked for). You may instead get a by-law for exclusive use of the area, in return for the obligation of maintenance of the area. Make sure that the exclusive use can be passed onto any other purchaser.
What do you intend to build? If it only involves paving then it shouldn't be a drama however if you intend a permanent structure ie something which involves footings or building over a sewer, there may be some concerns.
Plumbing/drainage works, air-conditioning work, asbestos removal and electrical work requires licensed trades – roofing and roof plumbing doesn't (you don't need a ticket to connect to stormwater).
You will need an OB licence.
Your DA cost will indicate the total cost of construction including all trade work. You should get any contractors/subbies to sign contracts with yourself for their work (you can purchase a pad of residential building contracts from the post office).
