You have a choice to make when investing in real estate. Commercial properties may be more difficult to manage than residential homes. However, there are plenty of reasons why you should invest in commercial property.
So, you’ve decided to invest in real estate. Commercial properties may not seem like the best choice. They come with more complications than residential properties. This means you need to know more than the property investment basics. However, many argue that the benefits of commercial property outweigh the complications.
When investing in real estate, commercial properties may offer more security. However, there are plenty of other reasons for why you should consider them as an option.
Reason #1 – Stronger Yields
What rental yield should you aim for? This is a question that plagues many property investment novices.
Residential properties tend to offer lower yields. According to CoreLogic RP Data, you’ll achieve an average yield of 3.6% on a city-based residential property.
You can expect to earn anywhere between 8% and 12% yield on a commercial property. As a result, commercial real estate will often generate more income than a residential property.
Reason #2 – A More Secure Income
People often focus on risk when discussing commercial property. In particular, they concentrate on the issue of attracting tenants. You need to consider the needs of people in the local area. How your property caters to businesses relevant to those needs is also a factor. If your property doesn’t fit the bill, you’ll find it difficult to attract commercial tenants.
However, many ignore income security. With a residential property, you may find that a tenant leaves after six months. This means you have to go through the process of filling the vacancy again.
By contrast, a commercial lease lasts between three and 10 years. This means your property generates more income for a longer period of time. As a result, you can feel more secure in your income, and as a result make other investment decisions with more confidence.
Reason #3 – Rate Payments
You’ll often take on the responsibility of paying various rates with a residential property. In addition to council and water rates, you may also have to cover body corporate fees.
This isn’t an issue with commercial real estate. Commercial tenants will handle the rate payments for you. As a result, you spend less on the property each month.
Reason #4 – The Tax Benefits
Though you’ll enjoy various tax benefits with residential real estate, commercial properties have even more to offer.
Beyond capital works depreciation, you can also claim depreciation on plant equipment. This includes depreciation for air conditioning units and light fixtures. You can even claim for things like the carpet.
That’s not all. Commercial properties also offer strong building allowances, which you can use to reduce the amount of tax that you pay.
Reason #5 – A Lower Initial Cost
Commercial properties often cost less than residential properties. This is despite the potential they have to generate higher yields. For example, you may spend $100,000 on a commercial car park. By contrast, a small residential apartment could cost as much as $500,000.
As a result, you need to raise less money to get on the commercial investment ladder. Let’s assume you can get a loan worth 80% of the property’s value. That means you only need $20,000 to place a deposit on the commercial car park. The apartment deposit would cost $100,000.
Reason #6 – Protection Against Inflation
Inflation can have a massive effect on your property investments. If inflation rises, tenants have less money. With a residential investment, this leads to higher vacancy rates. You’ll also struggle to raise rents because tenants can’t afford higher prices.
You’ll deal with similar struggles when investing in commercial real estate. However, commercial yields tend to outstrip inflation. As a result, you have more protection when inflation becomes an issue. Even if you can’t raise your rents, a commercial property should still generate an income.
Reason #7 – You Can Rent and Own
Let’s assume you’re a business owner. You may want to buy an office, but that won’t make any money for your company. However, leasing means that your money goes straight into the pocket of an investor. What can you do?
With commercial property, you can own the property you rent. You can make the purchase itself using a self-managed superannuation fund (SMSF). Your business then moves into the property, during which time it pays rent into the SMSF. As a result, you essentially pay yourself, rather than a landlord, for use of the property.
The Final Word
There are many reasons to invest in commercial property. However, you need a high level of expertise to make the most of your investment.
Washington Brown can help with any depreciation concerns you have. Contact us today to find out how our Quantity Surveyors can help you to get more out of your commercial property investment.
So how does commercial property really stack up against residential in relation to depreciation?
While we have covered the differences between the two, there are also some similarities.
For example, the higher the quality of the commercial property the higher the depreciation. And the taller the building in commercial property, the higher the depreciation allowance. This is the same for residential property. Also, similar to residential property, the newer the building, the higher the depreciation allowance will be.
Let’s now crunch some numbers, using the Washington Brown depreciation calculator.
Note, also, that you will get more depreciation on a commercial suite than a factory unit or industrial suit). This is because a factory unit does not have as much plant and equipment. It is nearly all made up of concrete and steel.
In short, if you are the tenant in a commercial property, and think now might be a good time to become the owner-occupier, don’t forget to claim those tax depreciation allowances available to you as a landlord.
Or if you’re an investor, don’t exclude commercial property as an option. The depreciation is still beneficial as yields can be higher.
Let me share with you two projects we’ve worked on across various sectors. Including commercial, hospitality, retail and office/warehouse to illustrate the depreciation benefits for different investors.
CASE STUDY: Lend Lease
When I started way back when, never in my wildest dreams did I think I would be preparing reports for a multi-national company like Lend Lease. But I’m proud to say, over the years we have prepared many reports for them. From multi-million dollar shopping centres in Victoria and New South Wales, to factories in Queensland, and retail warehouses in New Zealand. Lend Lease likes that we go the extra mile.
The key to preparing depreciation reports on these types of commercial and industrial properties lies in the research.
For example, Lend Lease purchased a 20,000 square metre shopping centre in Port Macquarie. The site had already undergone multiple upgrades over various years. One approach would have been to visit the site and make an estimation based upon any drawings we might have been provided with, inspect the site and discuss any changes that may have occurred with the building manager. But I always find that you need more than that.
With large projects such as a commercial shopping centre, you should always contact the council and sift through the endless archival documentation they have. This can sometimes take a whole day. There can literally be hundreds of files to sift through as each time a new tenant moves in and out, council generally has records of that move. Every time the previous building owner made changes to the building, council will have recorded the event. The advantage of going to council is that you ascertain when and what type of upgrades were completed. Sometimes the information even includes the estimated cost of the upgrades and plans of the work that occurred. This builds up a great case to go back to the client and say, “Look at all this extra stuff we discovered you can claim, and here’s how we can prove it.”Lend Lease liked that.
CASE STUDY: Ford Factory
When I first started preparing depreciation reports, I initially focused on residential investment property. Not because the reports are that different, we just hadn’t been engaged to prepare reports for commercial property. So when one of my mentors, the distinguished quantity surveyor Jim Ford, offered me the opportunity to work with him on the depreciation report of a Ford factory in Queensland, I jumped at the chance.
Off I flew to Jim’s office in Brisbane and started work on this project. I had never been to another quantity surveyors’ office before and I have to admit I was nervous.
I sunk my teeth in. The more I researched the part of the Tax Act relating to the manufacturing industry, the more areas I found where we could save our client money.
Remember, this was early on in the game. There were very few quantity surveyors specialising in this area. I discovered a little known part of the Tax Act that allowed this type of factory to claim building allowance at a rate of 4% per annum in comparison to the standard 2.5% per annum. You may think 1.5% doesn’t sound like a lot, but on a $10 million construction cost – that’s an extra $150,000 the client could write off every year.
Both Fords were very pleased.
Find out What Capital Works Are and How You Can Claim Them
Not all people buy an investment property in Australia and leave it just the way it is. Many invest in improvements, so they can charge more rent to tenants. Buying a property and making improvements to it is one of the best investment property tips for beginners in its own right. But did you know there are plenty of tax deductions in Australia that you can claim for the extra features you build?
It all comes down to capital works. Also known as Division 43 of the Income Tax Assessment Act (ITAA), capital works relates to the work and materials you spent money on to build the house.
Such costs include the following:
- The materials you use in construction, such as timber and tiles
- New extensions, such as a garage
- The construction of internal walls
- Excavation of new foundations for your construction work
- Improvements to the property’s structure, such as a new carport or fencing for the garden
- Renovations to the bathroom and kitchen
Beyond these practical costs, you can also claim tax deductions in Australia for some of the fees associated with construction. For example, you can claim for the fees you pay to surveyors, architects, and engineers. Additionally, you could also claim for the money you spent on acquiring building permits for the work.
Can I Claim Capital Works?
It depends on your situation. Your building needs to generate income, which means it must be an investment property in Australia. If the building has produced income within one financial year of your claim, you can claim tax deductions as part of Division 43 of the ITAA.
As for your own status, it can vary. You could be an individual investor or member of a trust. Companies can also claim for capital works, as can the managers of superannuation funds.
How Do I Calculate My Capital Works Deductions?
The first thing to remember is that any valuations you have for the work are not relevant. Your capital works tax deductions in Australia must relate to the actual construction costs.
There are two rates may apply to your capital works – 2.5% and 4%. Which of these is relevant to your work depends on several factors. These include when you started construction, how you use the capital work, and the type of work undertaken. Furthermore, you have to take the amount of time the capital work generated an income for during the last financial year into account.
It’s best to speak to a professional to find out which rates apply to your capital work. Making claims you’re not entitled to could land you in trouble.
How Do I Make a Claim?
You can make claims for tax deductions in Australia on any capital works for a maximum of 40 years after the construction completion date. However, you’ll also have to provide several details in your claim, which include the following:
- Information about the type of capital work undertaken
- The start and end dates for construction
- Information about who did the work
- The actual cost of construction, which is not the same as any valuations or purchase prices you have
- Information about how the capital work generated an income for you during the last financial year
Sometimes, it’s difficult to determine the actual construction costs. You may have lost some receipts along the way, which means you need an estimate. This must come from a quantity surveyor, or an independent third-party who holds similar qualifications to a quantity surveyor.
The estimate your quantity surveyor produces will consist of a schedule for all the capital works undertaken. It also creates a forecast for the tax deductions in Australia that you can claim on the work. Take this schedule and use it to complete your tax returns. Also, bear in mind that the estimate cannot come from a real estate agent or accountant. The Australian Taxation Office (ATO) will refuse your claims if your estimate comes from the wrong source.
How Does Capital Gains Tax Relate to Capital Works?
Any capital works that you claim must be taken into account if you decide to sell the property. You will use them to figure out your capital gains or losses.
You must deduct your capital works claims from the base cost of the home. The amount of these deductions will affect the amount of Capital Gains Tax (CGT) you pay. If the deductions result in you making a loss on the property, you may not have to pay any CGT.
Your Investment Property in Australia Doesn’t Have to be Pre-Owned
Whether you buy an old or new property is one of the key decisions you’ll have to make when buying an investment property in Australia. Both have their advantages. With an old property, you can often secure a great deal, plus there’s potential to renovate and add value. You can also feel more certain about how the property will perform
A new investment property in Australia may not come with those assurances. However, you shouldn’t discount them outright. In fact, investing in new homes comes with several benefits that may earn you more money.
Benefit #1 – Higher Capital Growth
As we all know, location is important when buying an investment property in Australia. Choose the wrong location, and you limit the capital growth your property will enjoy. Buying an old property in a desirable location practically guarantees you’ll enjoy capital growth. That’s a given.
But many don’t realise that the same applies to new properties as well. In fact, a new property may enjoy greater capital growth than an old property in the same location. Newer properties tend to enjoy higher levels of demand than old properties. Buyers and renters want the latest mod cons, which they won’t always get with an old property. This increased demand makes the location more desirable which contributes to increased capital growth for your property.
Benefit #2 – Construction Quality
Have you ever bought an old investment property in Australia, only to find that you have to spend thousands of dollars on renovations? It’s not an uncommon problem. Properties wear out over time. Fixtures need replacing and appliances need maintenance. This is all money coming out of your pocket.
Yes, you can claim tax deductions in Australia for some of this work. But you may not want to deal with the hassle.
A new property allows you to avoid those problems. There are stringent regulations in place to ensure all newly-built properties meet certain standards. They have to be built to a certain quality level, plus they must be energy efficient. This means you can feel certain that the construction quality of a new building will be high. As a result, you don’t have to spend more money on making improvements.
Benefit #3 – Lower Prices
A lot of people will tell you that it’s almost impossible to get a new property at a low price. Developers know the value of their properties and won’t sell for anything less.
This may be true when trying to buy a new property after the developer has already sold most of their stock. However, it discounts the potential savings you could by getting in early.
Keep your ear to the ground so you can find out about upcoming development work. If the houses are in a desirable location, you should try to get in as early as possible. Many developers sell their new properties for less than they’re worth to investors who make early offers. If you’re among that group, you’ll have a great property that cost you less than it should have.
Benefit #4 – You Attract More Tenants
We touched on this point earlier, but it’s worth coming back to. Tenants want properties that offer the latest appliances. They also want to pay as little as possible on their utility bills.
Buying an old investment property in Australia sometimes means that you can’t offer these things to your prospective tenants. The fixtures and appliances may be out of date, which lowers the demand. The property may also not be energy efficient. In the end, you have to charge less rent than you may wish so that you can attract tenants.
That shouldn’t be a problem with a new property. The developers will have installed modern fixtures and appliances, which attract more tenant applications. You don’t have to pay for renovations, plus, you can charge higher rents.
Benefit #5 – You Get a Blank Slate
Let’s assume you aren’t buying the property as an investment. Instead, you want to live in it yourself. If you buy an established, older property, you’re going to have to deal with the previous owner’s choices. You may have to spend a lot of money to change things until they’re just the way you like them.
When buying a new home, you have more choice. For example, you can discuss your preferences with the developer to ensure the home is built to meet your needs.
The prospect of having a blank slate appeals to many buyers. Plus, you get to enjoy the other benefit’s we’ve mentioned if you do decide to take on some tenants.
Our Location-Based Property Investment Strategies in Australia
You need to consider much more than the state of the property when buying an investment property in Australia. The location plays just as big of a role in your decision. After all, a property in the wrong location won’t attract any demand. With no demand, you can’t find tenants. This leads to an investment property in Australia failing to generate the income you expected.
So how do you choose the right location? There are several location-based property investment strategies in Australia that you need to keep in mind.
Mapping the Suburb
You should already have a general idea of how much you’re willing to spend on your new property. If you don’t, then organising your budget should be your first step.
However, let’s assume you already know. Now’s the time to start looking at different suburbs. What you’ll find is that the majority of suburbs have what some professionals refer to as “preferred pockets”. These are areas where the demand for properties is at its peak.
If you buy an investment property in Australia in one of these pockets, you should enjoy capital growth almost immediately. However, you can also use preferred pockets as part of a long-term strategy. As preferred pockets become more popular, so do the pockets around them. You could buy in a preferred pocket, while also investing in some of the less popular pockets around it.
As your preferred pocket grows, you’ll reap immediate rewards. However, you’ll also enjoy long-term rewards as the surrounding pockets become preferred pockets in their own right.
Read the Data
It’s not difficult to find organisations that can provide you with the sales data for the area you’re considering. You can use this information to track how much prices have grown or fallen in a location. Many reports even allow you to break this down by month or year, often up to a 10-year limit.
So how can this help you? Firstly, it helps you to identify if the location is in an upswing or downswing. Ideally, you should avoid properties in areas that are about to swing downwards.
However, you could also take advantage of a downswing. If it looks like a location has bottomed out, you could buy a property in preparation for a rebound. The data will show you how likely this rebound is.
Check Infrastructure Trends
One of the best property investment tips for beginners is to track infrastructure trends across several locations. As a general rule, more infrastructure leads to higher house prices. After all, most people want to live in areas that offer easy access to amenities or the city.
The trick here is to look at what’s planned, rather than what’s already in place. Speak to local councils to find out what work may be planned in an area.
You’re looking for the “hot spots”. These are areas for which there are plans for infrastructural improvements that either haven’t started yet or are just beginning. Upon completion of those improvements, you should find that the demand for properties in those areas skyrockets. If you got in early, you can reap the rewards.
Avoid High Population Areas
This is one of the simplest property investment tips for beginners. The more houses there are in a location, the less demand you will experience.
It comes down to the basic concept of supply and demand. Property prices and rents fall whenever housing is in high supply. That’s because buyers and tenants have more room to negotiate because there are always going to be more options.
As a result, you should avoid areas with high populations. These tend to have a lot of supply, which means the demand is already met. Instead, look towards developing areas in desirable locations.
Check the Attractions
People buy or rent properties because of what the location offers as well as the property itself. This is where local attractions could shape your decision. A property that has a lot of nearby attractions will generally experience more demand than one that doesn’t.
So what is an attraction? On the basic level, you have things like creeks, beaches, and hiking trails. A lot of people like to have those things on their doorsteps, especially if they have families that they need to entertain.
However, you also need to consider the proximity of these attractions to the property. For example, let’s assume you’re buying a house near a beach. However, a freeway separates one set of properties from another. Those on the beachside of the freeway will command higher prices, often tens of thousands of dollars more than those for properties on the other side. In this example, it’s often best to invest in one of the lower-priced properties. They offer the same attractions, which means they’ll still be in demand. However, you pay less money to benefit from that demand.
Conclusion
You have to consider the location whenever you buy an investment property in Australia. After all, the location plays a huge role when it comes to the income you generate from the property.
Speak to professionals and find out as much information as you can. This will ensure you don’t end up buying in an undesirable location.
Make Sure You Claim All Depreciation on Your Commercial Real Estate
If you’re thinking about buying commercial real estate in Melbourne, you need to prepare yourself. Many people fail to claim the commercial tax deductions in Australia that are due to them. This results in thousands of lost dollars.
You can claim for all sorts of things on your commercial real estate property. For example, you can claim deductions for the wear and tear of your fittings, furniture, and the structure itself. In fact, making the right deductions at the right time can affect cash flow. You can change a negatively geared property into one that enjoys a good cash flow.
So now you’re probably wondering how to maximise depreciation on your commercial investment property in Australia. Our guide will show you how.
Get the Ownership Structure Right
How you buy your commercial property is just as important as the type of property you buy. You need to have the right structure in place if you’re going to claim the maximum depreciation.
For example, you can increase your deductions if you buy the property using a trust. The same is true if you buy with your self-managed superannuation fund (SMSF). In both cases, you can split your deductions. You can make claims on the building as a standalone entity. Furthermore, you can also claim on any tenancy assets. However, you must operate a business in the property to do this.
Furthermore, you can claim for any capital works you undertake during your ownership. These can include extensions and many other general improvements. Finally, if you occupy the building as a business owner, you can also claim depreciation for any fixtures or fittings. Again, you must use these as part of your business operations.
Maintain Your Records
It should go without saying that it’s vital that you maintain accurate records if you want to claim commercial tax deductions in Australia. However, a remarkable number of people don’t do this.
Document every expenditure that relates to the building. These include both the immediate and ongoing costs. Furthermore, you should add day-to-day expenditure to the list. Keep anything that relates to a financial transaction involving your building. These records can help you to claim more.
Use a Quantity Surveyor
Every commercial property investor should employ the services of a quantity surveyor. These professionals can help you to create depreciation schedules. A good schedule ensures you can claim as much as possible on your property.
A quantity surveyor will carry out regular inspections of your property. These help to determine what deductions you can make each year. They’re ideal for long-term planning as well. A good depreciation schedule will lay out how to claim deductions for the next 40 years.
Furthermore, quantity surveyors understand how to maximise your depreciation based on your timeline. You may only intend to invest in the property for a short period of time. That’s okay. A good surveyor will take this into account, just like they would for a long-term investment.
It’s likely your surveyor will recommend the diminishing value method if you’re a short-term investor. This assumes the value of your assets depreciates most during their early years. As a result, you can claim for more depreciation in the short-term.
Long-term investors may prefer the prime cost method. This assumes uniform depreciation over the lifetime of your assets. As a result, you claim the same amount each year, rather than the bulk in the early years.
Which method works best for you will depend on the time commitment you make to your commercial real estate investment. A good quantity surveyor can talk you through the different timelines.
Take Advantage of the First Year
Your first year of ownership is vital. It’s when you will set up the structure through which you will manage your commercial property for the years that follow. Getting things wrong during the first year makes things more difficult than they need to be later on.
However, you also need to take depreciation into account from the moment you invest in the property. This is where your quantity surveyor can help again. You may be able to depreciate some of your assets faster with a commercial property than you would a residential one. Your surveyor will point this out to you. As a result, you can make more upfront savings using depreciation, which means you have more cash to use during that difficult first year.
The Final Word
Maximising your depreciation from a commercial property isn’t easy, but you can do it. Use the services of a reputable quantity surveyor and don’t put anything off.
Remember that you can make claims for depreciation from the moment you invest in the property. Don’t lose money because you were slow on the uptake.
Spend Less with the Right Tactics
Information goes a long way when you’re buying an investment property in Australia. Without information, you can’t prepare for the negotiations. This is when you sit down with the seller to try and find the right price for your investment property in Australia.
However, the information you have isn’t the only weapon in your arsenal. There are plenty of other tactics that you can employ to get a good deal. With that in mind, we’ve come up with five hot investment property tips for beginner negotiators.
Tip #1 – Learn as Much as You Can About the Seller
You may think the state of the property market would make it impossible to negotiate a good deal. If property prices are going up, it’s easy to assume that all sellers you meet will ask for more money.
However, this line of thought doesn’t take the seller’s situation into account. You need to find out everything you can about the seller when buying an investment property in Australia. For example, do you know the reason why the seller is getting rid of the property? If not, then you need to find out.
Many people sell because they’re in distressed situations. They may be in financial difficulties, or need to sell quickly to fund a new purchase. You can use this to your advantage and negotiate a better deal. After all, a motivated seller is one who will listen to lower offers.
Tip #2 – Sweeten the Deal
This ties into our first tip. Sometimes, a seller wants something really specific, which will make your bid for their investment property in Australia more attractive.
Consider the following example. The seller is currently going through a divorce. It’s a heartbreaking and emotional situation, but they really need to sell their property before the divorce is settled. As a result, that seller may be looking for a buyer who can help them settle the sale quickly, so they can get on with the rest of their life.
That’s where you come in. If you limit the terms attached to the transaction, you can speed up the process. That gives you some leeway to negotiate a lower price with a seller who wants to get rid of a property quickly.
Tip #3 – Get Pre-Approval on a Home Loan
Sellers love serious buyers. If you enter negotiations knowing that you don’t yet have the money to make the purchase, you’re going to sour the seller to any offers you might make.
This means it’s best to get pre-approval on a home loan before you try to buy an investment property in Australia. Lodge your application and ask your lender to provide proof of the pre-approval.
You can then take this into your negotiations. Having pre-approval shows that you’re a serious buyer who wants to move forward. This will make the seller more willing to negotiate terms with you, which could be your pathway toward making a lower offer that saves you some money.
Tip #4 – Make the Right First Offer
The first offer you make on your investment property in Australia is crucial. Go too low, and you may insult the seller so much that he or she stops taking you seriously. Make a high offer, and you may end up spending more than you need to.
This is where your research is going to help. Find out how much similar properties in the same area are selling for. You can use this to get an approximate figure for the value of the property. Compare this to the seller’s valuation to ensure you’re both on the same page.
From there, you need to make your offer. It’s usually best to offer somewhere between 5 and 10% less than the seller’s valuation. This shows you’re a serious buyer, while giving yourself some wiggle room if the seller comes back to you with a higher figure.
Tip #5 – Don’t Mention Your Budget
Remember that your seller’s agent is going to try and extract as much information as they can from you. After all, they want to secure the highest possible price for their clients.
Talking to the seller’s real estate agent can offer you more information. However, it can lead to you giving away information that the seller could use against you.
The key is to not let the seller know how much you’re willing to spend. If they have that figure, negotiations are going to start at a much higher price than you had hoped for. Play your cards close to your chest, while still making offers that show you’re a serious buyer.
Don’t Be Put Off Because You Can’t Explore The Property
There are many things you need to consider when buying an investment property in Australia. While the process may be exciting, it can also be confusing.
One of the main choices you need to make relates to the type of property you buy. Do you purchase an older property that has a track record of generating income, or a brand new property that may stand a better chance of meeting the demands of tenants?
What if we told you there’s another way? Instead of buying a property that already exists, you can buy one that’s under construction. This idea may stray away from the property investment basics that you’ve read about while working out the complexities of investing in property for beginners. However, we can offer six reasons for why an off-the-plan property could prove to be a wise investment.
Reason #1 – Earn Early Capital Growth
What’s one of the first investment property tips for beginners that you’ve heard? It’s probably to buy low now so you can make a profit later. Buying an off-the-plan property allows you to do just that. So how does it work? It’s simple. You pay a deposit to the developer, and this secures your ownership of the property.
However, the construction settlement date may be several years in the future. As a result, you can earn capital growth for the home, even during the period prior to construction. You won’t even have paid the full price of the property before it starts making money for you.
Reason #2 – Stamp Duty Savings
Buying an investment property in Australia comes with a lot of added fees. The largest of these is often stamp duty. In most states, you will have to pay thousands of dollars in stamp duty before you can take ownership of the property. Take Victoria as an example. For a property worth $500,000, you’ll have to pay almost $20,000 in stamp duty.
Buying off-the-plan can help to avoid this major fee. Most states don’t charge stamp duty on properties that don’t exist yet, which means you make thousands of dollars in savings from the beginning.
Reason #3 – Extra Saving Time
You only have to put down an initial deposit when you buy an off-the-plan property. As we mentioned before, you may have to wait for a couple of years before construction finishes.
This gives you plenty of time to save some money. Once construction ends, you could have thousands of dollars that you wouldn’t have had if you’d bought an existing house. You can then put this money toward your home loan, reducing the principal so that you pay less interest on the loan over time.
Reason #4 – You Can Claim Depreciation
You may be planning on renting out your off-the-plan property when construction ends. If so, you may be able to claim thousands of dollars in tax deductions in Australia on the property.
Make time to create a depreciation schedule with the help of a quantity surveyor. This will highlight all the things that you can claim as depreciation upon completion of the property. This may include the new furniture and fixtures that you add to the property before making it available to tenants. The higher the depreciation, the lower your holding costs.
Reason #5 – You Can Pick the Perfect Plot
Showing early interest in a new development comes with its own advantages. In addition to benefitting from the lower prices that developers often charge to their early investors, you also get to choose from the best plots of land.
This will benefit you monetarily when construction ends. Getting in early means you can pick the property that will have the best views or offers the amenities that your tenants will want. As a result, you can charge higher rents, so your property generates more income.
Reason #6 – Reductions in Other Costs
A brand new property does not come with the maintenance needs of an old property. That should go without saying. You won’t have to earmark thousands of dollars for repairs, as the property should be good to go from the moment construction ends.
However, did you know that off-the-plan properties could save you money in other areas? It’s all thanks to recent changes in the Australian Building Code. New properties must now meet several energy efficiency criteria. This means the cost of utilities falls, which benefits both you and your tenants.
The Final Word
Buying off-the-plan may seem scary at first. After all, you don’t have the opportunity to explore the property before you buy it.
However, it opens the door to savings that you wouldn’t have access to with an existing property. To find out more about buying an off-the-plan investment property in Australia, contact Washington Brown today.
The Price May Vary Depending on Several Factors
The fee you’ll pay for a depreciation schedule will vary. For example, you may pay anywhere between $275 and $800 for the report. This is a fairly standard price for an established residential home. All these properties aren’t brand new. This usually means you’ve purchased it from another investor or a former owner-occupier.
What causes this variance in price? It usually comes down to the quality of the service that the quantity surveyor provides. Paying less may mean that you save money in the short-term. However, it could also result in you claiming fewer tax deductions for your investment property in Australia.
To find out exactly how much a depreciation schedule for your own property will cost – request an obligation-free quote from our tax depreciation specialists here.
The Timeline Process
You’ll need a depreciation schedule for any established investment property in Australia. This allows you to create a timeline that contains details about the property’s history. These details usually include information about the property’s renovation work. Either you or the previous owner may have carried out this work. It will also mention the cost of that work, along with the completion date.
Your surveyor does this so you can assign a new depreciation life cycle to your second-hand assets. However, you can only do this on assets in a property that you purchased before the 2017 Federal Budget. You may not be able to claim tax deductions on the plant and equipment within a property that you bought after May 9th, 2017. The good news is that deductions on the structure of your property are unaffected!
The purpose of your timeline is to show what tax deductions in Australia you can claim. It will also create a schedule for these claims. This allows you to maximise the depreciation of your second-hand assets.
What Do I Get at the Lower End of the Scale
Let’s assume that you have decided to work with a quantity surveyor who only charges $300. That’s a few hundred extra dollars in your pocket, but the schedule you receive may not be as detailed as you would like.
For example, most surveyors at the lower end of the price scale don’t usually provide the following:
- The option to use low-value and low-cost pooling to increase the amount you can claim
- Completion of additional searches that would have helped to find approved works by previous owners that you can claim for
- Full itemisation of the individual assets contained in the property
- Adjustments of the effective lives of your second-hand assets
Furthermore, you may find that a cheaper surveyor does not have the relevant skills or experience. As a result, you don’t get the most out of your assets. You’ll still get a depreciation schedule. However, it won’t allow you to claim as many tax deductions in Australia as you may be entitled to.
What Do I Get With a More Expensive Surveyor
More expensive surveyors tend to provide better depreciation schedules.
You’ll receive all the following if you pay more for your depreciation schedule:
- A completely accurate estimation of every tax deduction in Australia you can make
- Access to more knowledge with regard to the latest tax legislation
- Checks to ensure your depreciation schedule meets the Australian Taxation Office (ATO) requirements
- A more reliable point of contact to ask questions
Such surveyors also have more experience, which they can use to your advantage. It’s unlikely you’ll present them with any scenarios that they aren’t familiar with.
What about Brand New Properties?
That covers any second-hand assets that you have in an established residential home. But what if you’ve bought a new property? These won’t contain any second-hand assets that need reporting on.
As a result, you can expect to pay less for your depreciation schedule. This is because most newly built properties come with more information. Your surveyor can use this to create more accurate estimates. They’ll have access to the costs of construction, floor plans, and, at times, even the value of the assets that came with the property. This means they don’t have to carry out the detailed inspections that they would to estimate the value of second-hand assets in an established home.
Even with this lower cost, you will still receive the same level of service. The depreciation report will apply the new assets the home contains to either an immediate or long-term pool. This ensures you can claim the maximum tax deductions in Australia on your property.
If you have just purchased or constructed a brand new property, request your discounted quote here.
How Much Does a Depreciation Schedule Cost for a Commercial Property?
Prices may vary for commercial properties. After all, larger commercial properties require more work than regular-sized residential properties.
Schedules for small offices cost about the same as you’d pay for a residential report. However, the price may increase along with the size of your property. Even so, it’s worth getting a depreciation schedule. Not only will it help you with asset deductions, but you can deduct the cost of the schedule from your taxes as well.
You Could Use Your SMSF to Save on Your Tax Bill
You can use a SMSF (self-managed superannuation fund) to buy an investment property in Australia. However, this has previously been quite difficult. Many lenders would not allow SMSFs to borrow money, which means they had to fund the full purchase themselves.
However, that changed after the 2017 Budget. Now, a self-managed super fund can borrow the money needed to fund the purchase of an investment property in Australia. As a result, those who previously couldn’t afford to use their SMSFs to buy an investment property in Australia now have a pathway to do so.
The first thing to remember is that you shouldn’t set up a SMSF solely to buy a property. However, having it available makes sense for a lot of small business owners. After all, a business owner can occupy the SMSF’s investment property in Australia, as long as they use it for business purposes.
However, managing an SMSF takes a lot of time and hard work. To help you along, we’re going to show you some of the secrets of using an SMSF for property investment.
Getting Started
You’ll need some money in your SMSF before you can use it to buy an investment property in Australia. How much will depend on your situation, but as a rough guide you should aim to have $200,000 available.
This will help you to cover the deposit and the fees associated with taking out a home loan. Furthermore, you’ll probably have some money left over for diversification. This is important, as investing only in property could come back to bite you if the market crashes.
The funds should come from every SMSF member. You don’t have to fund the entire thing yourself.
Know How Much You Can Borrow
Most lenders are still quite wary of lending to SMSFs. That shouldn’t come as a surprise, as many have only just started doing so following the 2017 budget. As a result, it’s unlikely that you’ll be able to secure a home loan with a loan to value ratio (LVR) above 80% of the home value.
In fact, most lenders prefer to offer 50% LVR on SMSF loans. Having a 50% deposit available for your investment property in Australia increases the lender’s confidence and puts the property closer to being positively geared.
Making Repayments
Of course, you need to make repayments on the home loan once you’ve secured it. This is where the self managed super fund can really help an investor. You can use your super contributions, which you can deduct from your taxes, to make the repayments. The same goes for any rent or other payments that the SMSF receives.
As a result, you often won’t need to spend any of your own money to repay the home loan. Better yet, you can deduct quite a large portion of the repayments from your tax bill. Of course, it’s best to work with a tax professional to ensure you set up the correct structure for this.
The Tax Benefits
Let’s look at the tax benefits of buying an investment property in Australia using an SMSF in more detail. For one, the fund only has to pay a maximum tax rate of 15% on any income the property generates.
However, the bigger benefits come if you choose to sell the property. Assuming the SMSF has held the property for at least one year, you only have two-thirds of the capital gains tax (CGT) you would have paid on a property you personally own.
Better yet, both of these tax contributions disappear if the SMSF keeps the property until its members start claiming their retirement pensions. As a result, retired SMSF members can benefit from the property’s income, without having to pay any tax. They also receive larger lump sums if the SMSF sells the property because they don’t have to pay CGT.
Can Everybody Do It?
Property investing using an SMSF sounds appealing, and it can provide you with a lot of benefits. However, it’s not for everybody.
As mentioned earlier, you should avoid using your SMSF to invest in property if it doesn’t have a large sum of cash available. Diversification is crucial when investing, so you don’t want to be in a situation where your SMSF relies only on the property’s income. A lost tenant or property market crash could cause major problems.
Furthermore, those on low incomes should think twice about investing using an SMSF. Remember that you have to make regular SMSF contributions. These contributions benefit you when it comes to your taxes, but they’re also long-term benefits. You may struggle in the short term if you don’t have the money to make regular SMSF contributions.
