Buy Property the Warren Buffett Way…

From a quantity surveying point of view, it’s never been a better time to invest in property… and in this week’s QS corner, I’ll tell you why.

Depreciation Quote ScheduleWe depreciate investment properties based on the construction cost – not the purchase price. And since the GFC I’ve seen many cases where the purchase price is actually close to or even below, the construction cost.

As a general rule, the construction cost of a property is roughly 50% of the purchase price.

So let’s say a newly built property was purchased for $500,000. We can assume the construction cost was about half of that – around $250,000. Sometimes a little more, sometimes a little less.

Post GFC we’ve seen sale prices come down. That same property might now be re-listed for $400,000 or even $350,000. But it still cost $250,000 to build.

So not only has the investor paid less stamp duty and increased their chance of a capital gain – their depreciation relative to the purchase price has increased.

Here are some examples.

This house in Orange, NSW, was first purchased in 2003 for ninety five thousand dollars.

Our client bought the property recently for forty six thousand dollars. We estimated the original construction to be fifty two thousand dollars!

And there’s this one.

This house in Noosa originally sold for one point one five millions dollars. Our client just paid four hundred and fifty thousand dollars for it.

Guess what – we estimated the original building costs to be five hundred and forty six thousand dollars! Depreciation Calculator

Remember, if you qualify for the building allowance, that’s 2.5% you can claim per annum. On a construction cost of, say, $200,000, that’s $5000 in the first year alone.

Then you’ve got all the internal plant and equipment that can be depreciated. Carpets, blinds, lights, white good. It all adds up.

In my view if you buy property at close to the construction cost – it’s really hard to lose money because you’re basically getting the land for free.

If you don’t know how to track down the original construction costs, research data companies like RP Data are a good place to start.

You can search for past sale prices – and using the 50% rule – make a rough assessment of the construction costs. You’ll be surprised at how many properties have re-sold for 10, 20 and 30% less since the GFC.

If all that fails – then come see us. As quantity surveyors we often find ourselves playing detective…

So make the most of property conditions post GFC.

Look for properties where the purchase price has fallen close to construction costs.

Use data research agencies to track down past sale information.

And enlist a quantity surveyor to maximise your depreciation claim.

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.