Hendrix, recommend you get a copy of Tax Structures 101 by Matthew Gilligan.
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Originally posted by Hendrix View PostHi Ross
Could i trade properties and use the profits to buy, buy and holds or will the buy and holds be tainted?
If they are tainted what does this actually mean? Will it only affect me if i sell them within ten years and if so I will have to pay tax on any profit they make?
1) buy and hold before trading, ie not tainted. Then as long as intention was buy and hold, then capital gain on sale and not affected by trading.
2) buy and hold while trading, tainted - If sold within 10 years, then any gain is taxable
3) trading properties - always taxable, for ever. Even if sold to related party!
4) Cease trading, and buy and hold , non tainted. So as long as intention was buy and hold, then capital gain on sale, and not affected by trading. As long as done correctly!
RossBook a free chat here
Ross Barnett - Property Accountant
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Do people think that trading in Auckland or other areas like Hamilton or Bay of Plenty would be better? I have more knowledge in the Auckland market but prices are quite high and there is alot of competition.
What type of conditions do traders normally have on sale and purchase agreements? Builders? Lim?
These are going to cut into profits but could cause issues if you dont get them
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Auckland only, safest bet. Try and be all cash I used to use a due diligence clause but made it very short like 3 days. The idea is to be able to get to unconditional super fast then people let you tie the property up. But unconditional offers are the way to go for lowest prices.
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I am getting into it at the moment, if I can make it work, then I will quit office job some time mid next year.
Did one in Sep and one in November, first one lost about 2k, second one made 50k pre GST.
Allow in Auckland for about 100k margin between Buy and Sale price to cover all your costs, as they add up.
If you dont feel confident in doing that regularly, which means finding really good deals, then its not going to work.
Costs will be things like:
Reno 50
Interest 15
Agents Fee's 25
Marketing and Staging 5
Legal 2
Rates Insurance Water Power 2
Left field BS that blind sides you
Then after all that your going to lose half of any profit through 33% tax and 15% GST.
Note that Interest cost is not part of the GST equation and if you have high enough interest holding cost you may have to pay GST even if you didnt make a profit
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But what are you going to use the profits for?
If you are going to leave them in the Company long term, then 28% is right.
But generally most people want to get the profits out, put them into their own home, car, boat , holidays etc. At this point a Company has to pay it out as a shareholder salary or dividend, so then moves from 28% to the shareholders tax rate which is often 33%.
So really the 28% company tax is just an interim measure and ultimately it is 33% too!
RossBook a free chat here
Ross Barnett - Property Accountant
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Capital Gains Tax - I assume this will come into New Zealand at some stage, will this just ruin the profitability of being a trader as you already need to pay for about 40% in tax, gst?
Down Turn - Do property traders still trade in all cycles of the market?
If the property market is down and your sole income and your assets are in property this could get very dangerous as you have all eggs in one basket
Home can being tainted?
If you are property trading and then buy a home is this property still tainted for ten years or is it different from buy and holds as its your home?
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Originally posted by Damap View PostAuckland only, safest bet. Try and be all cash I used to use a due diligence clause but made it very short like 3 days. The idea is to be able to get to unconditional super fast then people let you tie the property up. But unconditional offers are the way to go for lowest prices.
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"Capital Gains Tax - I assume this will come into New Zealand at some stage, will this just ruin the profitability of being a trader as you already need to pay for about 40% in tax, gst?"
I think CGT and income tax won't be both taxed on a property trade. That would be a double tax and won't be fair on a business level. Imagine Fletcher homes suddenly have to pay CGT, company profit tax, and GST on everything they build and sell...
Anyways, we do have CGT in NZ, it's just set at 0%. I think Mathrew Gilligan said that during a seminar.
Down Turn - Do property traders still trade in all cycles of the market?
If the property market is down and your sole income and your assets are in property this could get very dangerous as you have all eggs in one basket
Become a good negotiator, be patient, and have a good client base to sell the done-up properties to...
Home can being tainted?
If you are property trading and then buy a home is this property still tainted for ten years or is it different from buy and holds as its your home?[/QUOTE]
Get a good accountant before you start.
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Originally posted by Gary Lin View Post"I think CGT and income tax won't be both taxed on a property trade. That would be a double tax and won't be fair on a business level. Imagine Fletcher homes suddenly have to pay CGT, company profit tax, and GST on everything they build and sell...
In a trading senario the house is just 'stock', much the same as oranges in the supermarket (or a car at the car year if you want something bigger).
You pay tax on the profit rather than 'capital gain'.
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Originally posted by Wayne View PostOf course it won't!
In a trading senario the house is just 'stock', much the same as oranges in the supermarket (or a car at the car year if you want something bigger).
You pay tax on the profit rather than 'capital gain'.
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Hendrix I was mostly houses. It all comes down to knowing what you are doing. I did subdivisibles they were my most profitable but also most stressful. It has nothing to do with houses, units or whatever. It's all about do I know what I am doing.
My system in a simple sense was:
Picked an area I liked and got to know it well.
Found 2 agents in same immediate area who I trusted. One was for buying, he loved hunting for undervalued homes.
The other one worked for high brow company and would tell me what I needed to do to get it saleable at a profit.
That was about as complicated as I ever got. I was doing 1 or 2 a month at my busiest.
NOTE: I am not doing any of this now my investing is overseas so I can't comment intelligently on the market right now but in my experience outside of terrible busts and global meltdowns you can always make money trading. Especially in Auckland
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Originally posted by Gary Lin View PostSo then CGT will be on buy and hold only, since family homes will be excluded. But that is an election poison pill that no smart government would want to swallow.
A rental investor isn't trading houses - they are trading the rooms they rent (effectively) so they pay tax on the profit from that activity.
As for why not family homes - you have answered that yourself.
There has already been a long debate on CGT (I think should be all or none).
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