How to shift resident property into commercials?

Commercial properties require a lot upfront capital for investment because of high price bracket. For example, a large retail/office can cost $2-3m. Therefore, not many investors start with commercial properties.

After accumulating enough equity in residential properties, investors may sell residential properties for cash, then use cash to buy commercial properties. However, if we sell Res properties for cash, significant equity will lost due to payments for capital gain tax and stamp duties (relating acquisition of CP). I wonder if there are any strategies for conservation of equity.

Any one with large numbers of resident properties successfully shifted equity into CP

 

Why look at large commercial first up? A small office can be quite viable if well located.

If you have equity in your resi portfolio, a line of credit may be an option dog partial funding without the need to sell.

 

Many people with multiple resi IPs would seek to avoid CGT and this is a turn off having to cashup to get some equity into commercial. To get into commercial you do need more cash as the LVR is lower. I often find people get into commercial as they have significant cash or they get involved through their own property for business reasons.

One avenue often overlooked is using super to help fund a small business property. Super laws allow a part SMSF ownership alongside the owners. And it can be setup so the owners are geared and the super isnt ...

 

I have found the way to upgrade into larger/higher valued property through 1031 exchange trade up. See What is a 1031 Exchange? - Asset Preservation, Inc. . However, it applied for US only. THere is discussion on SS in the past at Australia version of the USA 1031 Exchange and Can i avoid paying capital gains tax?

 

Need to speak to a US tax accountant, its not that cut and dry, you need to meet certain criteria, involving timeframe and $ value.

 

@PropertyInsight Hi mate, you can also use your resi pptys as collateral for a business loan, however you then cross-collateralise, which may not be a preference. I personally wouldn't sell a Resi Ppty unless I really had to just due to the high entry and exit costs involved.

 

Sometimes its OK to sell

It's OK to SELL

 

Either sell or equity release to fund the deposits required. This was a little easier pre-APRA when servicing was far more relaxed, so this can be limiting. There's ways around this but it's about looking at what is the best outcome and what you're willing to provide to get a deal over the line.

The best thing to do still is to have a PPOR amongst the mix, pay it down whilst keeping the facility open up to 80% LVR and then draw down as needed for the deposit funds - with the average house price in Australia between this and some equity from other investment properties you should be able to support a 2m+ purchase. Otherwise as @Scott No Mates has mentioned there's still lower value quality assets you can purchase to get you towards your goals.