The Land Tax Trap

By | Land Tax | No Comments

The State Revenue Office will this month be issuing Land Tax Notices to property owners that have a land value in excess of $250,000 and that is not their principal place of residence.

Some investors may be surprised at how high their Land Tax bills is due the valuation placed on their land. But what can you do about it if you disagree and think that the valuation and therefore Land Tax Amount is too high? Unfortunately, very little right now!

The State Revenue Office use your relevant Councils valuation to calculate the Land Tax amount payable by you. The council valuation occurs every two years with the last being in 2016. If you or your property manager passively pay your Council Rates and do not object to the valuation placed by Council valuers within the allotted time, usually 60 days of receiving the rates notice, you are stuck with that valuation and the higher Council and Land Tax rates. It’s a double hit.

So what can you do about it?  When you receive your Council Rates notice have your agent provide an estimate on the land value based on similar sales, hopefully your agent is already proactively doing this. If you both think it’s too high object within the allotted time.

We recently acted for a client and disputed the valuation and were successful in reducing the land rate by 25% based on comparable sales, location of the property and data that the valuer did not put into consideration. Values can change considerably from street to street, even block to block.

Don’t get stung by higher Council and Land Tax Rates than need be, review your Council Rates to avoid the Land Tax Trap.

Please feel free to contact me about this article or any other property related matter.



Our Director Steven Lusi comments in the Australian Financial Review

By | Media | No Comments

Our Director Steven Lusi comments about the importance of buying a quality investment, in a convenient location, with access to amenities and value for money in today’s Australian Financial Review.

Click here to read the full article: http://www.afr.com/personal-finance/portfolio-management/property-buyers-need-to-look-beyond-lower-price-and-perks-to-location-and-gains-20180208-h0vrfo



Net or Gross Rent for a Commercial Lease?

By | Commercial | No Comments

Many Landlords are faced with a choice when negotiating a Commercial Lease; to have the rent paid on a Gross or Net basis.

A Net Lease means that the Tenant pays rent in addition to the outgoings, a gross Lease is when the outgoings are included in the rent.

With a Gross Lease the total payable amount of outgoings is negotiated into the rent, for example, if the Landlord wanted a rent of $90,000 per year and the outgoings were $10,000, in theory the rent negotiated will likely be $100,000. Some see this as being “cleaner” as the Tenant simply pays rent to the Landlord, and the Landlord or their agent pays the outgoings. They consider that easier to manage and in a lot of respects that is true. But consider that the annual increases for the property were 3%, but after the first-year outgoings such as Council Rates and Water Rates increased by 4% and say insurance increased by 8% (which depending on the circumstance can sometimes happen), the Landlord is losing out a few hundred dollars. This loss is compounded on a yearly basis if similar increases occur.

On a Net Lease, the Tenant is liable for the outgoings payments and any reasonable increase in cost is payable by them. However, if for whatever reason the outgoings remain the same or less than the increases in your Lease, you lose out on the increase in outgoings you would have enjoyed on a Gross Lease.

Typically, whilst outgoings are unpredictable, they almost always go up and in the minimum range of 3-4% but from time to time skew much higher. Although councils in Victoria, due to government intervention, are capping their increases, land valuations (and in some circumstances rates charges) are increasing so this is still compounding higher. Tenants are usually reluctant to enter into a Gross Lease paying the full rent and outgoings total being asked, they try to negotiate. There are circumstances where Gross Leases can be favourable almost regardless of outgoings increases and this occurs when higher annual rent increases are involved or if you have negotiated a higher starting rent.

If you are in the lucky position of being able to claim Land Tax from the Tenant, this may change your strategy yet again.

Contact us to discuss your circumstance and how we can assist you in making the right choice, Gross or Net Lease?


Three things to consider (other than rent) when entering into a commercial lease with your Tenant

By | Commercial | No Comments
We delve into what Landlords should consider when entering into a commercial lease with a Tenant (other than rent)
This one is obvious however the type of Tenant you Lease your property to can affect the rent achieved and even the potential sale price should you consider to sell. Demand for strong listed companies (or their subsidiaries) is very high, a building with a Bunnings for example is hot property. Is your Tenant a seasoned operator? Do they understand how to run a successful business and will they be long term? How do they want to structure their company and how does this affect you if they do not meet the requirements of the Lease or default? If you are uncertain on the Tenant but you still want to give them a go, it is important to mitigate your exposure by having guarantees or increased security deposits for example.
Lease Term and options
This depends on your strategy and the type of property, is a sale on the horizon, is it a long term family asset etc? The strategy of a long lease may not always be the best solution especially if you do not account appropriate rent reviews, or say for the example of a shopping centre if the presentation of the Tenant is low and this brings down the perception of quality for the rest of the Tenants. Allowing an appropriate length of Lease allows you to control your property which can be critical.
Rent reviews
Keeping rent at or above market levels is one of the basics of a having an investment. No one wants an underperforming asset and one way a property underperforms is by not allowing for high enough rent reviews. The amount of rent review varies from property to property, as does when to allow for market reviews. For example an outer suburban property would not command as high an annual rent review as most comparable city properties. However if you have negotiated a higher annual review than market, you would not want to allow for an early market review as it would be unlikely that the market rent would be higher than your rent with increases, assuming your initial rent was at or above market.
The above gives you a glimpse of the intricacies of a commercial lease and what a Landlord should consider when renting. Please feel free to contact our office should you wish to discuss further.

Three things to avoid when you have an investment property

By | Uncategorised | No Comments

We often hear about all the things to do when we have an investment property, but what are some of the things we shouldn’t do?

Not doing regular rent reviews

Some people think that if the tenants pay rent of time and look after the property they shouldn’t need to get a rent increase, investors get comfortable and say things like ‘oh they are lovely tenants and have been there for so long, I can’t increase it now’. It all starts after one or two years of not increasing the rent, the longer you leave it the worse it is. We recently came across an owner who has had the same tenants for almost eight years, not once was the rent increased. Now the property is going through a period where maintenance items are coming up and its costing the owner. The property is at least $80.00 per week under market, which makes bringing it back into line with comparable properties very difficult.

Solution? Conduct regular rent reviews and small consistent increases, this will keep the rental return in line with outgoings and the tenant will not be hit with a large increase when they are least expecting it.

Not keeping up with repairs and maintenance

Owners who only do the bare minimum when it comes to maintenance often think they are saving money, that the investment shouldn’t cost much and tenants can ‘make do’. It is the tenants home. The better the environment that we provide, the more the tenants will appreciate it and do the right thing by you as the owner. The less the owner repairs and maintains the property, the more frustrated and disappointed the tenants become. Keeping the tenants happy is one thing, but more importantly it’s just like a car, constant servicing will keep the car running better for longer. If we don’t do the small repairs they eventually become big repairs and in some cases, require a property renovation as the property becomes un-rentable in its current condition which can end up costing more in the long run.

Solution? Conduct regular inspections and take the time to undertake regular maintenance, the property will thank you for it.

Not be thinking how can the property be improved

Have you recently undertaken a review of your property and considered how you can improve it? Not just on a superficial level with repairs and maintenance but an assessment if each area of the house is working for you as an asset? For example, we advised a client who had a beautiful large spa bath that took up whole room to remove it and make it a 4th bedroom. At first, they were hesitant as they used it regularly, and be regularly they narrowed it down to approximately 12 times a year. We transformed it into a 4th bedroom and increased the rent by $80 per week, easily accounting for the capital investment within two years, not to mention increasing the resale value. Maybe it’s a pool that let’s face it, in Melbourne may get a run for two months out of the year, it may be worthwhile removing it and extending the property, or turning it into an outdoor deck that would increase short and long-term value.

Solution? Take time to review your property and its layout and do a cost benefit analysis to see if removing an underused feature of your property and replacing it with something of more use is worthwhile.

It’s also worth noting that repairs and maintenance and certain capital improvements can be tax deductible, speak with your accountant to find out more.

If you want to get the best out of your property, give us a call to find out how we can help.