Dear Experts,
We have a block that can be subdivided and are currently talking to the Shire. We then write a letter and get a slightly different answer. We feel we are going nowhere fast. 

Please advise us on the best way to handle shires and what is the process to subdivide our property.

Regards and thanks
Susan

A. Yes, dealing with shires can be frustrating, particularly when you receive conflicting answers from different people.

The first step is to understand what is permissible under the zoning for your land. Can you subdivide it and what are the restrictions? You should be able to get this information by speaking to the town planners at the local council or shire.

But by now you have realised that this advice is not binding - they will want you to make a written submission.

It may be best to employ a land surveyor who can handle the whole subdivision for you. Either way you will need their services to prepare a survey plan of your land. He will measure the land, conduct a re-establishment survey and confirm that the existing boundaries of your property are those that are shown on the title.

Good luck! 
Michael Yardney
Director – Metropole Property Investment Strategists

Send your question to editor@PropertyUpdate.com.au and we'll get one of our experts to answer it.

Hello Experts,
Like many wannabee investors, I'm paying off my P&I mortgage on my principal place of residence as fast as I can. It's a 3brm house, but as a single person I don't use the back two rooms. So it occurred to me that if I take in some renters via sharing out the spare rooms, I should be entitled to claim 2/3 of interest charge, depreciation, repairs, insurances etc as tax deductions? It kinda makes sense since these are now costs directly related to earning the rental income. I reason that two out of three bedrooms are earning income so 2/3 is the appropriate percentage.

If my thinking is correct, then what are my CG implications? How long will I be beholden to these implications on my principal home?
I see this pathway as a potentially rapid way of paying off and building equity in my own home - i.e. via the income and the tax deductions, which will then see me enter the investment market all the sooner.
What do you think??

Regards

Rob

A. Thank you for your question Rob. If you do rent two out of three of your rooms to "share tenants" it will subject 2/3 of your home to CGT (capital gains tax) when you come to sell it. This will apply for as long as you rent out those rooms. In other words, if you stop renting them out any time in the future and before selling your home, the CGT payable will be calculated on a pro rata basis. Either way, you will have to pay some form of CGT.

A better way to enter the property market sooner and at the same time make more money for yourself, is to redirect the principal payments that would have come off your mortgage towards the negative gearing of an investment property. This allows you to increase the size of your assets much quicker. Although there is nothing wrong with paying your mortgage off, it is a very slow strategy to wealth creation. It's really akin to a savings strategy which is very, very slow.

Ed Chan
Best selling author and Chairman – Chan and Naylor Accountants www.chan-naylor.com.au

Dear Experts,
I am about to complete a subdivision in Brisbane and will be selling the vacant block from this project.

This property is my principle place of residence but is currently tenanted.

Can you please explain what the CGT implications are for me, as I understand that there will be CGT to pay despite being my PPR.

Regards
Linda

A. Whenever you "carve off a piece" of your home to sell, it triggers capital gains tax on that portion of land that is sold. The actual CGT is calculated between what it cost you proportionally for the parcel of land that is subdivided and the sale price of that parcel of land. Hope this helps!

Ed Chan
Best selling author and Chairman – Chan and Naylor Accountants www.chan-naylor.com.au

Dear Experts,
My name is Marc and I receive your newsletter. Let me first say that the work you guys do is great.

What I would like to ask is very simple question regarding Serviced apartments.

As they seem to be a mystery to both old investor and new investor and also there is not much information about them.

What is your opinion of them in terms of the pros and cons and basically are they a good investment overall?

I hope you can shine some light on the subject.

A. Hi Marc.
That's a great question and opens up an interesting element of what makes a good property investment. It includes aspects of risk v return, growth v cash flow and property v income investments.

A serviced apartment is generally an apartment (or townhouse dwelling) for which you relinquish total responsibility in regard to management, cost and maintenance, usually to a corporate organisation as a tenant. It generally involves a very long term lease, a fixed rental income with annual increments and an agreement that running costs, non capital maintenance and repairs will be covered by the corporate tenant. This organisation will use your property for their business, providing short to medium term accommodation for temporary residents, travellers and tourists. Generally these investments are cash flow positive.

Sounds very good doesn't it? For the high net worth investor with a large portfolio these investments do have a place in their portfolio. However, for the new investor or those with a smaller portfolio who might be more attracted by this style of investment due to the cash flow element, they have many negative components;

§Banks and mortgage insurers don't like them as much as general property and are less likely to give a higher LVR for this type of asset, which means the investor has to come up with more cash or equity to finance the acquisition or more importantly, is limited in their use of the equity to finance further acquisitions.

§Capital growth will be absolutely restricted to growth in the rent and it is capital growth that we purchase for. Capital growth is King and Queen of investing and any asset with restricted growth will restrict your portfolio growth.

§The market for any resales is severely limited to investors who want serviced apartments. This completely excludes owner occupiers and limits interest from ordinary investors who are more comfortable placing their investment in the general rental market.

§The corporate tenancy lease will generally incorporate clauses that allow the initial tenant to assign the lease to any entity they choose and you as landlord must agree. The initial lease may be with a strong, experienced operator with a good track record. However, an assignee may be a brand new entity, a $2 company, owned by people with no expertise or experience in the industry. Their business may be very risky, jeopardising your investment and return and you have no redress if something goes wrong.

Marc, if you are considering investing in a serviced apartment, please consider your whole portfolio and ensure your decisions are made with independent, professional advice.

Best wishes
Jack Henderson
OIEC & Director Metropole Buyers Agency

Disclaimer: The information provided is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific professional or investment advice. Please red our main website disclaimer. Please click here for more information.

 

 

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