Converting Commercial to Residential before buying?

[baha]

Hi,

I have a problem and looking for some creative suggestions

I am looking to buy the following property in Melbourne to develop into residential apartments:

- Commercial offices (currently owner occupied)
- Mixed Zone use (residential/commercial)
- They want $1mil for it, willing to do 8 month settlement
- Rental will be around $50k, but may take a while to rent out as commercial
- The end cost will be $1.1mil, includes $100k in GST which I can claim back post development
- Due to it being sold on vacant possession as commercial I may not be able to borrow more than $500k-$600k against it if that.
- I have some cash in the bank but not enough to cover the remainder and the repayments while vacant.

THE PROBLEM: the main problem is getting sufficient finance to cover the majority of the cost for the property. Especially since the valuation will come in lowish as it will be vacant and there's that additional $100k in GST upfront on settlement.

What are my options so I can buy it with banks money?

Could I convert it to residential before I buy it somehow and buy it as a residential loan? it will also rent out a lot easier as residential and I can borrow 80% of the value and avoid the GST.

Any other creative ways?

 

[MRO]

As a developer you should be able to claim the GST back in the period you have paid it.

 

[baha]

thanks

Thanks MRO buy I don't anything to claim it against as my day job is PAYG

How does converting commercial to residential in a mixed zone work? I assume it's a council application of some sort with plans etc?

 

[tobe]

I suggest trying something smaller and simpler. You cant easily convert commercial to residential for lending purposes.

 

[MRO]

Thanks MRO buy I don't anything to claim it against as my day job is PAYG

QUOTE]

You day job is irrelevant.

By purchasing a property to convert into residential properties (assuming you will be selling rather than renting them) you are operating a property development business. Alternatively if you intend to find a commercial tenant then you are operating a business of renting commercial property. This would generally require/allow you to register for GST. GST included on your purchases is claimable in your BAS.

Income to claim against is irrelevant in this situation. Your intention with the property is what will determine whether you are entitled to the GST credit.

Please seek your own advice but this is a fairly straight forward situation in relation to GST.

 

[Aaron_C]

You can pretty much forget about being tricky. Either fund it upfront with a commercial loan or don't do it.