Land tax at 43% of Gross Rent

I was just talking to a mate who owns a house in Bondi nsw.

He is getting $900 per week rent and paying $20,000 per year in land tax.

I later did the sums and worked out that this represents 43% of the gross rent for the property. This is before any other costs such as agent management fees, rates, insurances, repairs etc. Not to mention interest.

Even if the property was fully paid off it would be close to no cash flow at all.


The property is probably worth about $2.5mil or so.

 

What's the growth per year of ownership?

 

I dunno - he is a bit secretive. It would be interesting to work out.

I just realised that I didn't take into account the land tax free threshold of $549,000 but this guy owns several properties and has 'used it up' on these, but is should probably be apportioned between all the properties he owns.

 

Tell me about it. Land tax is killing me. I'm paying 60k+ per year - serious money!

 

Get out of residential property or change your structure/location of properties or just crank up the rent.

 

Commercial property also attracts land tax right?

 

@devank - but as the land is often of lower value and the rent is higher the returns are better.

 

1 - yes will do slowly once the expected capital gains don't outweigh the costs of holding. For the market Insee strong gains ahead next 5 years so will hold (despite the fxxxxing exorbatent taxes). But yes will eventually allocate more cash and gains towards other investments that are more tax efficient once capital gains level out.

2 - there are transfer costs in doing that (although I will look at any new buys with this in mind - also consider buying interstate etc).

3 - yes am doing so, albeit slowly and steadily.

 

Yes but the tenant usually pays - contractually.

 

Yes noted. And the other point people have made is that with commercial one can sometimes pass the cost of land tax to the lessor. (Although one can also of course do this with residential also - it's just that ultimately yield on residential is usually lower).

 

Silly him for having it all in one entity. It does highlight how much landtax can affect the bottom line even when distributed over multiple properties. It probably is 20-30% of that's properties yield once distributed amongst the

Also I'd like to live in/rent a $2.5m place for $900 pw - that would be awesome.

 

Many smaller tenants do not pay either. As the clause is generally drafted as land tax is payable on a single holding basis many CIP fall below the threshold individually however the lessor still has a liability collectively across their portfolio. Eg 10 CIP each with a LV of $200k which is below the NSW threshold but the lessor is still liable on $1,451,000 * 1.6% + $100.

 

Prob not very hard at all in Syd, I know someone renting inner city Syd for 800/w.... it has to be 2 mil or more for a house there

 

I know the feeling, just got my NSW land tax bills for this yr - $46K It can't be just written off as a 'cost of doing business'. It's significant , it hurts and is a rort and a half.

Bottom line is - if you want to own several props in Sydney, land tax is pretty much inescapable. Yes, you could buy via a company, use your spouse etc etc but once you start accumulating a few. you're gonna get stung one way or the other.

Hence why we're planning to move into one of my IPs in the East. But that comes with other issues, like having to spend $$$ on renos to appease the other half

 

I looked at Sydney but decided to buy in NZ instead. .the first year for stamp duty and land tax was going to be almost $1m in Sydney $0 in NZ ...every year a killer cost
It is a lot of money to hand over to the government in one and every other year ...forever and forever
As for CG .....who knows!!!!!

 

Well, I would be looking to lower this, I would never be handing that sort of money to the Govt unless the CG is far outstripping this cost.

You could have an expensive home in a great growth potential area and some flats on smaller blocks, then spread it out over other states, either way, would want to be bumping up the cash flow to cover it.

 

My nsw land tax bill was nearly 11k for several Sydney ips. Not nearly as much, however being all units I have strata which is a huge amount pa on top.

 

For $46k I could spend a quarter of it to set up maintain and put up with the hassles of different entities.
Trouble is it would now cost you a lot of money to transfer properties out of your own name into each entity but you could do one a year or sell and buy another property in the right structure.
Thankfully I got good advice early on so only had to transfer one property from my own name into a Trust.

 

Terrible terrible yields

 

Yes...there are quite few people on NSW in particular in this predicament.

A lot of them did not have strategy.....they just bought properties.

Know someone who has 6 properties in Sydney (all houses in Western/SW suburbs)...total land tax mill is about 30k.....rents are about 180k....debt is about 3m. They have about $1m equity. The issue is they are still negatively geared....and land tax is the killer expense as it is 20% of overall rents.

Just got my land tax..for...10k in NSW..others are ...6.5k in Qld....1.3k in SA...2k Vic....and 0.5k in WA. So still very manageable as this represents less than 4% of total rents.