Daddy Ireland
Registered User
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Hi,
I am a PAYE worker on higher tax rate and together with my wife who is a PAYE higher tax payer with no investments in property.
An opportunity has come up to purchase a commercial property in my thriving town for 70k plus 23% vat. Currently rented for 550 p.m plus vat and lessee pays all rates, management charges, ongoing costs.
Why would vat of 23% have to be paid by me ?
Why under current lease is the lessee paying vat on the rent ?
I would be a cash purchaser and I assume I would have no costs really to write off against the rental income.
What other costs would I have if buying the property ?
With interst rates so poor would I be left with a net yield of 4% ?
As you see I am a rookie in this but if I could get an approx 4% net after all costs I would be very happy with that.
Any help is appreciated.
Thanks.
As a further point, you should almost certainly borrow part of the purchase price. The interest is deductible in full.
Thanks for that very helpful advice.
Don't understand what you mean by saying I pay vat on the purchase but can claim vat back on the rent. Do you mean I pay 23% on the 70k purchase and I get to keep the 23% vat on the 550 monthly rent. If so I assume this 23% vat on the rent is not deemed as income for tax purposes.
As a further point, you should almost certainly borrow part of the purchase price. The interest is deductible in full.
Do you mean I pay 23% on the 70k purchase and I get to keep the 23% vat on the 550 monthly rent. If so I assume this 23% vat on the rent is not deemed as income for tax purposes.
the vat on purchase is 13.5% , not 23% ,
unless you yourself are registered for vat , you cannot claim back the vat on the purchase price , as for the vat on the rent , unless you are registered for vat yourself , you are not obliged to charge it , the tenant wont care either way about this
vat is chargeable on the sale of the property -, not the lease
It's never correct to incur an expenditure, just so that you can get tax relief on it.
It would be difficult anyway to get a mortgage for less than €70k. There would be additional legal costs incurred. It's simpler to buy for cash if you have it.
Yes.
I am aware that there has been some confusion and debate on this point and I am not going to say GBI is wrong.
See what you think yourself here. http://www.revenue.ie/en/vat/vat-on-property-and-construction/vat-and-letting-property/index.aspx
unfortunately you may not be any the wiser after reading it.
My understanding is that as a purchaser you inherit the existing VAT arrangements. This would require you to register for VAT.
The tenant may well care very much, if they are not themselves VAT registered the VAT element becomes a cost to them.
In this case VAT appears to be chargeable on both.
At the end of the day the actual VAT arrangements should not matter. What matters a lot is that you get them right. If you go ahead get proper advice on the VAT aspects.
Of course.
However if you get on well with this investment you may wish to make another in the future. If all your disposable cash is tied up here that will be more difficult.
This is probably true. It is certainly simpler to pay cash if you have it. But if that is all or nearly all the cash you have I suggest that you may wish to borrow to maintain flexibility.
It does explain why commercial properties at this level are perhaps good value. Too small for institutions, difficult to get a mortgage.
Called the auctioneer about this retail unit. They tell me that if I was to purchase the property I would need to register for vat and I would get the vat back on the purchase and pay over the vat on the rent. They say it's 23% vat
you inherit most of the conditions of the lease - tenancy , rent amount , management fees etc , vat is different , the obligation rests with the landlord so if the landlord is not registered for vat , they simply do not have to charge it , it makes no difference to the tenant as even the landlord was registered for vat , the tenant can claim the vat back
....there should be considerably less hassle , it also miles easier to evict a problem commercial tenant than a residential one
With due respect, I would not be so quick to make those statements
Perhaps I have seen more difficult or troubled commercial investment property cases than many others posting here, so that may explain why I am more reluctant about the proposed transaction.
Obviously, I take your point in principal about the amount of the investment and the expected location or covenant that comes with that expenditure, but I would hope that you are also aware that there are other options if someone is looking for commercial property exposure (and particularly if the person wants a lower level of risk, or may wish to diversify their investment across a number of properties, locations, tenants etc.).
First time investors who invest in deals like this often end up learning hard and expensive lessons. That's not to say that everyone has difficult experiences and it is not intended to disrespect the original poster, but it is a fact.
Caveat Emptor
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