Removing Budget Confusion Over Claiming Depreciation

THE 2017 FEDERAL BUDGET (handed down by Treasurer Scott Morrison on Tuesday 9 May) includes proposed changes, which will affect residential property investors Australia-wide.

At this stage, our understanding is that depreciation claims relating to commercial properties won’t be affected. This is good news for anyone who owns a commercial property. [Read more…]

Underquoting Laws Change

UNDERQUOTING can take place whenever a real estate agent misleads a potential buyer about the likely selling price of a property – be it for commercial or residential real estate.

For example: When a property is promoted at a price that is lower than its estimated selling price, the seller’s asking price or at a price that the seller has already rejected. [Read more…]

The 11 Benefits of Investing in Commercial Properties 

INVESTING IN Commercial properties is not the same as investing in residential property. There is a completely different set of dynamics driving commercial properties, when compared to residential.

Here, we’ll discuss the 11 Benefits of Investing in Commercial Property – among them being those also related to Accounting issues.

1. Rental Returns

The rental return for owning a commercial property is generally better than residential property and is easier to achieve a neutral return.

For example, you can generally achieve a 6% Net annual return, whereas residential properties would only achieve a 2% to 3% Net Return – after deducting all the other costs such as council and water rates, repairs, land tax and so on.

2. Renting an Business location Vs owning one

If you have a business and you are leasing an office, you’d be better off by buying your factory or office through your Self-Managed Superannuation Fund (certain conditions do apply). Instead of paying rent to the landlord, you can effectively pay that rent back to yourself via your SMSF.

3. Taxation Benefits

Rent paid by your company is tax deductible at 30%; and when it goes into your SMSF it’s only taxed at 15%. Capital gains are only taxed at 10%.

4. Contribution Limits

Where there is a limit on how much you can contribute into your SMSF as your Super contribution, there is no limit on how much rent you can pay – as long as the rental price is within market rates.

5. Depreciation value

Commercial properties have much more generous depreciation rates than residential properties. This makes them extremely tax effective.

6. Tax-Free Return

If you want to earn $200,000 a year (completely tax free), just buy a commercial property that has $200,000 in depreciation. Effectively $200,000 of your received rental will become tax free.

7. Leveraging your Commercial properties

The ability to leverage your assets via the use of debt is an extremely effective strategy.

Example: You have $200,000 cash deposit and you could borrow $400,000 at an LVR of 67%. This means you can buy a commercial property at $600,000. You now have $600,000 working for you instead of $200,000.

Assume

  • capital growth is 5% pa;
  • rental return of 6%pa; and
  • an interest rate of 5%.

In very broad terms, the rental basically covers interest (neutrally geared in this example); and if you achieve capital growth of 5% ($30,000 pa), you are able to achieve a 15% return on your cash of $200,000. ($200,000/$30,000)

Caution: Some properties do not achieve any capital gain, including some residential properties. It’s all about your property selection.

8. Property Leasing Options

Tenants are generally businesses and they prefer to sign long-term leases such as 5+5 years. Meaning, it’s signed for 5 years with an option for another 5 years.

9. Commercial Property Leasing Terms

Most leases require the tenant to pay all outgoings; so the landlord receives a NET rental.

10. Percentage of Rental increase is tied to the Capital Growth

Many leases have clauses that gives the landlord an automatic rental increase of 4% pa (or CPI) whichever is the higher. This means the capital growth of the property is also tied to the rental increases.

11. Commercial Property Valuations are far more clinical

In the main, they are closely tied to the rent.

For example:

  • If the rents were $60,000 pa and the market was paying a 6% return on investment, it then simply values the property at $1m ($60,000 divided by 6%).
  • However, if demand for the property were strong and investors willing to accept a 5% pa return, the property value would be worth $1.2m ($60,000 divided by 5%).
  • If rents reduced to $50,000 pa and assuming a 6% return is expected, then the property would have reduced in value to $833,333 ($50,000 divided by 6%)
  • If rents fell to $50,000 and returns dropped to 5% pa, then the property value would increase to $1m ($50,000 divided by 5%).

Bottom Line: As you can see, Commercial property offers you a wide range of benefits. Plus, it is also far less emotional than residential property – which is mainly valued using comparable sales.

Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.

Why are Young Couples Flocking to Commercial Property?

IN HIS BOOK Rich Dad Poor Dad, Richard Kiyosaki tells us: “You must know the difference between an asset and liability, and buy assets.”

Because “assets put money in your pocket.” Whereas, liabilities continually take money out of your pocket.

On that basis, you quickly realise your family home is therefore considered a liability — rather than an asset, or an investment. [Read more…]

5 Ways to Maximise Your Borrowing Capacity

WITH BANKS having tightened up investment lending considerably, gaining access to money for active property investors has become increasingly difficult.

Here are several strategies to help you to get the greatest amount of borrowing capacity with your lenders.

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Commercial Vs Residential Property Depreciation

OFTEN INVESTORS considering purchasing an investment property will ask whether a commercial or a residential property will provide them with more deductions in the form of depreciation.

As you'll appreciate, there are many factors an investor needs to be aware of when making their choice between these two investment opportunities. Let's take a look at just some of the differences.

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Do You Fully Understand “Cooling Off” Periods?

COMMERCIAL PROPERTY INVESTORS will generally live in a residential property. So, here is something to consider when you come to buy your next home.

A recent decision in the Supreme Court of Victoria (Tan v Russell [2016] VSC 93) has made it clear that real estate agents do not have authority to receive notices of termination when purchasers seek to exercise their cooling off rights, unless otherwise authorised to receive such notices.

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Negative Gearing Reform

Do Commercial Investors have anything to fear?

WHILE NEGATIVE GEARING is relied upon by investors across various sectors in the Australian economy, it has once again been brought under the spotlight within the context of property investment.

And both sides of politics have shared their positions, where it has been hotly debated over the last few months.

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Would You Like to be Paid a Bonus to Refinance?

A NUMBER OF YEARS AGO, in the early days of online casinos, some sharp individuals were able to make a quick dollar by taking advantage of "welcome bonuses" being offered in this new and competitive industry.

Taking Advantage of the System

Here is how it worked.

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Changes to FIRB Requirements

THE FOREIGN INVESTMENT Review Board's (FIRB) reluctance to prosecute non-complying foreign investors, and the public criticism that this has received, has led to the introduction of stricter foreign investment laws by the Australian Government.

These changes will apply from 1 December 2015.

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Depreciation Can Be Rather Accommodating

MORE AND MORE, Baby-Boomer investors are showing an interest in what is called "Traveller" accommodation.

Owners of income producing properties can generally claim both capital works and plant and equipment deductions. However when claiming for traveller accommodation, it's even more important to seek advice from a Quantity Surveyor.

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