“SUSTAINABILITY” IS NO LONGER a buzzword, but a vital element of any responsible business practice.
In this article, we’ll discuss how businesses and owners of commercial buildings can improve their sustainability and use depreciation deductions to help recoup costs. [Read more…]
CONCERN OVER HIGH INFLATION is what is causing the RBA to continue raising interest rates.
So the real question is … will the latest Budget be responsible for adding to inflationary pressures?
Anyway, let’s quickly pick apart the critical issues of the latest Budget – as far as they relate to Commercial property. [Read more…]
HERE ARE 8 key items which should be on every Commercial property investor’s Checklist.
Between signing the contract and the settlement date, you should always decide precisely what your future intentions are.
Because this will determine the most appropriate vehicle for ongoing ownership.
Is it best to be held in personal names, joint names, a trust or a company? [Read more…]
WHEN IT COMES to in-depth analysis of Commercial properties, it is obviously far more complicated than a simple rating system.
That’s because you actually need a sophisticated piece of software – of which there is a number out in the marketplace.
But you’ll find most of them seem overly complicated … are not very user-friendly … and tend to generate endless pages of output data.
So, let’s quickly run through these various items.
You have the purchase price, stamp duty and acquisition costs (things like your due diligence) all of which need to be included.
You also need to choose your loan-to-value ratio (LVR) and include any costs associated with the mortgage. Plus, your appropriate level of tax, which may vary – depending upon whether the “purchase vehicle” is an individual, a company, a unit trust or your super fund.
You must take into account the passing rental, the rental reviews, the un-recouped outgoings, ongoing management fees, and depreciation. Plus, you have to decide on the holding period and estimated selling yield down the track – which I will come back to in a moment.
Finally, you need to allow for the selling costs at that time; and also the capital gains tax – where you need to include things like your initial cost-base.
Without going into the intricacies of the specific software, what’s important is that you undertake your calculations within a fixed timeframe. And I generally tend to view everything over a 4-year period.
A lot of software packages like to stretch their calculations over 8-10 years. However, there are two problems with doing this:
And that tends to distort reality and make everything look unrealistically attractive.
Instead, you should stick to 4 years – because, if the property does not make sense over 4 years … then you are simply kidding yourself to view it over 10 years – in the hope of making a reasonable return.
As such, my yardstick is an after-tax return of 10% per annum (or better) on your equity, over a 4-year period. Otherwise, you simply don’t proceed with that property.
As you will appreciate, many people might well say: “But I am buying it for the long haul”. And that’s okay.
My reason for four years (and there’s no real magic here) … other than over that period, people can have a change of circumstances. They’ll get married, divorced, posted interstate or overseas – even have kids.
Somehow, there will often be a change in personal circumstances. Therefore, whether you plan to, or not … it is a good idea to have a mandatory 4-year review. That’s why I settled on this timeframe.
You may continue to hold the property longer-term, and that’s fine. But you need to know going into the deal that if (for whatever reason) you find yourself having to sell the property in four years’ time … it is still going to make economic sense. And over the longer term, it makes it a very good deal going forward.
To help with this, I developed my Final Judgement software – which is made available to everyone in my Mentor group. And by using this software, you can calculate what (in technical terms) is called the internal rate of return.
In other words, what annual return will the projected after-tax cash flow represent … as an annual percentage on the equity you invest in the property.
Being “after-tax” is important because that takes account of your relative tax position. And if you have negative gearing, that’s taken into account as well.
Bottom Line: If you are getting a 10% pa or better after-tax … this represents anywhere from 14% to 18% per annum pre-tax … depending on your tax level.
And I wouldn’t have thought that was too shabby.
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OBVIOUSLY, THIS IS the question every residential investor asks … whenever they are considering the transition across to Commercial property.
However, you will quickly discover the reasons are rather compelling. [Read more…]
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THE FIRST THING you need to do is come up with some creative ways to address this … AND still maintain your sanity, at the same time.
But no matter what your approach may be, there are several things you always need to do. [Read more…]
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COMMERCIAL PROPERTIES are mainly seen as a longer-term (at least 3-year) investment. And you tend to buy them for their regular, high yields; as well as for some good capital growth over time.
Even so, an investor with a little knowledge and experience can easily find properties able to be “upgraded” and then, on-sold for a quick gain.
Typically, this would involve you in improving the income stream from your property; and perhaps the security of that income. Both of which would result in a boost to the property’s overall appeal AND value.
Your Options for a Fast Turnaround [Read more…]
IN PART 1, you discovered the main breaches that lead to non-compliance. This article outlines the very ugly tax consequences of being labelled non-compliant by the ATO.
SMSFs are subject to income tax but receive concessional treatment — provided they are complying funds.
A complying SMSF’s assessable income is generally taxed at a rate of 15%. BUT for a non-complying fund the rate is 45%. [Read more…]
IN PART 1, you saw how changing the use of a property can affect the loading requirements — and what it can cost you.
Read on to find out who is actually responsible for determining floor loading, Australian Standards, and how to protect yourself. [Read more…]
IN THE CONVEYANCING stage, before settlement, the vendor and purchaser adjust the purchase price to deal with the following matters:
IN THE LAST article, you read about two different types of security that lenders can take other than the mortgage. They were “Fixed and Floating Charges” and “Personal Guarantees”.
However, there are a few other forms of security that you should be aware of before entering into any agreements. Read on to find out more. [Read more…]
