Think big when buying investment property
When you’re looking a investment property to buy, it pays to think big. Taller buildings attract higher plant and equipment allowances and the higher the plant and equipment, the higher the depreciation.
Plant and equipment refers to necessary services within the building, as well as items within the property itself. Some of the services required as buildings increase in height are obvious, such as a lift (transport service). Other services are less obvious, with fire hose reels and intercoms all being depreciable under this category. The other reason tall buildings have a higher ratio of plant and equipment has to do with the amenities the developer provides. For instance, some high-rise buildings have swimming pools, gyms and even mini cinemas.
The numbers
The first thing to do is to look at a rough ratio of plant and equipment relative to construction cost (see Table 1).Now take a look at how this translates into deductions (see Table 2). These allowances all relate to a $400,000 property in a capital city - and are very approximate to allow for illustrative purposes only.
As you can see, the taller the building, the more you can depreciate. But keep in mind that a tall building doesn't necessarily make a better investment. It often means there'll be higher levies and additional expenses, and you own less land as well. But at the end of the day, it's up to you to weigh up the pros and cons… and make that final decision!
| Type of dwelling | Percentage |
|---|---|
| Freestanding house | 8-10% |
| Unit <4 floors | 10-12% |
| Unit 4-8 floors | 20-25% |
| Unit >8 floors | 20-25% |
| Type | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total |
|---|---|---|---|---|---|---|
| House | $7,000 | $5,000 | $4,000 | $3,500 | $3,250 | $150,000 |
| Unit <4 floors | $8,500 | $7,000 | $5,500 | $4,750 | $4,250 | $175,000 |
| Unit 4-8 floors | $10,000 | $8,000 | $7,000 | $6,000 | $5,000 | $200,000 |
| Unit >8 floors | $12,500 | $10,000 | $8,000 | $7,000 | $6,000 | $225,000 |
Questions?
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