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The great debate | Buy old property or build new?

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Are you holding out for a heritage home? Or would you rather build a house that pays homage to era’s past with heritage ‘features’? We’ve gathered articles around the web that compare the pros and cons of buying vs. building for investment purposes.

 

Buying a house vs. building a house by CanStar

property

Banking, insurance, and investing are all part of CanStar’s services. It’s natural they’d write something about property investment and the associated costs. They look at both sides equally, listing the pros and cons of each. This is frustrating to those who want a simple ‘yes or no’ answer but their advice is not to be taken for granted

Building your home vs. buying: What to know before you decide by Domain

Domain interviewed several experts in the property field about this topic. A buyer’s agent, realtor, builder, and lecturer all have their say. Ultimately though? It depends on  the investor and their priorities.

 

Building your own Investment Property from Scratch by Your Investment Property

This article is written by Lindy Lear, a successful investor who built a portfolio of eight properties in three years. She takes readers through the process of building a home for investment purposes. This starts with choosing a property and ends with the amount of the (many) tax benefits the reader can claim if they follow through on their plans.

 

The big match up: buying old or buying new by Your Investment Property

Your Investment Property pits an investment strategist against a new homes developer in the debate. Both sides have valid points, some of which you mightn’t have thought of.

 

Is Buying A House or Building a Home a Better Investment? By Home Together

 

Home Together asks the questions the investor’s need to answer so they can decide what’s best for them. There’s even a downloadable checklist included!

 

Need more advice? Read on…

  1. 8 amazing home builds and overhauls from around the web to inspire your investment property renovation
  2. 4 articles that give investors a reality check about the property market, worldwide
  3. What NOT to do before and after getting your property report

6 signs of an amazing property manager

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When you purchase an investment property you can’t shoulder the burden of managing it yourself. Investors regularly pass this duty on to their property managers. Of course there’s a few ‘unreputable’ characters out there, but the professionals are worth their weight in gold (or rental profits!).

When you’re comparing agencies and individuals, make sure you’re noting down these five points:

 

Their vacancy rates
As in, they’re minimal. Good property management equals low vacancy rates. Your property won’t lack for tenants because the manager has done their job properly.

Senior management aren’t afraid to be hand-on with the work and that’s another reason why some firms are so successful. The more experienced people are still in the game, doing their best for their clients.

 

They have a network of services
Yes, the manager’s main job is to MAINTAIN your properties and make sure the rent is getting paid. But they should offer more than just this basic service. A good firm will also check the market to make sure rent is fair. They’ll calculate invoices for you. There’s a network of trades on speed-dial when something has to get repaired. In short, you don’t have to lift a finger, because your property manager should be taking on most of the responsibility.

Got a property problem? They have someone to fix it.

The door’s always open
Irregular communication is a red flag. Property managers must call their clients regularly with updates about the homes and spaces they’re responsible for. It doesn’t matter if the news is bad. Transparency is key. Plus, when the client calls, they’ll always answer unless there’s an emergency.

 

They come highly recommended
If an investor is happy with their team, of course they’ll spread the word and recommend them. Investors reach out to each other regularly for advice about who to hire and what market actions to take.

If you know an investor with a good portfolio who seems to be sailing along with a big smile on their face, ask them who manages their properties. Alternatively, you can do a Google search and look at recent My Business reviews.

 

Everyone’s happy
If people in the property management firm look like they’d rather be somewhere else, it’s best to walk right out the door again and not take the meeting. If staff are happy and content in their job, they’re going to do their best for YOU too.

 

Genuinely happy staff will care more about your investments

 

The firm is a well-oiled machine
Your property manager should have a regimented schedule that encompasses everything they do. Inspections are a regular occurrence alongside rent payments and client meetings.

 

Liked this? We have more advice to share…

  1. The one depreciation law change you absolutely need to know
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  3. Behave like a 1% investor with these tips

Depreciation assistance for real estate professionals

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To make a sale, real estate agents need to rely on cold hard facts. Their clients need assurances that the property they’re seeing is the best investment for them. It doesn’t matter if the property is a commercial building or a home; if there’s benefits available, it’s music to anyone’s ears.

 

There’s two classes in a depreciation schedule: capital works, and plant & equipment. Capital works are things the ATO considers permanently fixed to the building (bricks, mortar, wiring etc). Plant and equipment is a different matter. Items in this category are things that can easily be removed from the building such as carpet, furniture, and even the smoke alarms. Thanks to age and general wear, the items in both categories will lose value over time. This creates an amount that can get claimed on a tax return every year.

 

Having access to ATO-approved depreciation schedules almost on-demand is a great asset for real estate agents and property managers. They can present tangible tax benefits to their clients during a sit-down meeting or even during a property inspection.

 

Real estate agents know that their clients are looking for the best deal. Presenting the depreciation schedule is a huge advantage in helping them close a sale. Depreciation is essentially the same as savings, or money back from a PAYG statement. It shows the property’s earning potential and can be the difference between a negative-geared asset and turning a profit every week.

 

Property managers will also benefit from professional depreciation assistance. If their client is unsure of the tax breaks their property can provide, managers can look up a deprecation report just as easily as a real estate agent. Oftentimes the investor doesn’t know they can order the depreciation report themselves and turns to their manager for help.

 

The benefits that real estate agents and property managers can reap from depreciation assistance are numerous. They don’t just build trust with their client by providing the basis for sound advice. They’ll net a sale and gain a reputation for handling properties with amazing tax benefits.

FAQs on capital gains tax

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Capital gains tax is one of the complicated terms in the investment world. It’s essential, though, to understand it when it’s time to sell your investment property. We break down some of the frequently asked questions about capital gains tax here.

 

  • What does it mean?

Capital gain means you sell your asset for a profit. This includes investment properties and shares. Selling an asset for a capital loss is when you lose money on that asset come sale time.

 

  • What’s excluded from CGT?

Capital gains tax only applies to your assets, not your personal property. Your personal home, car, and collectables are excluded from taxation. According to the ATO website, depreciating items don’t count in calculating capital gains tax. This is usually plant & equipment in your rental property portfolio. Also excluded are:

  • Injury compensation
  • Personal assets like boats and furniture
  • Anything bought before September 20th, 1985 (pre-CGT)
  • Winnings or losses from gambling

 

  • Do rates vary?

That depends if you’re an individual or a business. The rate paid to you is the same as that of your income tax rate the year of your return. The way capital gains tax is calculated remains the same. The most common method is subtracting your cost base from the sale price of your property.

 

The cost base is how much you bought the property for, plus any associated expenses. This includes stamp duty, plus legal and incidental costs. You also must subtract depreciating items. Finder.com visualising the calculations like this:
capital gains tax

 

  • Can I get a discount on my capital gains tax?

Yes, you can get a discount on your tax, but only if you’ve held the asset for more than 12 months. You can also claim a discount for the amount of time the asset was used for personal reasons.

 

If you’re not sure about your capital gains tax, there’s free calculators available from investment websites like Your Investment Property.

4 common rental property depreciation questions

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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
  • Purchase price
  • Floor area
  • Location
  • 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.

What NOT to do before and after getting your property report

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One of the great successes you can make as an investor is getting your property report done and dusted to accurately list all claimable tax depreciation items. By having a tax depreciation schedule, you’re getting more money in your tax returns and that can take you to your financial goals faster. But if you make mistakes like these, it’ll end up costing you instead.

 

Maintenance

Ideally, you want to have purchased a property that’s recently undergone renovations. It’s fixtures are relatively new and you can claim depreciation on work the previous owner has done.

If you did your homework before signing on the dotted line, then there’s not much cause for concern. But a crumbling, ‘project’ property will drain the money faster than you can earn it back because you’re spending it on new fittings and appliances.

 

Tenants

When you submit your property report to your accountant, the next step is to hire a property manager to look for tenants. Don’t do this job yourself; it makes the hard stuff more complicated down the road. For example, what happens after you get friendly and the tenants do something that would normally get them evicted? Are you prepared to look them in the eye and ask them to move out?

Letting a property manager choose the tenants will save you an emotional and financial headache. A good tenant won’t cost you money because they treat your property with respect and follow the rules.  

 

Investment Strategy

Like any business owner, you’re hiring professionals like depreciation specialists to take care of your property report. You’re paying property managers to handle your asset so you can focus on expanding your portfolio. All of this is part of an investment strategy. Don’t treat the property game like a hobby; it’s a business.

Having success in property investment means having a level head and doing the right things. By not buying old, crumbling buildings and by letting someone else screen tenants, you’re on your way to becoming a successful businessperson. Tax depreciation, property reports, and other formal matters are hard tasks, but worthwhile when you’re creating a successful brand. Having the professionals, like Deppro, on your side makes it easier.

How to survive investing in property

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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.