I can think of many reasons why the Sydney property market is set for a major correction and I can think of many reasons why it won’t.
I guarantee you I could find five experts to argue that the Sydney property market won’t crash, and I could find five experts to reason why it will.
But I’m going to tell you my number 1 reason why the Sydney property market won’t crash. Wait for it. Drum roll, please…
The number one reason the Sydney Property market won’t crash is….
IT’S TOO BLOODY OBVIOUS.
You see, you don’t see market crashes coming. And every day at the moment I can find an article predicting the end is nigh.
How many of you sold all your stocks just before the GFC? In hindsight, it was pretty obvious that was coming. Seen the movie the Big Short?
Any of you sell all your tech stocks before the crash? Remember the Asian economic crisis in 1997…did you see that coming?
Well, I didn’t.
At the moment it’s TOO obvious to predict a Sydney market crash, every other day the AFR is warning that an oversupply of apartments is coming.
I’d be smiling too James!
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.
Property Investment Tips
How to save THOUSANDS OF DOLLARS a year on your investment property taxes with these 7 Property Depreciation Tips!
Depreciation can still be a bit of a mystery to even the most experienced of property investors. To novice property investors it most certainly always is.
To simplify depreciation, basically, it allows you to claim the wear and tear of an investment property as a tax deduction against your income.
There are two components to this claim; Building Allowance (bricks, concrete, etc.) and Plant & Equipment (carpets, ovens, 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).
As Quantity Surveyors, we categorise elements of the building into a “Depreciation Schedule” which allows you to legally claim the right deductions come tax time.
Well here are seven tips you may want to consider this tax year to increase the yield on your investment property:
- Small Items and Low-Value Pooling – A dollar today is worth more than a dollar tomorrow so deduct items as quickly as possible.Individual items under $300 can be written-off immediately.So if you are buying a microwave for your property – pay $290 instead of $310 and get the full amount written off!You can also try to buy items that depreciate faster. Items between $300 and $1000 fall into the Low Pool Category and attract a higher depreciation rate.So for instance, a $1200 oven attracts a 20% deduction while a $950 TV deducts at 37.5% per annum.
- Depreciation reports are tax deductible – Book and pay for a depreciation report before the 30th of June, and you can claim the cost of the report as an outright deduction.On average, property investors can claim between $4,000 to $15,000 in depreciation in the first year alone. The age of the property has a lot to do with why that range is so great. The newer the property, generally, the more depreciation you get.
- Renovated properties – You can buy a property that might be over 100 years old…and provided it’s been renovated after 1987 you can claim the costs of those renovations. So even if you didn’t do the renovation, the deductions are there for the taking!
- Older properties – It’s true that new properties get the maximum depreciation allowance available to property investors, but don’t discount old properties. The minimum depreciation allowance on any property starts at around $2,000 in the first year alone.
- Scrapping reports – If you buy a property and are going to renovate the property, it’s worth getting a Quantity Surveyor like Washington Brown to inspect the property BEFOREHAND. We will attribute values to those items that are about to be removed. This can add up to a substantial amount, especially if the property was built after September 1987. In order to do this, the property has to be income-producing prior to the commencement of the renovation.
- Old properties depreciate too – In order to claim the Building Allowance the property needs to be built after September 1987. But, you could still claim depreciation on things likes carpets, ovens and blinds – regardless of the age (if unaffected by the 2017 Budget). Most Quantity Surveying firms guarantee to get you at least twice their fee as a tax deduction in the first year or give you the report for free.
- Backdating reports – If you haven’t claimed depreciation because you didn’t know about it – there is good news. You can go back and amend your previous two tax returns and get the missing deductions backdated. It will cost you in accounting fees, but could well be worth it.
If you are a property investor and don’t have a depreciation schedule – get a free quote here.
Or use our free calculator to work out for yourself how much you could be saving!
Follow the Golden Rules of Property Investment
Have you ever thought about writing something down that you can hand to your kids that will help them in their property investment journey? I have.
I wish I knew at age 25 what I do now at age 45.
So I finally got around to writing that article, but you know what – it’s not a family secret and it’s worth sharing.
I’ve invested in lots of assets over the years. I’ve made good money and lost lots too (in shares FYI – never property!)
For me, successful property investing boils down to 9 key rules or golden nuggets, as I like to call them.
- Rule 1
- Rule 2
- Rule 3
- Rule 4
- Rule 5
- Rule 6
- Rule 7
- Rule 8
- Rule 9
Rule #1 – Pay the Right Price
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.
I don’t think Warren Buffet makes his decisions based upon what’s written in The New York Times – do you?
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!
Top 20 Property Investment Criteria
Buyers’ agents are constantly asked “where is a good place to invest” and “what type of property do you recommended I buy to maximise my returns?” As a property investor you need to take a step back and ask a more fundamental question…“what do I want this investment property to do for me?”
Taking a strategic approach to investing in property means you need be clear on your goals and the returns you are seeking. Are you chasing high capital growth? Or is positive cash flow your number one priority? Perhaps you are seeking the best of both worlds? When it comes to property investments there is no “one size fits all.” Your financial position, your risk profile, income and equity will all have a part to play in determining what type of property will suit your chosen strategy.
Your property investment strategy will therefore determine what criteria will apply when selecting an investment property. Choosing the right strategy and criteria is so critical to your investment success. No one wants to pick a lemon! So here are some very important criteria that you need to carefully consider when weighing up various property options.
Don’t be swayed by glossy brochures and slick marketing material when choosing your next investment. Look at the fundamental drivers of supply and demand. Examine the data and crunch the numbers. It will make a world of difference when you look back in seven years time.
There are three broad categories that you must consider when evaluating investment property. These are:
- The location
- The market drivers
- The individual property
Read the full report here:
Top 20 Investment Criteria-Report-Wash Brown
This report has been compiled by our good friends at www.propertybuyer.com.au
“What drives you to succeed?”, was a question I was recently asked at a seminar.
It’s an interesting concept to ponder.
Thinking back, I think I was motivated to succeed from an early age. I saw my father work hard all his life to support 5 kids and then lose all his superannuation in the late 1980’s when he invested it all in a company called Estate Mortgage.
They proclaimed to be “safe as a bank”, but in reality were just lending to developers and offering a slightly higher interest rate on deposits.
So that extra 1% or 2% my dad was supposed to get cost him his life savings. It shattered him.
I guess part of me wanted to make him proud and prove that I could “make it”.
By the time I was 30, when he passed away, I had my own business and he saw that I was doing OK and I know he was proud.
Nowadays, I get inspired by meeting incredible people.
Whilst there are shonks in the building industry, there are also some creative and passionate people out there too.
Most successful developers don’t do it for the money, so what drives them?
It’s generally the challenge that they love, the creativity and the ability it gives them to leave their mark on society.