I often get asked, “Can I claim depreciation on my very old investment property?”
The simple answer is yes, but this is where a lot of investors make a mistake.
There are two components to a depreciation schedule Quantity Surveyors prepare on your investment property.
The Building Allowance
The first component involves claiming what’s called the “Building Allowance”.
The Building Allowance relates to the structure of the building. It includes things like brickwork, concrete, windows and even the kitchen sink!
Unfortunately, this part of the claim is date dependent.
If construction of your residential property began after the 16th of September 1987 – yes you can claim the Building Allowance. If construction started prior to this date – I’m sorry – you miss out on the claim.
Plant & Equipment
However, ALL properties are eligible to have the Plant and Equipment component of the building depreciated.
(UPDATE: 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).
Claiming depreciation on Plant and Equipment relates to the wear and tear of items within your investment property, like carpet, ovens, dishwasher etc.
These items actually wear out more quickly and therefore can be claimed at a higher rate, over a quicker amount of time.
If you need a quote for depreciation on your old property – click here.
Here’s a video in relation to claiming depreciation on an old house.
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!
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:
Stamp duty
GST on the sale
Demolition
Marketing
Agents’ fees
Legal fees
Interest
Rates
Whilst some of these costs may have been avoided due to contra deals, the bulk would have to be outlaid by Channel 9.
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 thepeak 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.
What does Trump’s election victory mean for Aussie real estate?
Since the US election, there’s been endless speculation about what the win from Donald Trump will mean for not only the US, but other countries around the globe.
Would you believe that the predictions for Australia’s property market range from doom and gloom through to uplifting and very positive, including that property prices could rise, property prices could fall, there could be a recession…
But the key here is that it’s all speculation. What will really happen remains unknown, particularly since Trump’s policies seem to be subject to change and we don’t know what will actually be implemented until he’s in office next year. In fact, he probably doesn’t know himself!
Let’s look at the positive vs. negative case
‘The Donald’s’ election win scared investors and sent shockwaves through the share market, with $32.5 billion wiped from the ASX. It quickly rebounded, however, with more than $50 billion added the following day, the best session since 2011.
Did the confidence of real estate investors take a hit too? Since the real estate market doesn’t see the impact of these events until further down the track, we don’t yet know. However, in the initial aftermath of the election, there has been a case put forward that Trump’s win could actually benefit our market.
It’s all to do with confidence and sentiment. The big positive for Australia in all of this could be an increase in foreign investment. Our country is seen as a safe-haven in the midst of global volatility, which could lead to greater demand for property and hence, push up housing prices.
Some commentators suggest demand from foreign investors could come from the United States itself, with its citizens choosing to either relocate elsewhere (although this is unlikely – just think of all the celebrities who have already reneged on their promises to leave the US!) or simply invest their money in a country they consider to be safer than their own. The US is already one of the biggest sources of foreign investment in Australia’s property market.
Chinese investment in our real estate market is also likely to rise. The case is already pretty compelling for Chinese investors to move their money here; irrespective of Donald Trump they love buying Australian real estate. Australia has long been seen as a safe-haven for Chinese capital. Despite measures introduced to curb foreign investment, Chinese investors continue to buy Australian real estate in large quantities, lured by not only the perceived security of our market but by factors including our lifestyle and great schools. In this sense, the Trump phenomenon could just be another factor strengthening their desire to invest in Australian real estate.
While some Chinese investors seem to indicate they don’t care about Donald Trump and his election to the US presidency, there is an argument that he has “declared war” with China, with promises to tighten trade agreements and increase tariffs on goods imported from China into the United States.
Some economists have argued that Trump’s trade policies could have a very detrimental impact on the global economy, potentially leading the Australian economy into a recession, negatively impacting upon the share market and the property market, which is where price fall predictions come in.
It seems interest rate predictions have already changed since Trump’s election; prior to it there was an expectation of another fall in the cash rate, but now an upward move appears more likely, as Trump’s trade policies could cause global inflation to climb. Combined with a weakened Australian dollar, this could provide an impetus for the RBA to increase the base rate.
Trump’s real estate interests
Let’s not forget Donald Trump is a real estate tycoon with property developments around the globe. He has built office and residential towers, hotels, casinos and golf courses around the world, perhaps surprisingly, he has towers in countries including Turkey, Panama, India, the Philippines and Uruguay.
While post-election Trump has said he now doesn’t care about his business empire, the fact remains that he clearly has a vested interest in real estate and keeping property markets around the world buoyant – at least where he has properties!
It will, of course, have to be balanced by his responsibilities as the leader of the free world and his determination to do what’s best for the US and its citizens.
Other interesting snippets about Donald Trump and property include:
Trump is reportedly committed to bringing regulatory relief to the financial services industry in the US, which could make credit more readily available and increase activity.
Infrastructure is expected to be central to his administration’s policy agenda, which could benefit the property market.
Despite a lot of hostility towards the incoming president, Trump-branded properties are reportedly thriving and likely to grow even further in value after his election win, with greater buyer demand. The Trump International Hotel and Tower in Chicago are said to have increased 25% to 75% in value and in New York the tower reportedly increased in value by around 200% since he was elected.
Remember it’s all about hypotheticals at the moment
We can all sit here and make claims about what Trump’s presidency will mean for Australia’s real estate market, but the reality is that we don’t know. It’s all speculation, and there’s a lot of misinformation out there too. What will really happen will only be determined in time.
At the end of the day, the fallout will be all about confidence and sentiment. IT will come down to whether people have the confidence to continue investing in the share market versus property, and in the US versus other countries that are perceived to be safer.
It also depends on whether Australians have the confidence to keep investing in Australian real estate. Unless a recession hits, it’s likely they will. Why? Because of the fundamentals supporting our real estate market, including population growth, a stable economy, a strong banking system with tight lending restrictions, and a shortage of properties in some areas.
Any deterioration in confidence will likely be short-lived, just like Brexit.
As time goes on the initial shock will subside. The protests will eventually come to an end, and it’s likely Trump’s presidency will be more measured than people expect. Which should translate to sentiment being restored in the long term.
Property prices in the UK have indeed defied all the naysayers’ post-Brexit, being up by 7.7% over the past year according to the latest figures.
With everything being just predictions and speculation, how about we add another to the mix: Maybe the best course of action is to go and buy some shares in Boral so you can benefit when the wall is built along the Mexican border?
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.
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:
Good location – The old adage still rings true; it’s all about location, location, location. Well, maybe it’s not all about location, but the fact is you can change a property, but you can’t change a location. Being close to amenities such as shops, schools, public transport and even major transport routes is key when it comes to selecting a good investment property.
Growth drivers – Are there any major projects taking place in close proximity to drive up the value of the property? This might be in the form of new or planned infrastructure or commercial developments that will improve amenity or access to the area. This is likely to draw more people to the area, pushing up demand for homes.
Population growth – Are people moving to the area? Look at population growth figures in the area you’re buying in. Then determine whether there are factors drawing people in, such as employment nearby and improved amenity.
Tenant appeal – Is there demand from renters in the area and for the type of property you’re purchasing? Does your property have the features tenants want? What are the vacancy rates? Demand from your target demographic is the key to securing a strong return.
Build quality – While location is key, the property you buy is important too. This is especially true if you want to attract quality tenants. Do your due diligence, which includes getting a building and pest inspection, to ensure the home you’re buying is of a good quality.
Value-adding potential – A well-selected property should see capital growth. However, it’s always a good idea to have the ability to add value through a renovation or by adding a room or a car park, for example. Value-adding potential also comes in the form of a change in zoning that will allow for development. If the market slows you may need to manufacture growth to increase your equity.
Liveability – Does the property have a good layout? Does it have the features people want, such as extra bathrooms, car spaces, security, and a nice outdoor area, whether it be a roomy balcony or a good deck and backyard? All of these things will make it more sought after. Liveability also goes for the suburb. Ensure you buy in an area with a good community due to plenty of amenity and nice aesthetics.
Individuality – A property that is unique is some way – or that stands out from the crowd – can experience strong growth as it will be in high demand amongst buyers. This is especially the case when it comes to units, particularly in areas with a lot of supply.
Scarcity – Does demand outweigh supply in the area in which you’re buying? This applies to the area in general as well as the property type. If there is greater demand than supply in terms of both buyers and renters, the property value and rental rate will be pushed up.
Low maintenance – Select a property that won’t require a great deal of maintenance. This will save you money and keep your tenants happy.
Proximity to employment – People like to live in close proximity to work, so make sure there are employment options nearby. If you’re buying in a regional area make sure there’s more than one industry in the town.
Stability – Have property prices been stable in the area in which you’re buying? Ideally you want a history of consistent growth, avoiding areas that have experienced big price falls.
A solid history – Do your research and make sure the property hasn’t been sitting on the market for a long time, and if it has, determine why. Make sure it’s not due to an inherent problem with the property. Finding out why the sellers are moving on is also important. The last thing you want is a property that isn’t selling for a good reason.
The right numbers – You want the property to stack up from an investment perspective, with good potential for capital growth and decent rental yields. Make sure the numbers add up! What is the rental yield, what are the total costs, how much will you be out of pocket for?
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.
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.
Make your rental property pet-friendly
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.
Provide modern technology
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.
Install air-conditioning
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.
Offer added extras
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.
Furnish your property
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.
Make it safe and secure
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.
Add some off-street parking
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.
Create more storage
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.
Consider renovating
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.
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.
Charge market 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.
Add another dwelling
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.
Install solar panels
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.
Consider arrangements outside of a long-term lease
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.
Ahhhhhhhh, housing affordability. That old chestnut. It’s a topic that’s been hotly debated a million times over! And will no doubt continue to be for many years to come.
The general consensus is that property in Australia is unaffordable. The results of a recent survey seemed to confirm this, with the proportion of adults who own their own home falling from 57% in 2002 to 51.7% in 2014.
So, is home ownership falling because Australians simply can’t afford to buy properties due to hugely elevated prices, or is it due to other factors?
Property prices have significantly grown
It’s certainly true that property prices have significantly risen in Australia over recent decades.
The median dwelling price for the combined capital cities is currently sitting over $500,000, according to CoreLogic. But prices of course range widely between the capitals. Hobart is the cheapest at around $300,000 and Sydney being the most expensive at nearly $800,000.
This decade so far prices have risen across the board by 35%, and over the previous decade they rose by around 140% according to CoreLogic figures.
But since the beginning of 2010, it’s been the two major capitals of Sydney and Melbourne that have seen the majority of growth. Prices are increasing by around 60 and 40 per cent respectively (as at May this year). The other capital city markets have seen either little growth or have fallen in value, so theoretically, in some places affordability is actually improving.
This is especially the case when you consider interest rates; in this regard 2016 actually presents quite a good time to buy with the cash rate now sitting at a record low of 1.5%; very different from the double-digit interest rates investors experienced decades ago.
We, of course, also need to consider incomes in relation to price growth. Depending on who you ask, there can be a case to say housing has or hasn’t become more unaffordable. It’s clear, however, that house prices have risen faster than incomes, making it harder to save for a deposit.
Priorities are changing
While property prices have clearly risen, it’s also the case that priorities for more recent generations have changed.
Once upon a time – not that long ago really – youngsters left school and got a job, with their primary objective being to save for a deposit to buy a home.
Nowadays, however, younger generations seem to have different priorities. They often leave school with the intention of travelling abroad for a gap year (or two or three). Or if they go straight into a job they’re not necessarily saving, but buying the latest gadgets; in our modern society it’s about instant gratification.
So does that have an impact on affordability?
It makes sense that it likely impacts on the ability to save for a deposit.
We need to consider which is the cause and which is the effect, however. Some – including a Sydney real estate identity recently – argue that this generation is simply too selfish to make the necessary sacrifices, such as cutting back on commodities such as widescreen televisions and designer clothes, to save and get a foothold in the market.
But on the flipside others argue that priorities have changed simply because it’s impossible to save the huge deposit required for property these days. So younger generations are instead deciding to spend their money on something else because property is out of their reach.
But are the expectations of younger generations now just too high? When they complain about property being unaffordable, is that because they want to buy a flash pad in inner Sydney as their first home, rather than buying something further from the city in a price bracket they can actually afford? Essentially, many want to buy what would traditionally be their last property – often what their parents have worked their way up to – first.
Add to all this the fact that renting has also become more socially acceptable. The Great Australian Dream perhaps fading a little, and we have a little more insight into the affordability debate.
Consider your options
It’s clear that the debate around housing affordability isn’t clear-cut; there are many aspects to consider. As the debate continues to rage, demands for reform or government measures to curb price growth will persist.
While Australian property prices have risen and are unlikely to fall (despite claims from doomsayers), leading many to feel as though it’s impossible to break into markets such as Sydney, there are always more affordable opportunities within each capital city if you care to look. Consider buying further from the city, or a unit instead of a house. Scale down your expectations and buy where and what you can actually afford.
And if you don’t want to scale down your expectations, become a ‘rentvestor’. This means you choose to rent where you want to live and invest where you can afford to buy.
For investors, it’s of course better to buy where there’s more potential for growth. Chances are that’s in an area that hasn’t already seen huge growth. Yet where there are lower prices with more room to move.
So, I’ve just heard the news that James Packer sold his multi-million dollar home, and a property investor buys it!
Forgive my bit of journalistic license here as I’m not sure if Dr Chau Chak Wing has purchased the property as an investment, but he is a property investor and developer.
Now, based on the estimated $40m worth of renovations that James has spent on the property, I estimate that the good Dr. could claim around $2M in depreciation in Year 1 alone!
No small change.
In reality, if you are buying a mega mansion – depreciation probably doesn’t come into the picture.
And as an investor, you’d be better off spreading your risk; buying lots of different properties in various states to minimise land tax.
Or perhaps consider purchasing an industrial or commercial property – get rid of all those pesky tenants and only deal with one leaseholder!
Buying high-end property as an investor can pay off… However, depending on the stage of the market, you might have more success at one of James’ casinos!
But Dr Wing…if you do need a depreciation schedule – “I’m free Mr Humphreys” and you can get a quote here.
This sounds simple – but in my opinion it’s not given enough consideration. The most successful property developers I know all say: You make your money when you buy the land.
That’s akin to saying “you make your money at the start of the project – by paying the right price”. This principle should apply to everyday property investors as well.
How many property investors know the complete sales history of all the units in a block of apartments before they buy the unit in that block? It’s pretty easy to find out these days – and you’re mad not too.
Websites like RP Data give you comparable values that were once only available to valuers, now they can be accessed by anyone, at a fairly reasonable price. So knowing the worth or comparable value is key.
Rule #2 – Infrastructure/Transport
Being ahead of the game in terms of future infrastructure can certainly put you ahead of the curve. There are many websites these days that focus on finding you the next area that may benefit from an ease in access to the city or increase in data speeds via the NBN etc.
Rule #3 – Add Value
Buying a property where you can add value has always been a pretty safe bet. Again, it’s a simple tip… but some of the best returns I see are clients who do a simple makeover to a property. New Kitchen from Ikea, new blinds, new carpet, new appliances and bingo after spending $25K their property has gone up $50k in value and the rent has increased to boot.
And here’s the kicker – on that $25k reno – Washington Brown will provide you with a depreciation schedule that allows you to legally write off half of it as an immediate tax deduction.
To get a free quote on your own property depreciation schedule, click here.
Rule #4 – Do the Opposite of Everyone Else
Now this is not a simple tip, but stay with me. I personally get nervous when all my friends (whom I haven’t heard from for 10 years) start ringing me up and asking me for property advice. It’s a sign the market is heating up. Be it shares or property, I hate following the crowd. But if you do trade shares – you will know that “the trend can be your friend”.
And that’s true….but things can turn quickly and that’s partly due to the media. Think about it – headlines sell papers. Examples.
Gloom: “Buyer Rides Property Wave: $200K profit in resale after 3 months.”
Doom: “Buyer Faces Bankruptcy: Bought apartment for $700K off the plans, forced to sell for $500 by settlement.”
That sells papers. This one doesn’t.
Average: “Buyer makes median rental yield and achieves steady capital growth.” BORING.
So in my view – be wary of the media and the general “spin”. Try to remain independent.
If you’re enjoying this article and want to find out how I’ve saved thousands of investors millions of dollars, take a look at my free book below!
Rule #5 – Follow the Leader
Now I know I’m about to contradict what I just said, but sometimes it pays to follow the leader – especially if they’re a knowledge one you respect with a proven track record.
On October 16th, 2008 – Warren Buffett wrote an article titled ‘Buy American, I Am’
If you followed his lead your stock portfolio would have increased by 212% – not bad!
From a property point of view, some of the wealthiest and most successful property developers I know are Lang Walker and Harry Triguboff.
If I followed their lead and bought in areas when they started developing there, I’d be far wealthier too. These guys have a gut feel for areas and employ rather smart people too.
Rule #6 – Have a Strategy
Have someone look at your current financial situation and your goals and work together to ensure a sound strategy is in place.
Here are two simple tips you might want to ask an advisor:
a. “How much are you making on this transaction?” Simple but effective and make them show you. How much is vested in their interest compared to yours?
b. “What is the best structure to buy this property in and why?” This should always be asked before any transaction. Depending on the phase of your life, it may be that a Self Managed Super Fund is the better alternative, in other circumstances it could be that owning a property personally will be of more benefit.
The decision making should also consider land tax, negative gearing and CGT implications. I can’t stress the importance of this more. Once you buy a property in a certain entity it’s pretty hard to change without ramifications/significant costs.
Getting a depreciation schedule could save you hundreds of thousands of dollars over the life of your property, so we think it’s pretty important! Work out how much you can claim on your property by using our free calculator.
Rule #7 – Do the Numbers
You should have a good understanding of the financial impact of any property transaction before you enter into it.
Do you know how stamp duty is treated in tax terms on your investment property?
How does claiming depreciation affect my capital gains tax when I sell it?
When I sell my property – how are the selling fees treated for CGT purposes?
These are tricky questions – but I reckon you should know this – before buying an investment property.
Rule #8 – Don’t Believe the HYPE
Property doesn’t always go up. That’s one of most often touted lies. Sure – if you’re not forced to sell in a downturn, then you can always hang on and claw your way back, but that isn’t the case for everyone.
The banks will lend you more on an off-the-plan property investment than they will on Woolworth or BHP Shares for instance.
So if you can gear into a property with a 5% deposit…remember – all it takes is for that property to go up 5% for you to double your money BUT if it goes down by 5% you LOSE all your money.
The above excludes all exit and entry costs… which is quite silly… but I’m making a point.
Sadly, this is where most investors don’t do the math.
Rule #9 – Buy the Land Free!
I review thousands and thousands of purchases every year. And when I see a client buying a property at close or below the original construction cost – I smile.
And it does happen. Post GFC we have released many reports where the original construction cost exceeded the purchase price paid by our client.
If you ask me – it’s very hard to lose money in property when you get the land free.
Yes it may take a while for that property or area to grow again. But eventually it will.
Personally, I’d rather buy at the low point of the market than when a market is surrounded by hype.
I want to pass this onto my daughter… but I’m keen to hear what you would add, so please leave a comment below.
Or if you’re looking for a depreciation schedule and wondering how much you could save on your tax bill, use our free calculator to find out!
Property Depreciation Rates – Timelines to Consider for Residential and Commercial Properties
Property investors ought to know that when it comes to claiming building allowance, there is a maximum amount to go for which is the full 4%. Building allowances, which are deductions that allow you to claim your investment property’s construction expenses against your taxable income, commonly range from 2.5% to 4%.
I have mentioned where you can get a 4% claim on building allowance with manufacturing buildings and short-term traveller accommodations. But where do we draw the line with residential and commercial properties?
Residential Properties
Do you own a house, unit, or townhouse? If the construction of this residential property commenced within July 18, 1985 to September 16, 1987, you are eligible for a 4% building allowance. Residential properties with dates of construction after this time period can only claim 2.5%. However, because the you can only claim a 4% building allowance for 25 years – if you buy a property today built in 1986, for instance, there is NO building allowance left. It ran out in 2011 (ie. 1986 + 25 years = 2011)
Property Depreciation Rates
Commercial Properties
Office buildings, serviced apartments, shops, and other non-residential properties for commercial and industrial use can also give you the full 4% on one condition. They have to be built within what we call a “window of opportunity”. This window refers to the time frame between August 21, 1984 to September 16, 1987 and it becomes an opportunity to claim 4% if your construction commencement date falls within this period. Anything outside that window can only give you 2.5% in building allowances with July 20, 1982 being the earliest date you can claim.
So these days it’s better to buy a property that falls in the 2.5% timeline – as your 4% building allowance may have been eaten up by now.
Let’s look at the positive vs. negative case
Trump’s real estate interests
