Cashflow can become a major problem with your property investment. For beginners, slow cashflow could prevent you from building your portfolio as quickly as you’d like. Happily, there are some tricks you can use to make improvements to your investment property cashflow.
So, you’ve got what you think is a great investment property. You’ve followed all the property investment basics, but your cashflow is tighter than you expected. At times, it can be a real struggle to pull together the money to pay for the property’s expenses.
This is a common problem, no matter how well you’ve followed investment property tips. Beginners, in particular, tend to struggle with getting their cashflow up to the level they’d hoped for.
All is not lost. There are a few tips you can follow to improve your investment property cashflow.
Tip #1 – Raise the Rent
It may seem like a simple tip, but it’s one that many beginners don’t think about when they’re dealing with cashflow issues. Raising the rent on your property can offer a short-term solution while you look at the bigger problems.
Of course, you can’t do this every time you face a cashflow issue. Constant rent increases will drive your tenants away. However, it becomes an option if you haven’t re-examined your rents for some time. In such cases, you may be charging less than other investors in the area.
You must also remember your tenancy agreement, along with the laws of your state. Either may prevent you from raising your rents. That’s why many investors wait until the end of a tenant’s lease period before increasing the rent. With some luck, you can secure the tenant on a longer fixed lease at the new rate.
Tip #2 – Take a Look at Your Home Loan
Do you still have the same home loan you applied for when you bought your investment property? Australia has dozens of lenders who offer hundreds of mortgage products between them. Take advantage of that fact to secure a better home loan.
Work with a mortgage broker to find out what other products are out there. You may find that switching your loan gives you access to lower interest rates and some useful new features.
Alternatively, you could use the information you find as leverage against your current lender. Most lenders want to keep reliable clients. If you’ve made on-time repayments, you may find that your existing lender offers a better deal when you threaten to leave.
Those are some long-term options. You could also switch your home loan to interest-only periods for a short while. This will help you to deal with more immediate cashflow concerns.
Tip #3 – Look at Other Income Streams
The property investment basics don’t always cover the other income streams your property may have to offer.
Take some time to think about how you could use your property to generate more than the rental income.
For example, you could lease the side of the building as advertising space if your property is near a busy road. Alternatively, you could lease out any unused parking spaces. Each offers a little extra income beyond your property’s rental income. Remember, that every little bit can help when you have cashflow problems.
Tip #4 – Examine Your Outgoings
Reducing costs is a crucial part of property investment. For beginners, this means taking a detailed look at your figures. You may find that you’re paying too much for your insurance. Or, you could negotiate a better deal with your property managers.
Many who encounter cashflow issues find that they’re paying too much for various services. You may also be paying for things you don’t need. For example, you could handle some basic maintenance issues yourself, rather than hiring somebody to do it for you.
Again, this frees up small amounts of cash. Nevertheless, you’ll improve your cashflow with each positive change to your outgoings.
Tip #5 – Get on Top of Depreciation
It’s amazing to think about how many new investors don’t think about rental property depreciation rates. They don’t investigate the claims they could make on their assets. Instead, they keep plugging away without a depreciation report. Alternatively, they assume their accountants have factored depreciation into their tax returns.
You need a depreciation schedule. If you don’t have one, you’re cheating yourself out of thousands of dollars.
Hire a quality Quantity Surveyor to draft a full depreciation schedule. Your surveyor will ensure you claim the maximum amount over the lifetime of each asset. Furthermore, you’ll learn more about tax compliance in your state.
Your Next Step
You’ll make both short and long-term improvements to your cashflow if you follow these tips. You can handle the first four with the help of an accountant and mortgage broker. However, you need additional help to create a depreciation schedule.
Washington Brown has the answer. Speak to one of our Quantity Surveyors today to get a quote.
An investment property tax deductions calculator won’t always show you everything you can claim. Many leave out the assets that go into a typical depreciation schedule. Here are the things that your tax depreciation schedule must contain.
When it comes to tax, there’s one question you must ask about your investment property: what can I claim?
There are the basics of course. Everybody looks into mortgage tax deduction. Australia is full of financial experts who can help with this issue. You may even find that an investment property tax deductions calculator can do the basics for you.
But what about property depreciation? It’s a type of deduction many investors miss, but it could save you thousands of dollars every year. Others make claims, but do so using the wrong schedule. Again, they end up missing out on thousands of dollars in savings.
You need to call in the experts. No, that doesn’t mean your accountant. Instead, a Quantity Surveyor is the professional you need to create a strong depreciation schedule.
The typical schedule will include the depreciation of capital works and equipment. However, some leave out other, less obvious, assets. Here’s what your depreciation schedule must contain if you’re to maximise your deductions.
Item #1 – Common Indoor Items
(Deductions for these plant and equipment items may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here).
You may have chosen a unit or apartment as your first investment property. Australia has several cities, which can make such properties a wise investment choice.
Naturally, you’ll claim depreciation on your unit’s assets. But what about the assets that it shares with other units in the apartment complex? You can claim for your portion of those too, but many investors miss out on these deductions.
Common items include fire extinguishers, air conditioning units, and lifts. You can also claim for ventilation and hot water systems. You don’t get to claim depreciation on the full value of the asset, but even a little bit can help with your cashflow.
Item #2 – Scrapped Items
Let’s assume you’ve carried out some renovations on your property. Oftentimes, you’ll have a bunch of assets left over that you no longer have a use for. Many just throw such items away, without giving them a second thought.
That’s a mistake. Old items have what’s known as a scrapping, or residual, value. This is the item’s value once it’s reached the end of its use.
You can claim a final depreciation sum on any items you intend to throw away following renovations. Such items include old appliances or carpets. Have a Quantity Surveyor create a new depreciation schedule prior to your renovations. This will ensure you catch any assets with scrapping value.
Item #3 – Common Outdoor Items
Let’s come back to shared items. It’s not just the common indoor items you can claim depreciation on. Any common items outside the apartment block itself have value to you as well.
This includes pathways, fences, and various landscaping items, such as pergolas. You may even be able to make claims on a shared swimming pool.
However, you can’t claim for all common outdoor items. For example, turf and plants won’t find their way into your depreciation schedule.
Item #4 – The Fees You Pay to Design Professionals
Did you realise that you can include the fees you pay to design and construction professionals in your tax deductions? Australia offers plenty of opportunities to build your own property. Investors often go down this route, rather than buying an existing property.
Your depreciation schedule must account for the costs of such construction work. This includes the money you paid to any designers or architects who worked on the project.
Make sure you supply your Quantity Surveyor with accurate receipts for these services. This will allow you to maximise your claim for the fees you pay.
Item #5 –Money You Pay to the Council
You may have to pay fees to the council for various services. For example, there are costs involved with lodging application fees, or getting council permits.
If you’re building your own property, you may also have to spend money on infrastructure. This might include gutters and footpaths.
Your depreciation report should include all these items. Again, this is something that many investors miss out on because they don’t think the costs relate directly to their properties.
The Final Word
Check your depreciation report again. Does it include all the items on this list? If not, you’re missing out on several Australian Taxation Officer (ATO) tax incentives for homeowners.
You need the help of Washington Brown to create an accurate tax depreciation schedule. Call us today to speak to one of our Quantity Surveyors about your property.
Six Things To Know Before Buying an Investment Property:
You may be thinking about buying an investment property. Australia has a strong property market, which attracts a lot of buyers. However, there are some property investment basics to keep in mind.
The attractive Australian house market has many people investing in property. For beginners, this means learning the property investment basics that will lead them to success. After all, property isn’t a sure thing. It may offer more security than investing in stocks, but you have to put the work in to generate an income.
So what do you need to learn before you invest in a property? Here are some things you must know about property investment for beginners.
Issues #1 –How Much You Can Borrow
You need to know how much you have to spend before looking for an investment property. If you don’t, you run the risk of finding the perfect property, only to discover that you can’t afford it.
You can get a general idea for how much money you need when buying an investment property.
Calculator websites allow you to enter some figures to produce a rough estimate. They’ll ask about your income, in addition to any expenses you currently incur. These include everything from your debts, through to the dog food you buy each week.
However, you won’t know for certain until you speak to a lender. Most importantly, you must find out how much of the property value you can borrow. This will tell you how much money you must raise for your deposit.
Issue #2 – Your Investment Plan
Most people approach property investment with a simple end goal. They want to make enough money from their property to quit their jobs. However, many don’t really understand what this means. Enough money for one person may not be enough for another.
So, you need to have a plan in place before you start investing. Work out how much income you need your investments to generate before you can live off the proceeds.
This is your real goal. A vague notion of early retirement won’t keep you focused. You need to know exactly what you’re shooting toward before you invest your money.
Issue #3 – The Different Types of Gearing
You may have heard of gearing, without really understanding the concept. You need to learn what gearing is to create a strong investment plan.
There are three types of gearing: positive, negative, and neutral. Positive gearing means that your property generates enough income to cover its expenses, with money left over. You have to pay tax on your income when you have a positively geared property.
Negative gearing means your property doesn’t generate enough money to cover its costs. This may sound like a bad thing. However, you can use negative gearing to your advantage. Many investors offset the losses their properties make against other income sources, such as their salaries.
As the name suggests, neutral gearing means the income covers the costs. You don’t make any profit, but you don’t lose money either.
Issue #4 – The Choice Between City and Rural
There’s a huge difference between city and rural properties. City properties give you access to more people, which makes it easier to fill vacancies. However, rural properties allow you to charge higher rents. You can also buy rural properties for less money.
So, which do you choose? It all comes down to what you want to achieve. City properties tend to enjoy higher capital growth than rural properties. However, it’s easier to positively gear a rural property.
You need to do your research before creating any property investment strategies. Australia offers all sorts of opportunities. Consider area population, local economies, as well as demand when choosing where to buy your property.
Issue #5 – Who Provides Legal Advice?
You’ll have a choice between conveyancers and solicitors when looking for legal advice. Both work in law, but they’re slightly different.
Conveyancers focus solely on property law. They’re highly specialised, but won’t be able to help you with any issues that aren’t directly related to the property. Solicitors offer well-rounded knowledge on a range of issues. However, they also cost more money.
Your choice depends on the property. If you anticipate a lot of legal issues, hire a solicitor. This usually costs between $2,000 and $3,000.
A conveyancer costs approximately $1,000. Use these professionals if you anticipate a simple transaction.
Issue #6 – Your Exit Strategy
You should achieve success with proper planning. However, that doesn’t mean that you don’t need an exit strategy.
Your exit strategy determines how you’ll generate a profit from your investment. For example, you could decide to sell after a set amount of years to take advantage of capital gains.
Alternatively, your exit plan may involve benefitting from the rental yield until you retire. Upon retirement, you could move into the property, rather than sell it.
The main point is that you need to know how you’ll exit the investment. If you don’t, you can’t take full advantage of the property during your ownership period.
The Final Word
Investing in property could help you to enjoy a greater level of financial comfort. However, poor preparation will lead to mistakes and potential losses. You need to know how to maximise your investment before you commit your money to a property.
Washington Brown can help you with that. Our Quantity Surveyors can help you to calculate how much you can claim in depreciation. Get in touch today to find out more.
When trying to figure out how to invest in property with little money, many new investors look toward discounted properties. However, there are some risks you must keep in mind.
Foreclosure is an ever-present risk for Australian homeowners. Failure to meet your mortgage repayments could result in your lender taking possession of your property. It’s an issue that affects thousands of people every year. In Victoria alone, almost 1,000 people had their homes repossessed between 2014 and 2015.
Foreclosed, or discounted, properties present an opportunity for property investment for beginners. In fact, many make discounted homes their first investment property in Australia.
However, buying a foreclosed home is not always simple. Here are six things you must watch out for when purchasing a discounted property.
Issue #1 – Your Own Finances
When a lender forecloses on a property, they take ownership of it. As a result, you buy discounted properties directly from the previous owner’s lender.
What does this mean for you? For one, you can expect the lender to want to get the transaction over with as quickly as possible. You’ll have to deal with a shorter settlement period, and the lender will want to see that you have your finances in order. Furthermore, having pre-approval on a home loan isn’t always enough. You need to have more concrete evidence that you have the money to spend.
Make sure your finances are in order before trying to buy a discounted investment property in Australia.
Issue #2 –The Quick Settlement
As mentioned, you’ll deal with a quick settlement period when buying a discounted investment property in Australia. This is because the lender needs to get the property into somebody else’s hands. The longer that takes, the more time the lender has to wait before recouping their costs.
Prepare yourself for this ahead of time. Make sure you have a solicitor in place who will prioritise the transaction’s paperwork for you. Furthermore, work closely with your own lender to ensure nothing can go wrong with your mortgage application.
Failure to meet the conditions of the settlement could lead to you paying penalty fees. Suddenly, your discounted property costs more than you expected.
Issue #3 – The Need to Make Repairs
Foreclosures are not pleasant situations. The previous owners will have vacated the property quickly. They will also have been going through some financial difficulties. As a result, maintaining the property would not have been a priority.
Expect to make repairs to several fixtures and fittings. It’s also likely that you’ll have to clean up before you can start using the house as an investment property in Australia. Worst case scenario, you’ll have to renovate extensively.
Factor this into your budgeting before you buy the property. You won’t be able to use your discounted property to generate an income if it’s in a state of disrepair.
Issue #4 – The Effects of Unruly Previous Owners
Those undergoing foreclosure will feel a lot of stress. After all, they’re facing financial issues and the prospect of losing their home.
In some cases, the previous owner may have lashed out against the property itself. There are reports of investors buying discounted properties, only to find extensive damage. You become responsible for fixing this damage as soon as you take ownership of the property.
You can avoid this problem if you arrange a building inspection. Have an inspector ready to go as soon as you make contact with the lender who owns the property. This ensures that you find any deal-breaking issues before the transaction reaches settlement.
Issue #5 – The Location
Buying a discounted property doesn’t mean you should forget about the location. Checking the property’s location is one of the property investment basics.
Take some time to visit the area, so you can get a feel for the neighbourhood. Also, remember that the pictures you see aren’t fully representative of the property. The seller uses those images to make the property look as attractive as possible.
As a result, you need to visit the property yourself at least once before making your offer. If the location isn’t suitable, no discount is worth the risk.
Issue #6 – Your Research
You may forget to do your research in your rush to buy a discounted property. The faster settlement doesn’t help with this. You have a lot of pressure on your shoulders to get the deal done quickly.
Some investors use this as an excuse to research less thoroughly. Don’t fall into that trap. You need to know if the property has the potential to contribute to your portfolio.
Examine the usual data. Check to see how local property prices have fluctuated over the last few years. Have a plan in place for what you’ll do with the property once you have it. It’s also worth checking tenant demand, assuming you wish to use the property to generate a rental income.
The Final Word
Buying discounted properties could help you to make a lot of money as an investor. However, you shouldn’t go into any deal without checking all the issues.
You also need to consider how you’ll claim deductions on your new property. Washington Brown can help, so contact us today to find out how much you can claim.
Before starting your career as a property investor, you need to arm yourself with more than the property investment basics. If you don’t, you may end up making some costly mistakes.
Investing in property is more difficult than you might think. It’s certainly a more reliable way to generate an income than other types of investment. However, that doesn’t mean that there aren’t any risks involved. In fact, approaching property investment without a plan could result in you losing a lot of money.
As a result, you need to learn more than the property investment basics before you move forward. There are all sorts of mistakes you could end up making when investing in property. For beginners, these mistakes could lead you to financial ruin.
Mistake #1 – Using Emotion to Make Decisions
Think back to when you bought your first home. What were you looking for? Most buyers look for something that draws them to the property. They may have specific features in mind, or they fall in love with the décor.
This leads to them making decisions based on emotion. This is fine when buying for yourself, but it causes major issues when buying investment property. Australia has millions of people who don’t think like you do. They’re your potential tenants, so you have to buy with them in mind, rather than yourself.
Basing your decisions on emotion means you may spend too much on the purchase. It also blinds you to what your prospective tenants would want. Instead, you need to think about the needs of your target market. If the property doesn’t cater to them, move onto the next opportunity.
Mistake #2 – Failing to Manage Your Cashflow
While the property investment basics often cover how to find a good property, they don’t always focus on issues like cashflow. The fact is that property investment is a business. As a result, it comes with the same pitfalls as operating a business.
You need to understand all the additional costs that come with your property. For example, you have to account for how much the property will cost when it’s unoccupied, as well as when it has tenants. Unexpected maintenance can also place a burden on your finances. Of course, there’s also the issue of tenants failing to pay on time. All these problems affect your cash flow.
Many investors recommend holding back a tenth of your property’s value to cover such issues. If you don’t, you may find that the unexpected costs lead to failure. An investment property cashflow calculator could help you to stay on track.
Mistake #3 – Going it Alone with the Mortgage
You may think you can handle the stress of finding a mortgage for your investment property. However, this is usually a mistake.
Going it alone often means that you miss out on some of the best financing options. Remember that lenders want what’s best for them, ahead of what’s best for you. The wrong financing can come back to bite you later on. You may end up paying more interest than you ought to. Or, you may not have access to special loan features that could help you.
As a result, it’s best to work with a mortgage broker when searching for a home loan. Their expertise may prove invaluable. Plus, they can often provide access to mortgage products you wouldn’t find on your own.
Mistake #4 – Not Finding Out About the Seller
The seller’s situation will affect how you approach negotiations. However, many investors don’t even try to find out more about the seller.
Most sellers won’t give you a direct answer if you ask why they’re selling their property. However, that doesn’t stop you from looking for clues. For example, you can use your property inspections to look for signs of poor maintenance. This often suggests that the seller is undergoing some personal or financial hardship.
You can use this information to strengthen your negotiating position. It may seem cruel, but remember that investment is a business. Don’t allow your emotions to prevent you from getting a great deal.
Mistake #5 – Not Doing Adequate Research
The need for research is one of the property investment basics. However, plenty of investors fail to learn as much as they can about the property market before spending their money.
Reading a book or two won’t equip you with the knowledge you need. You have to learn about the specifics of the property’s area to stand any chance of success. Talk to local estate agents and people in the surrounding neighbourhood. Research property prices to ensure you’re getting a good deal. Most importantly, find out what the area has to offer that might appeal to your tenants.
This will take time, but it’s worth it. Quality research lowers your risks, which increases the chances of achieving success.
The Final Word
Many novices make some critical mistakes when entering the property investment sector. They only read about the property investment basics, which results in them crashing and burning. In the end, they end up losing thousands of dollars.
You must avoid these mistakes. Furthermore, you need to consider the tax implications of owning an investment property. That’s where Washington Brown can help. Speak to a Quantity Surveyor today to find out more about claiming for the depreciation of your assets.
Many see granny flats as an easy property investment. For beginners, they offer the opportunity to start investing, without spending too much money. As with any investment property, you must remember to claim for the depreciation of your assets.
Tons of people like the idea of buying an investment property. Australia offers plenty of opportunities, but many struggle to get over the initial financial barrier.
You may find yourself asking how to invest in property with little money. A granny flat may be the answer. They cost less than most other types of investment property. Plus, you still get to claim for the depreciation of the property’s assets.
So, what are granny flats, and how can you claim for their depreciation? This article will help you to answer those questions.
What is a Granny Flat?
You can think of a granny flat as a secondary home on your property. They’re usually self-contained extensions that come with a lot of the features you would expect in an apartment.
The difference is that the granny flat is on your land. As a result, you have far more control over it.
Most people build their granny flats behind their properties. After all, the back yard is a perfect space to extend into. The flat itself will usually contain the following:
- One bedroom
- A bathroom
- A general living space
This makes them ideal for all sorts of tenants. The name “granny flat” should tell you that they’re perfect for elderly tenants. However, that’s not the only use for this type of investment property.
Australia is full of young people who view granny flats as an affordable way of achieving their independence. Your own children may find the idea of moving into a granny flat more appealing than staying at home.
They’re also a cheap way to enter the investment sector. On average, a granny flat costs about $120,000 to build. In return, you could enjoy a yield of up to 15% on the property.
Do I Face Construction Restrictions?
You do, and they depend on the state you build the granny flat in. Each has its own rules with regard to size. For example, a granny flat cannot exceed 60 metres squared in New South Wales. However, you can build up to 90 metres squared in the Australian Capital Territory.
Exceeding these limitations changes the status of the granny flat. This could have an effect on how you claim tax deductions. Australia has several states, so you need to get informed before you start building.
Claiming Depreciation on Granny Flats
There’s one key question you must ask when buying an investment property: what can I claim? Granny flats are no different. Just because you’ve built the property on your land, doesn’t mean that you can’t claim depreciation.
As a secondary dwelling, a granny flat must produce an income before you can claim depreciation. Assuming that’s the case, you can claim depreciation for capital works. These include the wear and tear the structure undergoes during its lifetime.
You can also claim for plant & equipment depreciation. In a typical granny flat, this means you can claim depreciation for the following assets:
- The hot water system
- Alarm systems
- Ceiling fans
- Air conditioning units
- Curtains and blinds for the windows
- A range of kitchen appliances and assets
- The bathroom’s freestanding assets
You can also claim depreciation on the areas the granny flat shares with your home. For example, you could claim for a pool or a patio, assuming the tenant uses these assets.
As you can see, that covers a lot of ground. In fact, research suggests that you could claim over $5,000 in depreciation on a granny flat for the first year of ownership. This figure increases to almost $24,000 over the first five years. That’s about one-fifth of the value of the average granny flat, in just five years.
The Final Word
As you can see, granny flats offer high yields and plenty of opportunities to claim for depreciation. That’s why they’re considered one of the best options when it comes to property investment for beginners. Manage the flat correctly, and it could generate thousands of dollars in income in a short time.
However, you need help to create a full depreciation schedule. Without the help of a Quantity Surveyor, you may end up failing to claim for the full depreciation of your assets. Contact Washington Brown today to get a quote for a granny flat depreciation schedule.
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.
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.
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.
LATELY I’ve noticed a few news articles about developer incentives being offered in various markets around Australia. I’m sure many of you would have seen the headlines.
In Brisbane, the developer behind a luxury apartment project in West End is offering buyers a car – a Toyota Yaris hatchback.
Another townhouse development in Corinda, in the city’s southwest, is offering a year’s supply of avocado on toast.
Further south there have been reports of a developer behind a Parramatta apartment block in Sydney offering $30,000 in cash.
Meanwhile, in Western Australia apartment developers have been offering up to 1 million frequent flyer points, amongst other incentives.
It’s not just limited to apartment developments; incentives are offered for house and land packages too, with free gift cards or even furniture packages.
Developer incentives are nothing new, and they often serve as a warning sign to buyers that something is amiss.
But lately I’ve been wondering whether there is any upside in being lured in by the incentive carrot at this point in time. Let’s examine the issue before making a determination.
The downside to incentives
Developers generally offer incentives because they need to get pre-sales in what could be a slow or oversupplied market, which in turn enables them to get a project up and running. Offering incentives is a marketing trick to lure buyers in.
The problem for buyers is that they could end up technically overpaying for a property and then having issues with obtaining finance.
You see, the incentive is usually offered in lieu of reducing the purchase price. So if the developer offers a $20,000 car, buyers might feel like they’re essentially paying $20,000 less for the property, but they’re actually paying the price on the contract which could actually be $20,000 too much as the incentive is built into the price.
So let’s say you buy a property for $500,000 with a $20,000 incentive. You might think you’re really paying $480,000, which is probably its true market value, but you’ve still contracted to buy the property for $500,000.
When banks assess whether they will give you finance, they usually don’t take the incentive off the price – they will look at the price on the contract, and the valuation must come up to par for a buyer to get finance. The problem is that since the property is probably worth less the valuation may not be high enough for the bank to lend to you.
Put simply, valuations can fail to stack up because the property is only worth the price minus the incentive, but you’ve contracted to pay the full price.
This creates a whole lot of confusion, and the easy solution would be for developers to just reduce their prices. This would be beneficial for buyers because they can pay less stamp duty, but developers argue that buyers have come to expect incentives, so it’s a box that needs to be ticked in their marketing strategy.
Is there any upside?
If there is a cash incentive, as a buyer you shouldn’t think you’re getting a discount because you’re actually just paying what the property is worth – ie. the net price.
So if you’re not really getting a discount is it worth taking advantage of a developer incentive?
Well, as I see it, you’d have to first look at why this particular developer is offering an incentive. They might well be desperate for sales, but they also might just want to get some quick pre sales to get things moving.
You’d then need to look ahead to the future. Even if the market is quiet it could turn around in time, which means you could benefit from getting in now.
In the case of apartments there has been a lot of press about an oversupply, particularly in Brisbane and Melbourne, which has impacted prices. But many experts believe unit prices will rebound in time as the supply and new development dries up, and houses prices become even more out of reach, leading buyers to turn to apartments for affordability.
If you buy a property where a developer incentive is being offered you’d probably need a discount on top of the incentive to ensure you can get finance and you’re not overpaying. Remember you generally make your money when you buy, by buying under market value.
Most importantly, do your research
You don’t have to stay right away from developer incentives but you should absolutely do your research before buying to determine if the property you’re purchasing is actually going to be a good investment.
Whatever you buy must have the right fundamentals to ensure it will grow in the future. If it doesn’t, you should forget about it.
The depreciation party is over…
Well, kind of!
In an attempt to “reduce pressure on housing affordability” the Government has announced dramatic changes to the way depreciation is claimed on property.
Let’s start with the good news:
1. Any existing investment properties purchased (contract exchange date) prior to May 9 2017 are not affected (unless they were not income producing in the 2016/2017 financial year).
2. Commercial, industrial and other non-residential properties are not affected.
3. Capital works deductions have not been affected. This means you will still be able to claim depreciation on the structure of the building provided it was built after the 16th of September 1987. And you will still need a Quantity Surveyor’s depreciation schedule to do so.
Now that we know what isn’t affected, let’s look at what has changed…
The government will limit plant and equipment depreciation deductions to outlays actually incurred by investors. In essence, unless you as the buyer had physically purchased the items – you can no longer depreciate them. This is a massive change to what you can claim – there by reducing investors’ cash flow.
Originally I thought a quick fix would be to structure the sales contract so that the plant and equipment is separated. But I suspect that the legislation will be worded such that if the plant and equipment was in situ at the time of purchase, you can no longer claim it.
You see, under the recent changes, I suspect the developer will be deemed to have bought the plant and equipment – not you.
However, the acquisition of existing plant and equipment will form part of the cost base, thus reducing your capital gains liability. So investors who hang on to their properties long term, will no longer reap the benefits of depreciating plant and equipment.
So in summary: if a residential property was built prior 1987,and has not been renovated – there will be no depreciation claim.
This is very rare as most pre-1987 built properties we inspect have had some renovation carried out.
If built after 1987 – only the construction costs can be claimed.
Whilst there is still much uncertainty regarding the specifics of this budget’s depreciation-related changes, one thing is crystal clear: If you own a residential investment property and haven’t had a depreciation schedule prepared, now would be a good time to get a quote!
Developers, Project Marketers and Property Sales Agents – If you are selling property and using depreciation numbers that include plant and equipment: STOP NOW! This element needs to be removed from the selling equation, at least until the legislation is finalised.
Here is why I think this is dumb policy.
The proposed changes are being made to “reduce pressure on housing affordability.” In my opinion, it will have the opposite effect for 3 reasons:
- Property investors may now feel the need to hang onto their existing properties to continue claiming depreciation because if they sell that property they won’t be able to get as many deductions on the next one.
- Developers rely on high depreciation figures in the early years to show investors how affordable an investment property can be. If the allowances are taken away, they will struggle to get pre-sales which are required by banks to fund the deal.
- These budget measure are forecast to save $260 million over a 3 year period. I suspect far more will be lost if developers can no longer get new projects off the ground.
Whilst I believe housing affordability is a major issues, this appears to be policy on the run…so the Government can be seen to be targeting property investors, when changes to negative gearing could have been more effective.
I will provide a further update once the legislation is finalised.