Converting small Wellington commercial property into residence.

[RileyNine]

Hi all, I recently moved from Auckland to Wellington for a career/lifestyle change. I am currently selling my house in Ak and looking to buy in Wellington. One of my hobbies is restoring old cars which means I need quite a bit of garage/workshop space. Something not easy to find in Wellington!

I missed out on one perfect residential property that sold by tender. I am currently looking for others. But one thing that did come up was a small (200sqm) commercial property that used to be a garage or panel beaters I think. It is basically a giant shed type building. Concrete block walls and steel beam roof. It has on the front of it two small offices as a second story (only 40 sqm). There is also on the main floor a toilet and sink and kitchen type sink/break room.

As a large garage the property is ideal for me and I am looking into the possibility of converting it into a small, one bedroom apartment for myself with a huge amount of garage/workshop space. Basically my own little apartment with a big garage space in the city. It would be for my own use, not to rent out.

The property is being sold by auction.

I have no experience with commercial properties at all nor of doing this kind of conversion and was wondering if there were any pitfalls I should watch out for. I know that the zoning is fine for converting it. What I don't know is what strengthening or changes need to be done if I do make an apartment there. I asked the council and the response is basically they need to see what my plans would be before they can advise (I do have several designers lined up if I get that far). I don't quite understand how the new earthquake ratings come into it all. Being a 2 story building but only one dwelling maybe they don't?

I also am unsure about having it changed from a commercial property to a residential one. Currently it is rated as a commercial property. Can that be changed? Is is worth changing it? I am guessing the rates (currently about 10k) would be less!

Also I know there might be tax implications involved too. I am GST registered as is the vendor so the actual purchase if it happened would be zero rated for GST I believe. But I don't understand the longer term implications.

You do hear of people now buying inner city properties and converting them. Does anyone have any experience of this? Or know of good places to get information on what is involved? The thing I am finding tricky is working all this out before I even decide if I will be able to bid on the property. What's an appropriate amount of due diligence? Any advice (even if it's don't do it!) I would be grateful.

Thank you!

Simon

[John the builder]

ring the council planning department and ask them dont have to mention addresses if you dont want to but you might as well be frank. The bui;lding issues can be dealt with but some areas have no residential occupation. Even then they might make exception for a caretakers flat?

[RileyNine]

ring the council planning department and ask them dont have to mention addresses if you dont want to but you might as well be frank. The bui;lding issues can be dealt with but some areas have no residential occupation. Even then they might make exception for a caretakers flat?

Hi, I did contact them earlier as my very first step and it is definitely doable there. This was their reply:

The site is in the Central Area and residential activities are permitted activities. However, any habitable spaces must comply with the Noise Insulation and Ventilation requirements of the District Plan. You will need the advice of either an acoustic consultant or architect.
Any external additions or alterations require resource consent. Internal works are permitted, however, should internal works required for earthquake strengthening be visible from public space (the street), for example K-Bracing, then this may also require resource consent.

They sent a list of links to the appropriate rules as well (which I can't post here apparently).

Simon

[Nick G]

For implications of GST contact your accountant but as I understand it you will pay GST at sell time to the government and it evens out then. The bigger concern is it likely (again I'm not sure) means this is taxable supply and you will be liable to pay tax on any profit.

If you are buying for a separate purpose from the entity that you have now was set up for then perhaps a separate entity? This is for a hobby and not a business as you say. If you plan to hold the property long term then you could rent it back to yourself.

[RileyNine]

For implications of GST contact your accountant but as I understand it you will pay GST at sell time to the government and it evens out then. The bigger concern is it likely (again I'm not sure) means this is taxable supply and you will be liable to pay tax on any profit.

If you are buying for a separate purpose from the entity that you have now was set up for then perhaps a separate entity? This is for a hobby and not a business as you say. If you plan to hold the property long term then you could rent it back to yourself.

That was my (limited) understanding too. You would pay GST at selling time. I would be planning on holding onto it for some time. I definitely need to talk to an accountant (my current one admits this isn't her specialty) and my lawyer too.

Simon

[John the builder]

The site is in the Central Area and residential activities are permitted activities. However, any habitable spaces must comply with the Noise Insulation and Ventilation requirements of the District Plan. You will need the advice of either an acoustic consultant or architect.
Any external additions or alterations require resource consent. Internal works are permitted, however, should internal works required for earthquake strengthening be visible from public space (the street), for example K-Bracing, then this may also require resource consent.

It seems straight forward for a habitable space you need natural light and visual awareness of the exterior is there an external winod that you can use? the existing front office sounds just right?

Sound and insulation should be easy as well it is when you have to protect muliti nieghbours that it is hard. What is current EQ rating?

[Kbkiwi]

I have a good idea of what property you are looking at - sounds like a great plan you have, best of luck at the auction!

[Wayne]

Re the GST you need an accountant.
0 rating would apply to a 'going concern' but as you are buying for personal use (you did say it was a hobby) then how would this apply.
On the face of it the building wouldn't be used for a taxable supply so you can't claim GST (or 0 rating).

[RileyNine]

The offices in the front have windows and natural light. Kitchen downstairs might be tricky unless a skylight counts?

The current EQ rating I am not sure of. I asked the agent and they didn't seem to know? Is it something the council holds? I just know it's not on the list of flagged buildings.

Lawyer is involved now so accountant is next on my list to arrange. Will be interesting to see how the auction goes. It's quite likely it might go for more than I can but at least with an auction you have some idea for next time. I have missed out on tenders and you really have no idea what happened so have nothing to take away for next time except 'tender more"!

Simon

[Kbkiwi]

The offices in the front have windows and natural light. Kitchen downstairs might be tricky unless a skylight counts?

The current EQ rating I am not sure of. I asked the agent and they didn't seem to know? Is it something the council holds? I just know it's not on the list of flagged buildings.

Lawyer is involved now so accountant is next on my list to arrange. Will be interesting to see how the auction goes. It's quite likely it might go for more than I can but at least with an auction you have some idea for next time. I have missed out on tenders and you really have no idea what happened so have nothing to take away for next time except 'tender more"!

Simon

it looks like a prime site for an apartment building, so I wouldn't be surprised if you end up bidding against developers

[John the builder]

under s122;If it is mainly used for residential purposes it isn't considered for EQ purposes unless 2 or more storeys and contains 3 or more households.

hopefully it is EQ prone as this will scare off commercial developers and leave it for you?

[RileyNine]

under s122;If it is mainly used for residential purposes it isn't considered for EQ purposes unless 2 or more storeys and contains 3 or more households.

hopefully it is EQ prone as this will scare off commercial developers and leave it for you?

I hadn't even considered developers wanting it. I wouldn't have thought the site big enough but I guess if you go up you could do it.

Oh well, have to try anyway I guess!

Simon

[Kbkiwi]

at 200sqm site in inner city Wellington it can fit a fair amount of units (after tearing down existing structure.)

I really hope you get it, would be a good landbank for yourself as well as meeting your current living requirements, all for less than an average Auckland house price I would imagine.

[RileyNine]

at 200sqm site in inner city Wellington it can fit a fair amount of units (after tearing down existing structure.)

I really hope you get it, would be a good landbank for yourself as well as meeting your current living requirements, all for less than an average Auckland house price I would imagine.

Will have to see what happens. My AK house sells the day before by auction and only then will I know how much money I have (if any!).

My solicitor also suggested talking to a town planning consultant about the garage to make sure there are no issues there.

Simon

[CitySlicker69]

Firstly, a 200sqm site is not a large enough size to be viable for redevelopment. Even if you are in an area that allows a 6-storey height limit, as you develop higher- you face additional requirements such as secondary egress and lifts etc, which all eats into the useable space of a development.

Secondly, what you are proposing is a 'change of use', which requires a building to be as close as practicable to being 100% of the Building Code (ie: 100% NBS - new building standard). If you do not know that current rating, then it is impossible to determine what structural requirements may be needed - and therefore cost is unknown too. If the property is not listed as EQ Prone, it only needs to be over 33% of NBS to stay off this list - which is still a long way off being suitable for any form of conversion. Change of use will also trigger off bringing the balance of the building 'up to code', with fire requirements being a 'biggie'.

With GST, as you've mentioned, if both of you are GST registered, then the transaction will be rated at 0% for GST purposes, BUT, my understanding is that the minute you go to change to residential, the GST component then becomes payable. Check this with your accountant, as this has caught many out. (Edit: Actually, as you will be using the property as a 'principal place of residence', GST WILL be payable)

You will of course gain a substantial reduction in WCC Rates (dropping to about 20% of Commercial levels), and you should also have a big drop in Insurance Premiums. Lastly, ONCE converted, you will also be able to obtain Mortgage Finance on Residential terms (ie lower interest rates and longer terms available). Remember, if you purchase you will need to either pay fully in cash, or obtain COMMERCIAL finance. This is a different world from Residential borrowing, and will require a more in depth assessment of the property for the Banks Security, will generally have a higher mortgage interest rate as well as possible upfront fees, and the Loan Term will be dramatically shorter than that of Residential. Also ...... you will not be able to borrow as high a percentage of the properties value - in the range of 60-65% at best I would imagine, especially if you dont know the current EQ status of the property (I suspect the bank wont even lend if this is unknown).
The truth is - the reason that a lot of properties in the central city are not converted to residential - is that it can be damn hard work - if not totally uneconomical - and full of potential traps and pitfalls.

Proceed with caution, further investigate what I have commented on above, and best of luck if you proceed further.