Claim Depreciation on Previous Owners’ Renovations

Claim Depreciation from previous owner

You Can Claim Tax Deductions in Australia for Previous Renovations

When considering tax deductions in Australia, most investors only take their own renovations into account. It does make sense. After all, why should you be eligible to claim deductions on your investment property in Australia if you didn’t pay for the work?

Perhaps surprisingly, you can claim deductions for the previous owner’s renovations. However, there are several things you need to consider. For example, how much you can claim depends on when you purchased the property. The effects of the 2017 Budget play a role here, as what you can claim differs depending on if you made your purchase before or after the budget. Let’s look at what tax deductions in Australia you can claim in both scenarios.

You Bought Before the 2017 Budget

Things are simpler if you bought the property before the 2017 Budget. If this is the case, you can make claims under both Division 43 and Division 40 of the Income Tax Assessment Act (ITAA).

Division 43 relates to any capital works that the previous owner undertook on the property. This includes any renovations, such as the building of some extensions or remodelling a bathroom or kitchen. It also covers any work done to the building’s structure. For example, you’d be able to claim for a new roof or for some of the walls that the previous owner built.

Division 40 relates to the equipment installed in the property. Your investment property in Australia may have an air conditioning unit or some other piece of equipment Depreciation Quote Schedulethat the previous owner installed. If that’s the case, you should be able to claim for it.

The only real barrier is that you may not know the completion date for the work or the cost. Not all sellers will provide you with this information. If that’s the case, you need to employ the services of a quantity surveyor. Your surveyor will provide you with a cost estimate, which you can use when claiming tax deductions in Australia. The Australian Taxation Office (ATO) does not accept estimates from other professionals. For example, you can’t get an estimate from your accountant for the work. It has to come from a quantity surveyor.

You Bought After the 2017 Budget

This is where things get more complicated. You have to consider the extent of the renovation work, as well as whether any was carried out in the first place.

The new budget introduced the term “new residential premises” into the equation. To understand what this phrase means, we need to look at the Goods and Services Tax (GST) Act.

What Does the GST Act Say

You’ll find references to “new residential premises” in sections 40 to 75 in the GST Act. Generally, such a premises is one that has not been rented out or sold as a residential home before your purchase. This won’t usually present a problem. After all, that language basically covers new properties.

However, there’s more. The Act also defines these premises as those that have undergone “substantial renovation” work. The GST Act also provides a description for “substantial renovations”. They are any renovations through which the entire building has either been replaced or removed. As a result, the installation of a new bathroom is not considered as a substantial renovation on its own.

What Does This Mean for Me?

Depreciation CalculatorIf your investment property in Australia does not fall into the substantial renovations category, you may not be able to claim the same deductions that you could on a property built before the 2017 Budget. In particular, you won’t be able to claim Division 40 depreciation. New equipment on its own is not enough to constitute a substantial renovation.

However, this changes if the building has undergone enough renovation to become a “new residential premises”. In such cases, you can claim for both Division 43 and Division 40 work.

You’ll need the help of a quantity surveyor to work out the extent of the work undertaken on your building. Your surveyor will create a timeline for the building. This will estimate the work carried out, its cost and its extent. You can use this information to figure out if your building falls into the “new residential premises” category.

Don’t fret if it doesn’t. You can still claim for Division 43 work. Your quantity surveyor will be able to provide more exact information detailing exactly what you can claim for.

Conclusion

You’ll need the services of a quantity surveyor, regardless of when your property was built. They will be able to tell you what previous renovations you can claim for.

We can help you if you’re looking for a quantity surveyor. Contact us today to maximise the depreciation on your property’s previous owner’s renovations.

Finally, Some Clarity

On Friday 14th July, the Treasury Office released a draft bill regarding how depreciation deductions on a second-hand property can be claimed moving forward. They also invited interested parties to make submissions.

It’s complicated, to say the least, so I’ve tried to simplify this Bill and the key points. Here are my 9 Key Takeaways from the Legislation;

  1. If you acquire a second-hand residential property after May 10, 2017, which contains “previously used” depreciating assets, you will no longer be able to claim depreciation on those assets.
  1. Acquirers of brand new property will carry on claiming depreciation exactly the way they have done so to date. This is great news for the property industry and the way it should be.

We suspected this would be the case and I believe the property industry can collectively breathe a sigh of relief.Depreciation Quote Schedule

  1. The proposed changes only relate to residential property. Commercial, industrial, retail and other non-residential properties are not affected in the slightest.
  1. The building allowance or claims on the structure of the building has not changed at all. You will still need a Depreciation Schedule to calculate these deductions. This component typically represents approximately between 80 to 85 percent of the construction cost of a property.
  1. The proposed changes do not apply if you buy the property in a corporate tax entity, super fund (note Self-Managed Super Funds do not apply here) or a large unit trust.

This is interesting and I suspect a lot more people will start buying properties in company tax structures.

  1. If you engage a builder to build a house and it remains an investment property, you will still be able to claim depreciation on both the structure and the Plant and Equipment items.
  1. If you renovate a property that is being used as an investment, you will still be able to claim depreciation on it when you have finished the renovations.
  1. If you renovate a house, whilst living it in, then sell the property to an investor, the asset will be deemed to have been previously used and the new owner cannot claim depreciation.
  1. Perhaps the most interesting point: Whilst investors purchasing second-hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property.

How? Well, in summary, what you would’ve been able to claim in depreciation under the previous legislation, now simply gets taken off the sale price in the event you sell the property in the future.

 Here is an example of how this will work:

Peter buys a property in September 2017 for $600k, included within the property was $25k worth of previously used depreciating assets.

 As they were previously used, Peter can’t claim depreciation on those items.

 Peter sells the property in 2022 for $800k, which included $15k worth of those depreciation assets.

 Peter can now claim a capital loss of $10k ($25k-$15k) for the portion that Peter has not claimed in depreciation.

 SUMMARY OF THE PROPOSED CHANGES

Depreciation CalculatorIn my view, the Draft Bill could’ve been a lot worse for both the property industry and the Quantity Surveying professions.

It will certainly address the integrity measure concern of stopping “refreshed” valuations of plant and equipment by property investors.

It may, however, create a two-tier property market in relation to New and Second-hand property.

You can see the ads now “Buy Brand New – We’ve Got The Depreciation Allowances”.

It will still be just as critical for all property investors to get a breakdown of the building allowance & plant and equipment values so you can:

 

  1. Claim the building allowance (where applicable) and
  2. Reduce the CGT payable when selling the property by deducting the unclaimed Plant and Equipment allowances.

The Quantity Surveying industry, just like the property development industry just breathed a huge sigh of relief.

I believe this integrity measure could’ve been better addressed and will be making a submission accordingly.

But it wasn’t a bad ‘first run’ by the Government!

P.S. If you purchased an investment property prior to The Budget, and it’s been an investment property the whole time, you are not affected and you should get a depreciation schedule quote now.

Tips & Tricks of the Depreciation Trade

9 Ways to Cut Tax Bills Through Depreciation

Firstly, what is property depreciation?

Well, just like you claim the wear and tear of your car against your taxable income or the wear and tear of the desk in your office, you can claim the wear and tear of your property against your taxable income.

But the property must be income producing. You can’t do this on your residential house. Property depreciation laws vary from country to country. I feel we have pretty good depreciation laws in this country. In a lot of countries, you can’t claim depreciation. So we’re lucky in Australia.

In summary, any property depreciation you claim would reduce the taxable income by the amount of depreciation you claim.

Now there are two parts of a depreciation claim:

First part is what’s called the capital works allowance that relates to the building and the structure. It lasts 40 years. This is commonly referred to as the building allowance. Now the amount of the deduction is determined by the actual construction cost, NOT what it costs to buy the property.

And in order for you to claim this building allowance, the property must be bought after 1985 for residential properties.

The second part that we’re going to talk about is what’s called plant and equipment- division 40. It refers to things like ovens, dishwashers, carpets, blinds, and also common property like lifts, fire services, and ventilation systems.

Note: Deductions for plant and equipment items and the following information may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here.

Now, the more of this stuff you have in your property, the greater the tax savings. Why? Because this stuff wears out quicker.

Now let’s get into some tips:

1. The higher the building, the higher the depreciation

Why? Because it has more of that plant and equipment stuff that I’m talking about and this stuff depreciates faster. It also has things like gyms, pools, etc.

tips and tricks

2. Old properties depreciate too

You’ve already paid something for it. So while you can’t claim the structure of the building, you may be able to claim the ovens, the dishwashers, the blinds, etc. This is because the plant and equipment is based upon what you pay for it and the effective life of each item can be a benefit. That means that if the carpets is going to last two years, you may be able to claim it over for 50% each year.

And at Washington Brown we are so confident that we actually guarantee our results. So if we can’t get you at least twice our fee in the first year, we won’t charge you!

3. Buy items that actually cost you under $300

For instance, if I was going to buy a microwave, I wouldn’t buy one that costs $330 because I would have to claim it at 20% per annum. However, I’d buy one at $295 because I would be able to claim it immediately.

4. Sometimes furnishing your property can actually result in a greater depreciation deduction

Why? Because the furniture depreciates rather quickly compared to bricks and concrete. So putting things like dining tables, bedding and all that stuff into a furnished Depreciation Quote Scheduleproperty can actually accelerate your claim to the point that if you were to buy $20,000 worth of furniture, you could possibly get a $10,000 deduction in year 1 alone! But you’ve got to be smart about this. You can’t furnish all properties as it really depends on the location. So, this tip does not apply to all properties.

5. The actual construction cost must be used

Now that’s not a tip, that’s in the law. But what we found lately is that there are a lot of properties out there that are actually being sold close to their construction cost – certainly in some areas.

For instance, a property is sold at the original selling price of $95,000 in 2004. Our client just paid $45,000 for it. The original construction was $52,000. Now, I don’t know any other way that you can get a deduction greater than what you pay for something.

tips and tricks

6. Utilise the residual value write-off

If you were to renovate a property that was built after 1985, you should get a quantity surveyor out before you do the renovation so that we can put some values onto items that you are about to remove and you can get a written down value of those items and claim it immediately as a tax deduction.

So if you remove the kitchen, the light fittings, the shelf screens, etc., all that stuff can be written off if your property was built after 1985.

For instance, you bought a property that was built in 1989 and in that property there was a kitchen that was originally installed and you now wish to upgrade it. If you were to demolish now halfway through its effective life, you could get a $10,000 immediate tax deduction for it! However, just remember that the property needs to be income producing before you rip it out.

So the tip here is to get a quantity surveyor out before you renovate a post-1985 property.

7. Always use an expert

Quantity surveyors have been recognised by the Australian Taxation Office to estimate construction costs where the costs are not known. Accountants and valuers for instance, are not allowed to estimate costs unlike quantity surveyors. However, be careful as not all quantity surveyors specialise in this service, but Washington Brown certainly does.

Also, as far as I know, a depreciation report is the only tax deduction that can be subjective and open to interpretation skill. Every other tax deduction is based on what you pay for it.

8. You get more depreciation on a new property

Now let’s have a look at the difference between the depreciation of a new property versus that of a four-year old property. It’s very similar to the effective lives of the property, that in fact, you’ll be surprised. Now, most of the deduction within a property is actually related to the building allowance. However, you’ll definitely get more depreciation on a new property compared to a pre-1985 property.

9. Use the Washington Brown Depreciation Calculator

Now, this is a good tip. You can go online and check the depreciation available on your own property using our calculator, the first calculator that uses live data! You can check new versus old properties, get an accurate depreciation assessment, and the great news is that it’s free!

Now, here are some bonus tips:

tips and tricks don't get a builder to do your report

Bonus tip # 1: Don’t use a builder’s depreciation schedule

Builders are good at building. They miss out items and they sometimes don’t understand that the design and council costs can be included. Let a quantity surveyor do the depreciation schedule for you.

Bonus tip # 2: The type of materials is a huge factor

If you renovate, you might want to consider the type of materials you are going to use. For instance, carpets depreciate over 10 years but the floor tiling will depreciate over 40 so it can add up.

As another example, various types of partitioning may yield varying depreciation allowances. Some depreciate a lot quicker than others.

Moreover, we have air-conditioners and fans as examples too where the depreciation differs…

The types of materials used may vary and in turn, may change the depreciation allowance you can claim. So it pays to consider the item you’re about to install.

Bonus tip # 3: You can claim renovation even if you haven’t done the work

If you buy property that was built in 1900 for instance, but was renovated in 1990 not even by you, you can still claim depreciation. You can claim the renovation cost even if you didn’t do the renovation.

Bonus tip # 4:

Our iPhone app is downloadable from the iTunes store for free, enabling you to get numbers at the tip of your fingers! This great app also works on the iPad. Depreciation Calculator

If you want to crunch the numbers yourself, you need to input the 5 pieces of information below:

  1. Purchase price
  2. Nearest city
  3. The year the property was built
  4. Property type
  5. State of the finish within the property

Then, click calculate and Bingo! You can compare the depreciation deductions between the diminishing value method and the prime cost method!

And if you’re happy with the results, simply get a quote from us and give us a call so we can discuss the property over the phone. It’s all in the power of your hands!

Here are five things for you to take away today:

  1. Old properties depreciate too
  2. You don’t have to buy new to claim renovation
  3. Renovation helps your cash flow
  4. If you’re about to renovate a property that was built after 1985, get us out before you do so
  5. And remember: Always use an expert!

Thank you and if you have any questions, please contact us at 1300 990 612 or send an email to

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.

What a load of Scrap!

Whenever I am delivering a presentation or conducting a webinar, I always make sure to leave time for a 30 min Q&A session at the end.

In most Q&A sessions, the topic that by-far receives the most queries has to do with the concept of “scrapping” in relation to property tax depreciation.

Claiming the Residual Value on items that are about to removed can significantly increase your tax depreciation deductions. The problem is that many investors who renovate miss out on this due to a lack of awareness.

It’s important to understand the basics of property depreciation before diving into the subject of scrapping so, let’s have a quick re-cap into what property depreciation is all about.

What is Property Depreciation?

Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation of your investment property against your taxable income. Depreciation Calculator

There are two types of depreciation allowances available: depreciation on Plant and Equipment Assets and the Capital Works deductions.

Whilst both of these costs can be offset against your assessable income, the property must be used for income-generating purposes. It is also important to note that to be eligible to claim on the Capital Works component, a residential property needs to have been built after the 18th of July 1985.

So what is scrapping and why is it a hot topic for property investors?

Put simply, scrapping is the ability to claim deductions on items within your investment property that you are about to throw away.

Engaging a qualified Quantity Surveying firm will ensure that you do not miss out on claiming any eligible residual value of these items as a depreciation deduction. This value can be claimed immediately in whole, once the items have been removed.

The reason it’s such a hot topic is due to the fact that these deductions can often add up to thousands of dollars.

There is one major caveat though. In order to claim the residual value on these items, your rental property must be producing an assessable income prior to the disposal.

There is no clear guideline on how long the property needs to be rented out for though, just that is was producing an assessable income.

scrapping schedule

There are two ways we can assess the scrapping allowances of an investment property.

Option 1 – Only depreciable assets can be scrapped

(This means the building was built before 1985 and no residual capital works deductions are available)

For Division 40 depreciable assets, if a taxpayer ceases to hold a depreciating asset (sold or destroyed) or ceases to use a depreciating asset (doesn’t need it anymore) a “balancing adjustment” will occur.

You work out the balancing adjustment amount by comparing the asset’s termination value (sales proceeds) and its adjustable value.

If the termination value is greater, you include the excess in your assessable income but if the termination value is less, you deduct the difference.

These deductions can add up quickly. Even if only in relation to depreciable assets.

Let’s crunch some numbers:

Joan Smith settles on a property for $650,000 on Oct 15 2015, the property had a long term tenant in place, who had agreed to stay for another 6 months. The property was 19.5 years old when she settled on it. Depreciation Quote Schedule

Washington Brown inspected the property on Oct 15 2015 and assigned the following values to the depreciable assets listed

below:

Oven $  625, Carpets $ 1536, Blinds $  885, Range Hood $  475 & Dishwasher $  558

Joan decides, voluntarily, to upgrade the apartment so that she can attract a higher quality tenant. At the end of the lease, when the tenant moved out, Joan replaced the items above.

Joan can claim the full depreciable amount of $4079 in her 2015/2016 tax return for these items that she is removing.

In addition, Joan has spent $8,555 replacing the items above, she can now start to claim these new items based upon their individual depreciation rate.

Option 2 – Depreciable Assets and & Capital Works deduction can be scrapped.

If you start moving walls or replacing kitchens in buildings built after 1987: your claim has the potential to be huge!

And let’s face it, it’s not that unusual to want to update a 20 year old kitchen.

Now let’s crunch the numbers on a situation where Joan renovated the kitchen and bathroom as well:

Capital Work item Cost in  1995 Residual Value in 2015
Kitchen Cupboards $7,750 $3,875
Kitchen Benchtop $2,500 $1,250
Plumbing Bathroom & Kitchen $6,375 $3,188
Electrical Bathroom & Kitchen $4,750 $2,375
Tiling Kitchen & Bathroom $8,750 $4,375
Ceilings $850 $425
Render $655 $328

The items above have been depreciated at 2.5% per annum for 20 years. That equates to 50% left of the value that can be claimed as an immediate deduction when removed in 2016.

That’s the tidy sum of $15,816.00 as an immediate tax depreciation deduction!

One thing that needs to be considered when calculating the amount of deductions available, is whether you or another person was not allowed a deduction for capital works.

“It’s complicated” but here the method statement from the Income Tax Assessment ACT:

The amount of the balancing deduction

Method statement

Step 1.    Calculate the amount (if any) by which the * undeducted construction expenditure for the part of * your area that was destroyed exceeds the amounts you have received or have a right to receive for the destruction of that part.

Step 2.    Reduce the amount at Step 1 if one or more of these happened to that part of * your area:

           (a) Step 2 or 4 in section 43- 210, or Step 2 or 3 in section 43- 215, applied to you or another person for it;

          (b) you were, or another person was, not allowed a deduction for it under this Division;

           (c) a deduction for it was not allowed or was reduced (for you or another person) under former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 .

          The reduction under this step must be reasonable.”

So in simple terms, you need to take into account any periods where Capital Works deductions could not be claimed and reduce that amount from any residual value left.

The last line is interesting, “The reduction under this step must be reasonable”.

 

I say interesting, because there are so many variables and not a lot of rulings to go by. But in my opinions here are some reasonable examples:

 

  1. It would be reasonable to assume that if you purchased an industrial or commercial property, Capital Works deductions were available the whole time. So no allowance for non use would be required.
  2. It would be reasonable to assume that if you purchased a serviced apartment, Capital Works deductions were available the whole time. So no allowance for non use would be required.
  3. It would be reasonable to assume that if you purchased a unit in a ski resort, it was used, perhaps, for 2 weeks of the year for private use by the previous owner and you would need to factor that in.
  4. It would be reasonable to assume that if you purchased a holiday house, in area where holiday lettings are common and that you saw the property listed on AIRBNB prior to your purchase and the holiday period was blocked out – then you should factor 2 weeks of private use per year into the equation.
  5. Now the tricky one, you buy an average unit with a tenant in place. Who knows, it may have changed 5 times since it was new. I think it would be unreasonable for you to have to find out the full history of the unit. Privacy laws are very strict now, particularly in Victoria. So in that case, I would personally assume it was an investment property the whole time – but that’s me!!

One final thing you need to factor in, just to make life more complicated, is whether any amounts were received by way of insurance.

The termination value or residual value needs to include the amount received under an insurance policy.

So, if it is insured, there is often nothing to deduct when the asset is lost or destroyed.

As you have probably gathered by now, claiming the residual value on depreciating assets and capital works deductions “is complicated”.

 

I would recommend speaking with your accountant or financial advisor prior to engaging a Quantity Surveyor to carry out a scrapping schedule. If you are going to proceed with this type of report, it is advantageous to have the quantity surveyor visit the property prior to you starting renovations.

Is The Block the world’s worst development?

Washington Brown has crunched the numbers on The Block’s latest development in Melbourne’s inner-city bayside suburb of Port Melbourne, and something just doesn’t add up.

 From a financial point of view the development, which consisted of transforming a 1920s art deco building into a luxury apartment block, was one of the worst he has ever seen.

While I understand the magic of television, Channel 9 has outdone David Copperfield in creating the illusion of a profit to the public!  Depreciation Quote Schedule

Let’s look at the numbers:

According to reports Channel 9 bought the site for around $5 million, which allowed for 6 apartments. Only 5 were sold on TV and for calculation purposes let’s say the acquisition costs is $4.2 million.

The construction cost and depreciation allowances totalled over $11 million, for the 5 apartments alone.

That’s $15.2 million alone in construction and acquisition costs.

It’s worth noting that under the Income Tax Assessment Act 1997 the initial vendor (ie. the developer) has an obligation to pass on the actual costs of construction to the purchaser, where the costs are known.

Let’s not forget there’s then a variety of other costs involved in buying and selling, and undertaking a property development, including:

Whilst some of these costs may have been avoided due to contra deals, the bulk would have to be outlaid by Channel 9. Depreciation Calculator

I estimate these additional costs to conservatively be $2 million, which brings the total cost to $17.2 million.

The Block’s total sales realised just a little over $12 million, leaving the development in the red by around $5 million, yet it has been indicated that profits of up to $715,000 were made by the contestants.

That something David Copperfield would be in awe of.

You know it’s the peak of the market when reality TV shows are pulling rabbits out of a hat to show a profit.

Whilst the contestants may have walked away with some ‘profit’, if the numbers are to be believed as shown on the show that development was a stinker.

The worry is these shows give an unrealistic expectation to would be budding renovators.

The 14 Property Must Haves For Every Property Investor

Every investor – whether expert or amateur – should be looking for the same things in a property investment to ensure its success.

While there is no exact formula for buying a successful investment, it’s handy to have a checklist to consult to make sure you’re on the right track.

property must haves

Below are some of the fundamentals you should be looking for when buying. Be aware that this isn’t an exhaustive checklist. However, it can serve as property investment tips that will help guide your decisions.

Property must haves:

13 Ways to Maximise Your Rental Yield

While a property investor’s major goal is likely to be capital growth, they’ll also be looking for solid rental yields to help them hold onto their asset.

To achieve the best possible rental return, you’ll need to maximise the appeal of your property to potential tenants. But what do tenants want? Generally they’ll want a home in a good location, close to employment, amenity and public transport. These are all things you should consider when you’re buying.

But you should also drill down to who the tenants in the particular area are, and what they desire from the property itself. How many bedrooms and bathrooms do they want? Would they like an outdoor area? Will they value nice window coverings?

If you already own a property there are several things you can do to increase the weekly rent and maximise your rental yield. Many of these are simple enhancements that won’t require a huge outlay of funds.

maximise rental yield

It’s often better to focus on increasing your income rather than cutting back on expenses by, for example, being lax in your maintenance of the property. Keeping your tenants happy will pay off in the long run, as you’ll likely have fewer vacancies and your tenants will be more willing to pay a higher rent.

While you can also consider self-managing to cut back on costs, this can backfire if it’s not done properly, costing you even more out of your own pocket.

So what can you do to increase your income? We’ve put together the below list to give you some rental yield tips. Just remember, whatever you do will depend upon what your tenants want – and are willing to pay more for.

And don’t forget to maximise your deductions for depreciation, which can further boost your rental yield.

 

Australia has one of the highest pet ownership rates in the world. More than half the Australian population own an animal.

The reality is, however, that it can be difficult for tenants to find properties that a) allow pets and b) are suitable for pets. So it makes sense that if you allow pets in your property you’ll not only widen the potential rental pool, but you’ll also be able to command a higher rental rate. Some property managers estimate you could charge an extra $20 or $30 a week if you allow pets.

While pets can cause damage there are ways you can mitigate any potential problems. Such as having a relevant clause in the rental contract, having a vigilant property manager to regularly inspect the property, and covering yourself with appropriate insurance. Depreciation Quote Schedule

 

Ensure your property is well and truly in the 21st century by providing up-to date technology that every tenant expects – and demands – in a home now.

This includes having a strong internet connection, a strong mobile phone signal, adequate power points and even the ability to install pay TV.

 

Ceiling fans may be adequate in some circumstances, but most tenants dealing with an Australian summer will want air conditioning. Nowadays, most will be willing to pay a premium for it.

Heating can be just as important as cooling. Make sure you get a reverse-cycle air conditioner if you’re installing one and put it in the areas where it will have the greatest impact.

 

Providing your tenants with added extras that make your property more comfortable to live in, such as a dishwasher, washing machine, dryer, clothesline or even flyscreens, can lead to an increase in rent.

Remember you’ll be responsible for maintaining and repairing any appliances, so only install something that you’re sure will be beneficial.

maximise rental yield

 

While this will require an outlay of funds at the beginning, it could pay off in the end with a boost in your rental income and yield.

Whether or not this works, however, will depend on the market in which you’re renting your property. It’s usually best suited to inner-city areas. So, while it won’t be for everyone, it can work very well for short-term renters, such as executive rentals or student accommodation.

If you furnish your property well, with modern furniture, it can add hundreds of dollars per week to the rent.

 

You don’t need to go overboard with high-tech alarms or CCTV, but make sure your property is safe and secure, with doors and windows that lock properly.

Consider adding security screens, or if you want to go a step further you could invest in swipe card security measures. Privacy is also key.

 

Public transport infrastructure is improving in many places, but people still like to drive their cars.

Your property should have at least one parking space, and if you have a second – even in the form of a shade-sail carport – it will be more in demand.

Having off-street parking in inner city areas will command the greatest premium, as this is where it’s most limited.

 

Creating an extra storage space can lead to higher demand for your property and higher rents.

Built-in wardrobes are very important, but renters may also like an outdoor shed or a cupboard under the stairs. Creating storage is fairly easy to do and will likely require only a small outlay of capital.

 

Presentation is important, so undertaking renovations can be a great way to improve your yield.

If your budget is small you can just do some minor cosmetic work such as painting or changing floor coverings, or even fixtures and fittings in the bathroom and kitchen. Depreciation Calculator

You can, of course, also do more major renovations. Such as a complete overhaul of rooms, or even adding a bathroom, bedroom or an internal laundry.

Many tenants will also pay more for an outdoor space where they can entertain. You could also consider adding a veranda or deck, but this will come at a hefty cost.

Just make sure you’ve done the calculations and you know you’ll be getting your money’s worth by not only attracting more tenants, but by adequately increasing the rent.

 

Perhaps surprisingly, there are plenty of landlords renting their properties below market. If you’re not charging market rent, raise it, and review it regularly. A good property manager can help with this.

 

Adding a second dwelling, such as a granny flat, that can be rented separately can increase your rental income.

This will only suitable in areas that allow it of course and it can come with its own complications, as it may be harder to find tenants, and rent on the main house can also decrease.

 

This can lead to a decrease in a tenant’s electricity bills, and consequently they might be willing to pay more rent. The installation costs are significant, however, adding up to $3000 or $4000, so you’ll need to ensure you can recoup this – and more – in increased rent.

 

Renting the property by the room can maximise your rental return, as can holiday letting or doing short-term leases.

Beware of the possible drawbacks though, as there can be higher vacancies and more wear and tear; any rental increase will need to make up for this.

My Best Property Deal

Tyron Hyde was recently asked by Your Investment Property – “What was your best property deal?”

How long have you been investing in property?

Well about as long as I can remember! For me, the term “investing in property” means more than just buying an actual property.

I’ve been “invested in property” ever since I was about 17 and walked on my first building site.

I was that kid that would always stop and stare through the hoarding of a building under construction and look at amazement at the excavation and try to work it out.

It drove my girlfriend (now wife) stir crazy as we would often miss the start of the movie!

What was the best investment property deal you have made?

best property deal

My First Investment Property

My first property investment was probably the best deal I ever did.

It was over 20 years ago, and I had just started working at Washington Brown. We were acting as the bank Auditor on the redevelopment of the Balmain RSL.

I liked the area and knew the potential this site offered. Together with a friend we put down a $2,000 holding deposit on $259,000 unit.

The builder went into administration on the job, and the project took a lot longer to complete. Luckily, the values of the property rose strongly.

And by the time settlement took place, the prices went up so much we didn’t have to put our hands in our pockets because the price rise was all the equity we needed to settle.

We ended up selling the unit 2005 for $490,000. So we turned our $2000 into $231,000 in less than ten years.

So excluding taxes, stamp duty, etc.. that works out at around a 70% compounding return over a nine-year period!!

What did this investment allow you to do?

This investment allowed me to buy more property of course! Every property I have ever sold has always re-invested back into another property. Depreciation Calculator

In hindsight, with some of the recent price rises in Sydney, I wish I had found a way to hold onto them.

But it’s not always that easy.

What is your ultimate goal as a property investor?

My ultimate goal as a property investor is to live comfortably off the income I receive from my investments.

I have a mix of investments including commercial and residential and not all are based in NSW.

As I get older, I am more debt risk averse and don’t like borrowing that much if at all to fund these investments.

With Negative Gearing still around, I know this probably isn’t the wisest economic move, but it sure makes me sleep better at night.

How to Claim Backyard Depreciation

Pssst… It’s me again. In this weeks’ QS corner, we’re taking a peek in your backyard.

Depreciation CalculatorHi, I’m Tyron Hyde, director of quantity surveying firm Washington Brown.

Not everyone buys a unit as their investment property. Some buy houses. So what external items can be claimed?

Regular viewers might already know that you can’t claim building allowance on investment properties constructed before July 1985.

But when it comes to claiming external work to the main building, construction must have commenced after the 26th February 1992.

External work is defined by the ATO as structural improvements.

These include swimming pools, fences, retaining walls and car parks or driveways.

This house was build pre 1985 so an investor can’t claim the building allowance – but the pool was installed 5 years ago which means it can be depreciated.

Earthworks associated with a structural improvement, like excavating the pool, can also be included.

Structural improvements can be depreciated at a rate of 2.5% per annum.

This pool cost about $40,000 all up to install. At 2.5%, that’s a$100 in the first year alone! And that’s just one item!

This fence was also installed post 1992 at a cost of $25000 that’s an additional claim of $600 per annum. Depreciation Quote Schedule

So there you have it. Structural improvements made to the external areas of your investment property include:

Swimming pools, fences, retaining walls and driveways and carparks.

The costs can be depreciated at 2.5% pre annum as long as the work was carried out after February 1992.

And remember – it all adds up. Before you know it, you could have a tax deduction worth $10-$15,000 in the first year alone.

Work out how much you save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.

 

Tips & Tricks of Property Investing

Tips & Tricks of Property Investing

Let’s get into the tips & tricks of property investing:

1. The higher the building, the higher the depreciation

Why? Because it has more of that plant and equipment stuff that I’m talking about and this stuff depreciates faster. It also has things like gyms, pools, etc.

(UPDATE: Deductions for plant and equipment items may only apply to commercial properties, brand new properties, if you bought the property prior to May 9, 2017, or some other exceptions – Read about the Budget changes here).

2. Old properties depreciate too

You’ve already paid something for it. So while you can’t claim the structure of the building, you may be able to claim the ovens, the dishwashers, the blinds, etc. because the plant and equipment is based upon what you pay for it and the effective life of each item can be a benefit. That means that if the carpets is going to last two years, you may be able to claim it over for 50% each year.

And at Washington Brown we are so confident that we actually guarantee our results. So if we can’t get you at least twice our fee in the first year, we won’t charge you!

3. Buy items that actually cost you under $300

For instance, if was going to buy a microwave, I wouldn’t buy one that costs $330 because I would have to claim it at 20% per annum. However, I’d buy one at $295 because I would be able to claim it immediately.

4. Sometimes furnishing your property can actually result in a greater depreciation deduction

Why? Because the furniture depreciates rather quickly compared to bricks and concrete. So putting things like dining tables, bedding and all that stuff into a furnished property can actually accelerate your claim to the point that if you were to buy $20,000 worth of furniture, you could possibly get a $10,000 deduction year 1 alone! But you’ve got to be smart about this. You can’t furnish all properties as it really depends on the location. This tip does not apply to all properties.

5. The actual construction cost must be used

Now that’s not a tip, that’s in the law. But what we found lately is that there are a lot of properties out there that are actually being sold close to their construction cost – certainly in some areas.

For instance, a property is sold at the original selling price of $95,000 in 2004. Our client just paid $45,000 for it. The original construction was $52,000. Now, I don’t know any other way that you can get a deduction greater than what you pay for something. Depreciation Quote Schedule

6. Utilise the residual value write-off

If you were to renovate a property that was built after 1985, you should get a quantity surveyor out before you do the renovation so that we can put some values onto items that you are about to remove and you can get a written down value of those items and claim it immediately as a tax deduction.

So if you remove the kitchen, the light fittings, the shelf screens, etc., all that stuff can be written off if your property was built after 1985.

For instance, you bought a property that was built in 1989 and in that property there was a kitchen that was originally installed and you now wish to upgrade it. If you were to demolish now halfway through its effective life, you could get a $10,000 immediate tax deduction for it! However, just remember that the property needs to be income producing before you rip it out.

So the tip here is to get a quantity surveyor out before you renovate a post-1985 property.

7. Always use an expert

Quantity surveyors have been recognised by the Australian Taxation Office to estimate construction costs where the costs are not known. Accountants and valuers for instance, are not allowed to estimate costs unlike quantity surveyors and not all quantity surveyors specialise in this service, Washington Brown certainly does.

Also, as far as I know, a depreciation report is the only tax deduction that can be subjective and open to interpretation skill. Every other tax deduction is based on what you pay for it.

8. You get more depreciation on a new property

Now let’s have a look at the difference between the depreciation of a new property versus that of a four-year old property. It’s very similar to the effective lives of the property, that in fact, you’ll be surprised. Now, most of the deduction within a property is actually related to the building allowance. However, you’ll definitely get more depreciation on a new property compared to a pre 1985 property.

9. Use the Washington Brown Depreciation Calculator

Now, this is a good tip. You can go online and check the depreciation available on your own property using our calculator, the first calculator that uses live data! You can check new versus old properties, get an accurate depreciation assessment, and the great news is that it’s free!

Now, here are some bonus tips:

Bonus tip #1: Don’t use a builder’s depreciation schedule

Builders are good at building. They miss out items and they sometimes don’t understand the design and council costs can be included. Let a quantity surveyor do the depreciation schedule for you.

Bonus tip #2: The type of materials is a huge factor

If you renovate, you might want to consider the type of materials you are going to use. For instance, carpets depreciate over 10 years but the floor tiling will depreciate over 40 so it can add up. Depreciation Calculator

As another example, various types of partitioning may yield varying depreciation allowances. Some depreciate a lot quicker than others.

Moreover, we have air-conditioners and fans as examples too where the depreciation differs…

The types of materials used may vary and in turn, may change the depreciation allowance you can claim. So it pays to consider the item you’re about to install.

Bonus tip #3: You can claim renovation even if you haven’t done the work

If you buy property that was built in 1900 for instance, but was renovated in 1990 not even by you, you can still claim depreciation. You can claim the renovation cost even if you didn’t do the renovation

Bonus tip #4: Get Mobile

Our iPhone app is downloadable from the iTunes store for free, enabling you to get numbers at the tip of your fingers! This great app also works on the iPad.

If you want to crunch the numbers yourself, you need to input the 5 information below:

  1. Purchase price
  2. Nearest city
  3. The year it was built
  4. Property type
  5. State of the finish within the property

Then, click calculate and Bingo! You can compare the depreciation deductions between the diminishing value method and the prime cost method!
And if you’re happy with the results, simply get a quote from us and give us a call and we can discuss the property over the phone. It’s all in the power of your hands!

Here are five things for you to take away today:

  1. Old properties depreciate too
  2. You don’t have to buy new to claim renovation
  3. Renovation helps your cash flow
  4. If you’re about to renovate a property that was built after 1985, get us out before you do so
  5. And remember: Always use an expert!

Thank you and if you have any questions, please contact us at 1300 990 612 or send an email to

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.