The idea of property investment is exciting. Whether you’re looking to expand your business or you’re an investor wanting to add another portfolio, the anticipation outweighs the dread…most of the time. People who are new to the property game often find themselves disappointed and reaching too far outside their budget. How do you avoid this yourself?
You have dreams, but reality will give you a rude awakening if you’re not careful. Working towards a goal slowly and steadily ensures stable growth. If you peak too high, too fast it will all come crashing down. Not meeting payments, having bad tenants, or finding faults with the property after purchase are all possibilities if you rush into buying.
Even though most people still look for their next property investment online, the newspaper listings are still a valuable resource.
When we say hunt everywhere, we also mean broaden your search radius. Seasoned property investors and business owners have places all around Australia. Search online for the best growth suburbs in Australia, you’re bound to see something that ticks the boxes. Which leads us to the next point.
Write a list
This will keep you on track, and honest. Whether you call it a purchase plan, a property checklist, or something else, make sure it’s on hand when you’re looking at places. If you’re concerned about depreciation, add these to the list:
Has any renovation work been done recently?
Are the fixtures in good condition?
Will this still give me income X years from now?
What’s the area in meters squared?
Turn off your emotions
This step is crucial. Letting your emotions get into the mix leads to burnout and heartache. When things don’t turn out the way you hope (you lose the bid, offer rejected, etc) of course it’s disappointing. But you keep your chin up and carry on. The best property investment for you is out there; you just have to look a little harder.
This point ties into point number one about realism. If you’re an investor looking for rental properties, don’t think about the hunt as looking for your dream home. Not even if it’s ten years down the track. You’re looking for a place that will attract tenants and generate income for you. The best property investment for you might be a home or an apartment that doesn’t suit your tastes, but will be perfect for someone who rents it from you.
Get the professionals on your side
As soon as the property is settled, call Deppro to have a quantity surveyor inspect the property. You’ll receive the best, most accurate depreciation schedule if they see the place in its original condition.
Also invest in a property manager to find tenants (again, avoiding emotional investment). They’ll manage the bulk of caring for your portfolio. After you receive your tax depreciation report, hand it over to your accountant. They’ll make sure you get the maximum refund every year, contributing to your coffers so you can keep growing.
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We answer rental property depreciation questions on a daily basis here at Deppro, and some have popped up more than others. If you’re new to the tax depreciation world, or just need a refresher to jog your memory, read on.
What’s the difference between ongoing and capital expenses?
When you hire a property manager, pay for advertising and cleaning, alongside various fees and rates for council and the like, they’re ongoing expenses.
Capital expenses contribute directly to your rental property depreciation. Capital works like the rendering of the building, any electrical work or appliances installed are eligible.
How can I measure depreciation potential?
You can go the old fashioned route and crunch the numbers yourself, but what’s the point if you don’t have to? Deppro has a free online depreciation estimate tool that’s trusted by investors, tax agents, and real estate professionals. You’ll need the following information:
Date of construction
Type of structure
Can I claim depreciation on previous renovations?
Yes you can! The beauty of rental property depreciation is you can claim existing works on any structure built after 1987, regardless of who completed them. You own the building after settlement, so the plant & equipment and capital works depreciation are yours.
What can I deduct at tax time?
This is one of the rental property depreciation questions we can’t answer. If you’re looking to claim deductions for your tax return, it’s better to ask your accountant. They’ll have your existing portfolio, previous tax history, and the other information they need to give you a better answer.
What you can depreciate is another matter. For example, if a tenant has caused damage to the property and you need to conduct capital works to fix them. You’ll have to make adjustments to the depreciation schedule, but you can claim depreciation on the works for as long as you own the property.
Customers rely on Deppro to answer their rental property depreciation questions before and after adding to their portfolios. Our blog has extensive advice on a range of topics and we’re available anytime over phone, or at our offices in capital cities around Australia.
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Commercial, residential, apartments, houses, duplexes; the potential in real estate is endless. There’s different real estate strategies that investors can use for any of the above. Each approach has its pros, cons, and methods that will build your portfolio into something amazing.
There’s more differences between commercial and residential real estate than just the name. When placing a deposit on a commercial property, expect to put down up to 30% of the settlement price. You’ll also need a tenant that guarantees income no matter how competitive the market.
Lots of work goes into researching commercial real estate. Investors must look at demographics, market potential, spending habits of residents, and the like to make sure they get the best return. When the tenant signs the lease, the contract will last a long time compared to a residential one. Think between three and ten years.
You put a lot of work into finding a good piece of real estate, so it should work for you in return. Capital growth means you hold onto the home for a while, expecting it to make a nice profit when the time comes to sell. The resale price is affected thanks to area profile like access to schools, public transport and shopping.
Investors using this strategy must have patience if they want to see the benefits. Working a depreciation schedule into this will also help you net a larger profit. When the building depreciates, so does the cost base. Lower cost base (aka lower worth at resale) means less capital gains tax to pay.
It’s oh so tempting to buy in a capital city, but it costs more money and there’s often too much competition. The Australian apartment glut means investors are snapping up properties in bulk, almost suffocating each other in one suburb or just one building.
Popular growth areas aren’t just suburbs in the city. Regional, outlying real estate is great for negative gearing, with the eventual goal of a profit at resale. This is because investors see the potential in the homes and the general area and have the patience to wait for the right time to sell.
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Investing in property is a path many choose to grow their wealth. Experienced investors, like those who take mentorship roles in Property Club, have a couple of dozen properties around Australia. Others are content with having just two or three in their portfolio. First-timers wonder, though: how do these experienced investors survive the game?
One aspect is knowing what could go wrong, and taking measures to prevent it. Investing in property isn’t a matter of ‘I’ll buy a place and hope for the best’. It’s a strategic game, and there’s every chance of losing. Dodgy tenants, bad property managers, natural disasters, and debt, are just some of what can go wrong.
It’s important for investors to do their homework, and those who’ve played the game a while don’t even have to think about it. Seasoned investors look at property condition, the potential for capital gains tax, the ideal tenant for the place, and how much competition (other investors) there is in the surrounding area.
When you’re investing in property, you’ll also need a team of professionals on your side to handle the things you can’t. The same way you’d call a plumber to fix the pipes, you need a depreciation professional to make your depreciation schedule. Deppro’s quantity surveyors do their best work after the deal on the property is settled and they can inspect it in the condition you bought it. If you want to continue investing in property, having a depreciation schedule in hand will get you there faster.
To survive investing in property it’s important to know the risks, accept them, and do whatever you can to prevent them. You also need to do your homework on the house, apartment, or whatever else you want to add to your portfolio. To have a chance in the game, call on professionals like Deppro to get the ‘official business’ around your tax depreciation sorted.
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There’s never one, simple reason for investing in property. Buyers might want to add to an existing portfolio, start a renovation project, or have a home to rent out for holidays. Humans are only, well, human and emotions sometimes run high when it comes to property.
Avoiding emotions is difficult; you can’t shut them off completely. When you get something you want it’s natural to feel happiness, even elation. But the opposite is sadness and downright devastation. First-time investors and buyers are most susceptible to this because they lack experience in the area. The emotional burnout of hunting for properties and attempting to invest, only to get rejected, is severe.
Seasoned investors have gone through the initial roller-coaster of emotion and know that they’re investing in property for their potential tenants, not themselves. Investors have the experience to analyse properties with a near ‘clinical’ eye. They categorise the positives and the negatives of the home, whether it fits the profile of their ideal tenant, and if it will generate any income.
One way to deal with the emotions, and all the highs and lows that come with them, is developing a business mindset. Take the personal bias out of the equation and ask yourself: “what would an investor do?” Don’t go about investing in property because you hope to move into it one day or it fits the mould of your dream house. Your tastes, great as they are, don’t suit everyone.
Another way is to get the professionals on your side. The buyers agents and property specialists at your bank are unbiased and will honestly say if a particular home is a smart buy. When you’re looking at property for investment, you want to buy a place that generates income. It’s not pleasant when a depreciation specialist comes back with a report saying you basically purchased a money pit.
Emotions are fine, but emotional fall out is not. Avoid making irrational decisions by changing your mindset and getting the professionals on your side.
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Rental property depreciation is a bit of a mouthful but it’s an essential part of owning an investment property. Everyone makes mistakes when it comes to complicated tax matters, and that’s the reason why clients come to Deppro for professional help. We list a few common mistakes (plus more here) so you can avoid them.
People don’t depreciate. Ever.
80% of property investors neglect having their rental property assessed for depreciation. This mistake costs them thousands of dollars over the time they own the house, with the money they could earn going back into tax instead.
Deppro calculates that getting a depreciation report can earn investors back 60% of the property’s purchase price. These funds are often used to save for future properties.
Confusing the categories
The deprecation specialists place items of value into two categories: plant and equipment, and capital works.
Plant and equipment: The owners often move these into the house when they buy it, and they can be removed just as easily. Items in this category include:
Hot water systems
The other category is capital works. These items are built into the house. They include:
There’s more information from the ATO about assets eligible for depreciation in this PDF.
People overlook potential deductions
Investors make this mistake a lot because they don’t know what they can claim. This all adds up to a larger depreciation on the report the new owner receives. Claimable items include something as large as a swimming pool to something as innocuous as a smoke alarm. These potential deductions leave investors out of pocket when they’re not claimed.
If you’re an investor and don’t have a depreciation schedule, you’re missing out on thousands of dollars in returns every year. Those who do have a schedule are liable to make mistakes, like confusing what item goes into which category. To avoid mistakes like this, get an expert like Deppro on your side to take the guesswork out of rental property depreciation.
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Property depreciation is a crucial part of managing your taxes and rental property. If you don’t do it, you’re missing out on cash – lots of it. So how does one get on top of their tax depreciation?
First thing’s first: get an expert. Companies like Deppro prepare depreciation reports/schedules that are ATO compliant. Their staff evaluate items for their lifetime value and prepare the report, detailing how they will decrease in value over time. Things in and around the home fall into two categories: plant and equipment, or capital works
Second, get the expert to come as soon as you settle with the real estate agent. Quantity surveyors work best when they see the items in the condition you bought them. If the previous owner has done renovations, you can claim deductions on their work! The ATO will only accept a property depreciation report created by a quantity surveyor, not an accountant. This is because they’re the most qualified to do it. You wouldn’t expect someone who estimates material costs for a living to write your tax return.
That said, the third step is to get your accountant on your side. They help you with your tax return every year, making sure you’re not missing anything you’re eligible to claim. The accountant will treat the property and depreciable items as another asset to claim. They’ll need the property depreciation schedule to properly write out the returns over the years.
Another helpful way to get on top of property depreciation is to make sure you’re buying a property that will pay for itself over the years. A house or apartment that’s recently renovated and meets the criteria to generate high rental income is ideal.
Property depreciation is difficult to wrap your head around. To get on top of it, it’s absolutely necessary to call in experts like Deppro not long after your settlement. When you’ve got the depreciation schedule in hand, you’re set for life, or at least the next forty years.
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In most capital cities of Australia, apart from Melbourne and Sydney, there are still a plentiful supply of properties priced for sale under $500,000. This includes Brisbane, Perth, Adelaide and Hobart. Major regional centres such as the Gold Coast in Queensland and Bunbury in Western Australia have this abundance of properties as well. In Perth, for example, it’s now an investors paradise. There’s many properties currently listed for sale under $500,000 located within a 20 kilometre radius of the CBD.
$500,000 is around half the median house price of Sydney. Properties in theses competitively priced capital cities offer a low risk entry into the property market. There’s added potential for capital growth moving forward. Yet, it’s important that first time investors take a cautious approach to their first property investment purchase. Realistically, they should focus on buying an investment property for under $500,000.
It’s an unfortunate fact that too many first-time investors financially over expose themselves. They buy an expensive investment property that limits their ability to purchase more in the future. This is especially the case if they purchase an expensive property in the wrong location. That could result in a financial nightmare. In contrast, buying a lower priced property that’s got the potential for strong capital growth is an important building block to creating a successful property portfolio.
Lower priced properties tend to have higher rental returns. This is important in a climate of rising interest rates, with the major banks increasing rates for investors over recent months.
Issues you should consider when buying a lower priced property include:
Spend time researching all aspects of property market before even looking for an investment property. First time property investors need to consider factors like negative or positive gearing, rental returns and depreciation.
Past trends in property values will generally indicate future trends. Therefore, it’s wise to examine the long-term capital growth rates of the suburb.
Take a broad approach to buying an investment property. Most first-time property investors buy a property in their local neighbourhood because they’re familiar with the area. By taking a narrow approach to the location of the investment property, first time investors severely limit their options.
Target suburbs in lower priced areas that have a higher number of properties for sale. A simple tip is to check the internet and weekend papers. This helps investors discover areas with a larger number of property ads.
When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first-time investors purchase a property they’d like to live in. It’s important to remember that the investment property must appeal to a tenant who’ll be paying the rent.
Check out any planning changes proposed for the suburb. Many local governments are undertaking reviews of zoning that potentially have a major impact on property values. For example, a property that was purchased for a single residential use and then rezoned by the local council, as a triplex site. The property in turn notably increases in value. The planning department of a local government can inform first time investors of any proposed zoning changes.
Check out any planned infrastructure changes in an area you’re interested in buying. For example, an upgrade of a local shopping centre or a new railway station will make a major impact on local property values.
Make sure that there are tenants prepared to rent your property. Rental income is a key factor in serving the loan. If you can’t find a tenant, then you’ll have problems keeping the investment property over the longer term.
Check your finances before you consider buying anything. If you have pre-approval finance it will allow you to move more quickly to secure the right investment property.
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