A Finance blog by Paul Bennion.
One of the biggest challenges that property investors will face during the coming year throughout Australia is boosting their cash flow.
This cash flow challenge has been brought on by a trifecta of factors – slow rental growth, low rental returns and a residential building boom that has substantially added to the housing stock.
For example, the latest CoreLogic figures for 2015 show that rental growth for all the major capital cities throughout Australia rose by just 0.3% while rental returns were on average only 3.5%. In Melbourne, rental returns fell to just 3.1% by the end of 2015.
With interest rates likely to remain steady, property investors need to take a pro-active approach to boosting their rental returns during 2016.
To achieve this outcome, they need to focus increasingly on the needs of their clients – renters.
Most property managers will tell you that rental properties with a high level of security are now much easier to lease and tend to have a higher rental return. Therefore, rental property owners should ensure that, for example, the property has security doors and security window locks. It also might be attractive to renters if a garage door was installed if the property has a carport.
Installing an air-conditioning unit as well as a dishwasher are two other key features that prospective tenants increasingly want in a residential property.
Split reverse cycle air conditioning systems are the most popular with tenants because they allow for temperature control during both the summer and winter months.
The property should also be well maintained. For example, if you own a suburban property with a garden, it good idea is to ensure that you have a gardener contracted to maintain the outdoor areas. These expenses can be built into the rent and engaging a contractor to maintain the gardens ensures that they are always maintained.
Rental properties with poorly maintained gardens are more difficult to lease and achieve a lower rent compared to similar property with well maintained gardens.
Property investors can also boost their rental returns by claiming their full tax depreciation benefits which can be equivalent to 60% of the annual rental income of a typical investment property.
It may surprise many property investors that even garden gnomes can be depreciated for tax purposes.
Under taxation ruling TR2006/15 garden gnomes can be depreciated for tax purposes as plant over their economic life.
Many investors in Australia totally underestimate the number of items that can be depreciated for tax purposes and this comprehensive list can even include garden gnomes, cubby houses and if they own an apartment, then common areas such as car parking and recreational facilities.
To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an onsite inspection of the property and then compile a depreciation report based on this inspection.