COMMERCIAL PROPERTY OWNERS and tenants are often unaware they are entitled to claim deductions for the depreciation of many of the assets installed during the fit-out of a commercial property.
These deductions are important, as depreciation is a valuable source of hidden cash flow that will not only lower the burden of fit-out costs, but also assist with ongoing business expenses. [Read more…]
AS YOU WILL APPRECIATE, there is a fair amount of information you need to know about Commercial property. Although fundamentally, all that rests upon just six Pillars.
Once you understand that, everything else starts to make a lot more refrainsense.
So, let’s perhaps take a few moments to briefly explore those Pillars.
You see, most investors appear to be mesmerised by “return ON capital”. And of course, that’s important – because it’s probably the main reason you are investing in Commercial property in the first place.
However, what’s really vital is … safeguarding your return OF capital.
Simply chasing extra income (or growth potential), while possibly putting your hard-earned equity at risk … is not very smart. Therefore, with any investment, your first consideration (as an absolute minimum) … is being satisfied that your initial equity will be returned, when you finally sell.
And if your gut tells you that could be in doubt … then, simply don’t proceed – no matter how appealing the Commercial property may be.
There are two schools of thought, but my preference would be to fix your interest rate when borrowing.
Sure, it may cost you an extra 0.5% per annum … but that is tax-deductible and most importantly, you get to sleep at night.
The other suggestion would be to avoid personal guarantees wherever possible – by only borrowing on a non-recourse basis. That will probably limit you to a 65% loan-to-value ratio. But it also helps to reduce your overall exposure.
Merely buying a property at market value and sitting on it, means your only source of growth is through inflation, or the automatic annual rent increases.
Throughout the period of your ownership, you need to think creatively. Simple things (like a cosmetic upgrade 12 months before a market rent review) could help you extract additional rental, when the review actually takes place.
If the property is reasonably large, you may have the opportunity to subdivide it into one or more smaller titles. This alone can add up to 10% to the value of the property, with minimal outlay on your part.
As you already know, I recommend a 4-year mandatory review of your Commercial property. However, that doesn’t necessarily mean that you should sell it.
The important thing is that you make a formal decision to retain ownership – based upon the remaining period of the lease, the current Commercial property market and where you are in the economic cycle.
Ideally, the plan is to hold the property for 10 years or more. And that will give you the opportunity to add value; plus you can also use it as collateral to periodically release equity, and acquire further Commercial properties.
You need to realise that it only takes one mishap to go broke. Therefore, you should seek to fully protect your property that all times – constantly keeping an eye on the market, while you actively looking to add value.
And also, ensure you maintain your property in ready-to-sell condition.
Always be responsive to their requests – and make that clear to your managing agent as well.
Plus, it’s important for you to try and anticipate their needs – because that will create a more-responsive frame of mind, when rent-review time comes around.
Bottom Line: As you can see, none of this is exactly moon-landing stuff – it’s basically all just commonsense.
However, I can’t tell you how many would-be investors fail to observe these six Pillars; and end up with poorly performing Commercial properties as a result.
Anyway, if you’d like to explore this further … simply click on the eBook image on the right, to download this short report.
IN A MOVE that will help boost cash flow for small business owners, the Senate recently passed legislation to extend the $20,000 instant asset write-off to June 2019. [Read more…]
THE FINANCIAL INDUSTRY in general (and the major banks in particular) have been under the microscope recently as a result of the Royal Commission. And that has provided a steady stream of negative headlines for the banks over the past 12 months.
As a result, the banks have instituted a number of changes including: [Read more…]
DOES THE IDEA OF BUYING commercial property instead of renting your current business premises appeal to you? Or are you undecided whether to purchase a commercial investment over a residential property for your portfolio? [Read more…]
AS OF 1 OCTOBER 2018, Victoria has moved one step closer to a completely digital conveyancing process as all property settlements (with some exceptions) are required to be completed via PEXA (Property Exchange Australia). [Read more…]
IT IS WELL KNOWN that you can claim wear and tear on a business vehicle. But do you know exactly how much wear and tear you can also claim, on your investment property?
You see, many property investors are unaware how significant the tax depreciation deductions their investment properties hold – meaning they could be missing out on thousands of dollars. [Read more…]
AS OF 1 JANUARY 2017, Victorian land owned by an “absentee owner” is subject to an additional 1.5% Absentee Owner Surcharge. The purpose of the surcharge is to require foreign buyers, who do not pay other taxes, to contribute to government services and infrastructure in Victoria.
Although this surcharge also applies to commercial property, it was originally introduced as an attempt to manage foreign purchasing of residential real estate in Victoria – to assist with housing affordability. [Read more…]
EVERY INVESTOR would like to be in a position to pick the top and bottom of each Cycle, when it comes to commercial property.
And if you had followed things closely during last century, you would know forecasting this used to be relatively straightforward – with all the various Office markets following a fairly predictable sequence, as shown below. [Read more…]
AS AN A INVESTOR, once you start claiming depreciation, you’ll notice a big improvement in your cash flow.
That’s because depreciation effectively lowers taxable income – and that means more money back in your pocket come tax time.
For most investors, the extra cash goes into savings. Or is put towards a holiday, or a new car. Or simply used for everyday living expenses.
However, there are far smarter ways to use the extra cash you gain from depreciation. And here are just a few. [Read more…]
AS I EXPLAIN to my Mentor group, there is a certain rule of thumb for Office market vacancies around Australia.
And it’s really quite simple: For an office market to be “in balance” you really need to have a vacancy rate of between 6% to 8%.
It’s a bit like the unemployment rate. You see … a 5% unemployment rate – effectively means FULL employment – because anything lower than this … is starting to put pressure on wages. [Read more…]
