A Property blog by Paul Bennion.
Property buyers considering purchasing an investment property should consider focusing on well located areas with high levels of rental properties.
Former rental properties offer opportunities for fast capital gain through cosmetic renovations.
These ‘ugly duckling’ ex rental properties traditionally have been neglected by their owners but offer excellent opportunities for astute investors.
This is particularly the case with self managed investment properties because many of these owners lack the discipline to regular property inspections and ensure that necessary maintenance is required such as replacing carpets or repainting internal walls.
A typical investment property of this kind may be one that has been leased to a successive number of students with the owner trying to sell the property it while the property is still under lease.
Poorly presented former rental properties are severely penalised by property buyers even though a small investment can totally rejuvenate these homes such as new carpets and painting.
DEPPRO finds that a large number of rental properties generally come onto the market during the first months of the financial year as owners decide to dispose of assets after reviewing their finances.
Astute homebuyers should focus on well located areas that have an above average rate of rental properties which means that the chances of buying a poorly presented property are higher and the buyer has the knowledge that it is located in an area that historically achieves high levels of capital growth.
When an investor is undertaking even modest improvements to an ex rental property, they should be aware of the generous tax depreciation benefits associated with property investment.
For example, investors who remove old floor coverings such as carpets and replace them with new carpets can qualify for these tax depreciation benefits.
Unfortunately, many investors throw out many items without understanding that they may claim tax benefits on these materials at 100% of its written down value in the year of disposal.
Investor can qualify for both plant and capital works allowance as a tax deduction and the residual write off of the disposed item through tax depreciation benefits.
However, to qualify for these tax benefits, the investors have to undertake a depreciation schedule for the property as near as to the date of purchase as possible.
The depreciation schedule will provide the Tax Office with a ‘physical snapshot’ of the property and the schedule will itemise all of the fixtures in the property that can be depreciated for tax purposes.
When the depreciation schedule is undertaken at the time of purchase, it means that the investor can still qualify for depreciation on many of the existing fixtures in the property providing the investor intends on keeping those existing fixtures/items and waits for a reasonable time to begin renovations. Many people do not realise that older properties still maintain substantial allowance in plant and equipment regardless of their age.
Even a property that is more than 50 years of age could still qualify for thousands of dollars each year in tax depreciation benefits for the owner.
Anyone who has purchased an older property for investment purposes should therefore carefully consider the significant taxation benefits that can be achieved before beginning any construction work.