Category Archives: Property Management

Building more value, depreciation and new houses

Building more value, depreciation and new housesChoosing to build a brand new home rather than buy an existing property provides a number of benefits for potential investors.

Generally these types of properties will be built in a developing suburb close in proximity to schools, transport and local services. Surrounded by other new homes, a new house is likely to have street appeal that will attract potential tenants and as a result provide excellent weekly rental returns for the property owner.

One benefit that often goes unconsidered by potential investors when investing in property however is the depreciation benefits available.

According to the Chief Executive Officer of BMT Tax Depreciation, Bradley Beer, research suggests that 80% of investors don’t maximise the depreciation deductions available from their properties.

Considered a non-cash deduction, investors don’t need to spend any money to be able to claim depreciation from their property. It is a deduction available for any wear and tear which occurs to the building structure and the plant and equipment assets contained in the property over time.

Depreciation relating to the building structure is claimed as a capital works deduction. Examples of items which can be claimed as capital works deductions include the walls, windows, doors and the roof of the property. Capital works deductions can be claimed at a rate of 2.5 per cent per year over forty years for properties in which construction commenced after the 15th of September 1987.

Plant and equipment depreciation on the other hand relates to the assets which can be easily removed from the property such as carpets, blinds, ovens, dishwashers, garbage bins and even shower curtains. These items depreciate based on an individual effective life as provided in legislation from the Australian Taxation Office.

While the owner of any income producing property is eligible to claim depreciation, those considering building a brand new property for investment purposes will usually receive higher depreciation deductions. There are two main reasons for this:

  • The owner of a brand new property will be eligible to claim the full deduction for the entire cost of the building structure over forty years. Owners of properties which are not brand new can only claim the remaining years available.
  • New houses usually contain plant and equipment assets which are higher in value. This increases the depreciation deductions which will be available for the owner.

Let’s take a look at some of the depreciation deductions the owner of a freshly built brand new house can expect to claim over the first five years of ownership.

depreciation deductions the owner of a freshly built brand new house

As the table shows, the owner of a newly built house can claim between $8,300 and $10,700 in depreciation deductions in the first full financial year alone. Over five years, this cumulates to between $32,500 and $42,800 in deductions the owner can claim as a tax deduction.

Based on a tax rate of 37 per cent, investors will receive an average annual cash return of between $2,405 and $3,167 from a newly built house depending on its size and the assets contained.

Those considering building a brand new house for the purposes of an investment are recommended to seek advice from a specialist Quantity Surveyor prior to purchase.

A Quantity Surveyor, such as BMT Tax Depreciation, can provide a detailed depreciation estimate outlining the deductions that will be available once the property is property is constructed and available for rent. This estimate can help investors to crunch the numbers to get a more accurate picture of their after tax scenario to help them with their investment decision.

Once a property has been built, in order to claim depreciation a Quantity Surveyor should complete a tax depreciation schedule outlining all of the deductions available for the owner. This schedule can then be used by the property owner’s Accountant to process their claim when they complete their annual income tax assessment.

For a detailed estimate of the depreciation deductions available for any property, contact BMT Tax Depreciation on 1300 728 726 to speak with one of their expert staff or visit click here to request a quote.

Article provided by BMT Tax Depreciation.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

Why should you should consider renting?

Why should you should consider renting?When it comes to living in Australian property, purchasing with home loans seems to be the default choice. For many, there’s a general impression that renting property is some kind of short-term bridge between leaving your family and buying your first home.

But if you’ve had your eye on real estate news for the last few years, you’ll notice that purchasing real estate in Australia is getting increasingly difficult, particularly in certain capital cities.

While there are many great perks and benefits from owning property, there are also key advantages to renting that make it an appealing option.

Affordability

Affordability is a big factor for anyone. In this field, the case for renting seems to have the upper hand.

The Housing Industry Association reported in June that the National Affordability Index dropped by 2.9 per cent. Sydney and Melbourne saw the greatest decreases, at 6.9 and 9.1 per cent respectively. This demonstrates that housing prices are rising faster than people’s earnings.

While people with low interest home loans can still find ways to adapt and purchase property, it outlines just how comparatively affordable renting could be.

The deal with yields

The best way to observe this comparison is not just to examine rental rates, but to take a look at yields. Sure, rates can give you a snapshot into how much it’ll cost you per week, but this alone will not give you a holistic view.

Yield figures on the other hand, will show you how renting stacks up to buying property in the current market, which is the real contest here. This can be defined as the percentage of rental income to the home’s purchase price.

For instance, CoreLogic RP Data research notes that the median rental price for a Sydney house was $610 in July. This figure might seem high and have you consider buying instead.

However, figures reveal that Sydney’s rental yield was down 0.2 per cent over the quarter, and decreased by 0.6 per cent over the year to July. This shows that rental income were in fact lower than they should have been when considering property prices.

This is true for many of the other capital cities as well, and is a sign that renting could the far more affordable option in relativity to housing prices.

Stable rates

Another good reason to look at houses for rent is the fact that rates have been mostly stagnating. Australia’s combined capital cities experienced a 0.7 per cent decline in rates over the September quarter, with every single one recording negative change.

Melbourne has lead the charge in rental growth over the year, showing a 2.1 per cent rate increase in the year to September but clearly, this figure is hardly something to worry over.

With stable rates that are lower than property prices would have them, anyone who may struggle with mortgage repayments should consider renting instead.

Six capital gains and depreciation facts for property investors

One question investors often ask about claiming depreciation on a rental property is ‘how will these claims affect Capital Gains Tax (CGT) when the property is sold?’

CGT can be a complex topic for investors to understand, particularly as the answer to the above question can really depend on the scenario of the individual property investor.

Introduced on the 20th of September 1985, CGT is basically the tax payable on the difference between what it cost you to purchase an asset and the amount you received when you disposed of it. In the case of an investment property, this is the difference between the original purchase price of the property including any capital buying costs and the price the property is sold for plus any selling costs. When you sell an asset such as a property, this triggers what is called a ‘CGT event’ and the owner will either make a capital gain or loss on the property.

When an investor has been claiming property depreciation, the cost base could be altered, therefore changing the capital gain or loss. To help explain the implications of property depreciation on CGT, here are six facts investors should be aware of.

1.    What is property depreciation?

Property depreciation is the wear and tear of a building and the plant and equipment items within it. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this depreciation as a deduction in their annual tax return, meaning they pay less tax. Property depreciation is made up of two main parts; capital works deductions and plant and equipment depreciation.

2.    How do capital works deductions affect CGT?

Capital works deductions are available for the wear and tear on the structure of the building. Examples of items which can be claimed include bricks, walls, floors, roofs, windows, tiles and electrical cabling. The capital works deductions will reduce the cost base of the property which will add to the capital gain and therefore increase the amount of CGT applicable for the owner of the property.

3.    How does plant and equipment depreciation affect CGT?

Depreciation deductions can be claimed for the mechanical and easily removable plant and equipment assets contained within an investment property. When a property is sold, a gain or loss is calculated separately on these items. This is because often these assets will have been updated, removed or replaced over time. This means that the original assets contained in a property at the time of purchase can be very different to the assets contained in the property at the time of sale.

If an investor were to increase the value of plant and equipment during the time the property is owned (for example by replacing the carpets or completing a renovation) this could increase the cost base of these assets and may therefore reduce the CGT when the owner sells the property. If the value of assets in the property when sold is less than when purchased the cost base will be reduced, therefore increasing the amount of CGT.

4.    What CGT exemptions apply for a principal place of residence?

Properties which are owned by someone who resides, occupies or lives in the property as their home are exempt from CGT so long as the dwelling is used mainly for residential accommodation and is located on land under two hectares in size.

If the owner of a primary place of residence chooses to move out of their home and rent it out, a CGT exemption is available for up to six years after they have moved out so long as they don’t own another primary place of residence.

If the owner moves back into their investment property, then moves out and rents the property again, a new six year period will commence from the time they last moved out of the property. There is currently no limit to the number of times a property owner can do this so long as each absence is less than six years.

Only one property can be classed as a primary place of residence and therefore exempt from CGT at any one time with the exception of the following rules which apply if both properties are treated as the owner’s primary place of residence within a six month period:

  • The old property was the owner’s primary place of residence for a continuous period of at least three months in the twelve months before they sold it
  • An owner did not use the property to provide an assessable income in any part of the twelve months when it was not their primary place of residence
  • The new property becomes the property owner’s primary place of residence

5.    Are property investor’s eligible for a discount?

A 50% exemption on CGT is available to individuals or small business owners who hold an investment property for more than twelve months from the signing date of the contract before selling the property.

6.    Is it still worthwhile claiming property depreciation if it will later add to the capital gain?

The short answer is yes. During the term of ownership, capital works and plant and equipment can be claimed as a deduction at the investor’s marginal tax rate. These deductions will reduce tax liabilities, therefore generating additional cash flow for the investor each year.

When a property is sold, if the owner has held the property in their name for more than twelve months, the owner will be eligible for the 50% exemption. This means that only 50% of the capital works deductions during ownership will carry through to the ‘CGT event’, making it far better for a property investor to claim the capital works deductions and take advantage of the additional cash flow during ownership. Depreciation claims also provide an opportunity for the property owner to invest further or reduce loan liabilities.

When considering selling an investment property, it is recommended that investor’s seek advice from their Accountant about the implications of CGT and the exemptions available. A specialist Quantity Surveyor can also provide advice on the depreciation deductions for any investment property.

For more information on property depreciation, visit the BMT Tax Depreciation frequently asked questions webpage by clicking here or alternatively, speak with one of their expert staff on
1300 728 726.

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

Landlords blind to the benefits of pets

Landlords blind to the benefits of petsFirst National Real Estate chief executive Ray Ellis says that with record low rental yields nationally, property investors should open their eyes to the benefits of renting their investment properties to tenants with pets that have good references.

‘Capital growth has far outpaced rental growth nationally and this has forced yields to record lows. Yet many investors refuse to consider applications from tenants with pets, despite research that shows some are willing to pay slightly more rent and that they tend to stay longer’ said Mr Ellis.

‘The reality is that when landlords agree to flag their rental property as Pet Friendly with First National Real Estate, the chances of getting their vacant property leased quickly grows exponentially’.

The Petcare Information Advisory Service (PIAS) indicates 66 per cent of Australian families have pets so the majority of our 23.13 million population values pet ownership. Yet just 2.1 million families or 9 per cent of the population are able to rent properties with their pet.

The challenge of finding rental properties where landlords will consider pets leads to some 65,000 pets being surrendered to the RSPCA on an annual basis. Unfortunately only some 22 per cent of animals surrendered are able to be re-homed.

‘Because tenants understand how difficult it can be to rent a property with their pet, many are prepared to discuss the amount of rent they’ll pay. They often have references from previous real estate agents and landlords that make their application more attractive’ said Mr Ellis.

‘Our Property Managers can take additional steps to protect a landlord’s interests such as adding specific clauses to the lease, requiring annual steam cleaning of carpets, and in some states, negotiating a pet bond. Good tenants understand these are realistic trade-offs that help their landlord to feel more confident about their intentions’.

On any given day, about 5.7 per cent of First National Real Estate’s vacant rental properties are available through the network’s Pet Friendly Rental Search feature, with the most Pet Friendly states being Queensland and Tasmania – equally offering 12.5 per cent of vacancies as Pet Friendly. The network assisted Dr Emma Power’s University of Western Sydney 2013 research – Renting with Pets in Sydney – and has cooperated with the PIAS in the creation of educational booklets and the promotion of socially responsible pet ownership. It encourages landlords to discuss their concerns with Property Managers and weigh the merits of all applications.

Your end of financial year property depreciation checklist

With the Australian Taxation Office (ATO) encouraging rental property owners to be vigilant when preparing their annual income tax assessment this year, it’s important that investors understand the depreciation deductions they are eligible to claim.

Depreciation continues to be an area that investors find complicated and many investors lack the knowledge of complex tax legislation necessary to accurately assess what deductions they are entitled to. This can often lead to investors failing to maximise their depreciation deductions and a potential audit if incorrect claims are made.

To assist rental property owners, below are four must know points about property depreciation. These points include depreciation checklists to assist investors to understand some of the rules and terminology behind claiming property depreciation.

1. What is property depreciation?

As a building gets older and the items within it wear out, they depreciate in value. The ATO allows property investors to claim depreciation deductions related to the building structure and the plant and equipment items contained within any income producing property.

2. What is deductible under the capital works allowance?

A capital works allowance can be claimed due the wear and tear of the structural elements of a building. Examples of some of the structural items which can be claimed are below:

Deductions for these items are based on the historical costs of the building, the construction date and the type of property.

Residential property owners can only claim the capital works allowance at a rate of 2.5% for properties in which construction commenced after the 15th of September 1987, while commercial property owners can claim capital works allowance at a rate of 2.5% or 4% dependent on the property type and construction commencement date.

The below chart provides a visual explanation to help investors work out the relevant capital works entitlement for their property type.

3. What are plant and equipment assets?

Plant and equipment assets are the mechanical and removable assets contained within an investment property. The ATO has identified more than 1,500 items that rental property owners can claim as depreciable plant and equipment assets.

The depreciation for these assets will be calculated based on the individual effective life of each asset as set by the ATO. The checklist below lists some of the plant and equipment assets found in most investment properties.

To find the depreciation rate of any depreciable asset, BMT Tax Depreciation have developed Rate Finder, a free app available to download here. Investors can search by asset name or industry type within the app.

4. How can a rental property owner ensure depreciation is claimed correctly?

Investors are encouraged to enlist the services of a specialist Quantity Surveyor to arrange a tax depreciation schedule.

Quantity Surveyors are one of a few select professionals recognised under Tax Ruling 97/25 with the appropriate knowledge for calculating construction costs for the purpose of building depreciation.

A specialist Quantity Surveyor is likely to ask a property owner to supply the following information when they call to arrange a depreciation schedule:

A specialist Quantity Surveyor will perform a site inspection of the property when arranging a depreciation schedule. By doing so, they may identify plant and equipment items which may otherwise have been identified as capital works. Thus increasing the rate at which items within the property can be depreciated.

In commercial properties, Quantity Surveyors will ascertain which items can be attributed to the owners’ deductions and to their tenants, as tenants are also entitled to claim depreciation deductions. They will also ensure that the correct deductions are applied for assets dependent on the type of commercial property, as the effective life of assets in commercial properties vary significantly industry to industry.

By arranging a depreciation schedule, the owner of the property can rest assured knowing that the correct and maximum deductions can be claimed. The schedule will outline all of the deductions available for the owner’s Accountant and provide evidence to support the owners claim should the ATO complete an audit.

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation. A depreciation expert with over sixteen years experience in property depreciation and the construction industry, Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide. Please contact
1300 728 726 or visit www.bmtqs.com.au

Perk up with passive heating!

Perk up with passive heating!As temperatures start to drop for autumn and winter, we’ll all be looking for ways to heat our home efficiently, whether it’s a rental apartment or a family home. The open fireplace might not be able to warm up an entire home the way an electric system can, but how high are you willing to let those power bills go?

One solution could come in the form of passive heating, enabling you to snuggle up a bit more comfortably while still avoiding astronomical bills. But what is passive heating, and how do you install it in the home?

It’s a trap!

Not a trap for you, of course, but for the heat that enters your home. The Australian government’s YourHome website describes passive solar heating as something that can “let in winter sun while ensuring the building’s overall thermal performance retains that heat in winter”. Sounds ideal, right?

It means setting up a home so that daytime heat emanates throughout the home, and remains inside so that it keeps your interiors warm when it cools down outside.

How do I do it?

One important aspect is making sure the daytime living areas in a home are north-facing. The right glass and glazing is also important, as it can let the heat in, but won’t let it check out.

One top of this, you need to fix up any cracks or draughts in the home. These can be a real pain and let heat escape over time, meaning your home’s hard work has gone to waste. Insulation also helps to trap the warmth, but could be a more expensive option.

While electricity prices per unit fluctuate across Australia and New Zealand, it’s important to look at cost-effective methods of staying warm. The YourHome site states that passive solar heating is the cheapest way of heating a home. When you want to go ahead with it, contact a professional and see how you can create a lush, warm space at your house.

How to pick a good tenant

How to pick a good tenantWhen you’re looking to invest in real estate to rent, one of the things you’ll need to have a think about is choosing tenants. It’s important to fill your vacancies, but often it’s equally important to choose the right tenants to suit your property. After all, you don’t want to be dealing with unreliable payments – or even damage! Here a few things to keep in mind when picking a good tenant.

Who’s your target market?

The first element to figure out is your target rental audience. You’ll need to consider your property’s physical features and where it’s located. For example, a spacious suburban villa will likely appeal to a different pool of people than a slick apartment in the centre of town.

Make sure you play up your property’s features in the listing! Attracting the right applicants can lay a good foundation and take some of the legwork out of the screening process. If there are schools and parks nearby, you can probably start narrowing your advertising to families, while an abundance of restaurants and cafes in the surrounding areas will attract a younger set of prospective renters.

Enlist some help

Choosing a good tenant isn’t always a sure thing, but the screening process can often sift a good tenant from a bad one. It’s useful to have a bit of experience and knowledge on your side when you’re going through applications. A property manager can also do a lot of this legwork for you, as well as giving you some handy hints about setting the right rental price

They can check references and delve deep into the prospective tenant’s previous properties. You normally need around three references on a tenancy application, so take the time to speak to past landlords and property managers. They can alert you and your property manager to any issues and confirm the renter’s reliability in paying rent.

No matter how thoroughly you screen a tenant, renting is unpredictable. Landlord insurance can be a safe option, just in case.

Tips for finding a good investment

Tips for finding a good investmentProperty investment is a big financial commitment so you want to make sure you get the best bang for your buck. Whatever your long term investment goals, there are a huge array of factors to consider when choosing the ideal property. Here are some ideas to get the ball rolling.

Location counts

Finding the right location for your investment is half the battle. It drives the price and rental returns – and can make your foray into property investment a successful one. When you’re looking for a property do your research. Ask local real estate agents and property management companies about the health of the market. Glance across advertised rental prices and yields – and keep an eye on vacancy rate statistics.

Remember that trends are more powerful than individual results, so consider areas where high growth is expected.

There could be times when you can’t find tenants immediately but these statistics will prepare you for this. In any case, a low vacancy rate suggests you’ll find tenants easily. All this information can give a good idea of the demand for rental property in an area. Depending on your investment goal, you want an area where demand surpasses rental supply – after all, you don’t want an empty property!

Know your market

If you’re renting the property out, understanding your target market is equally important. Families have different preferences than young couples, while retirees are at the other end of the spectrum than students. Look for features that prospective tenants will like. Tenants might appreciate off-street parking, a garage or lots of storage space. It all depends on your target market.

Well-maintained properties often secure higher rents, so consider how much work you will have to do to bring the property up to scratch. A run-down or damaged property may not be worth the investment in the long run.

How do I use suburb reports and sales data?

How do I use suburb reports and sales data?There are a few things you can do to make the hunt for investment property a bit easier. Research is a large part of making a solid decision and there is a wealth of information at your finger tips. A number of housing agencies, industry bodies and local governments all release property information on a regular basis, but the amount of choice can seem overwhelming. Here are couple of tricks for using two of the most common information sources – sales data and suburb reports.

Sales report

Sales data can allow you to compare and contrast different areas to get a better feel for how markets are tracking. This information can help you in number of ways. For one, it can help you identify growth suburbs. These are areas where property prices rise strongly in a limited period of time – which is great for capital growth opportunities.

Sales reports can help you find out where values are strong, but don’t be immediately drawn in by a high median price. Keep in mind that a suburb that’s thriving now might not be doing the same in a few years time. Trends are especially important when looking at this information. Check for prices that have evened out or starting to head down – this can indicate that a suburb has reached its peak.

Keep an eye out for areas where prices are just starting to rise. Historic sales data can give you an idea of the growth cycle and point out areas that are potentially ripe for investment.

Suburb report

Once you’ve identified an area you like, a suburb report is a great starting point. They can help you discover more about the sector you are looking at buying into, or provide more detail on what the zone has to offer. It will normally include average property prices, advertised rents and even a demographic profile.

For example, it might show the number of schools, parks, transport hubs and other amenities. These are all things that potential buyers and renters will likely be looking for, and might even indicate price growth – especially if there are more facilities in the pipeline.

How investment property works for your retirement

Are-you-ready-to-invest-for-your-retirementWith the Council of the Ageing recently welcoming the federal government decision to keep financial advice regulations, now could be a great time to look into property investment for your retirement years. It is a great way to build equity, and offers a number of different ways in which you can benefit. Here are just a few ways that real estate investment for retirement could work for you!

Slow and steady wins the race

The story of the tortoise and the hare will not apply to every piece of real estate, but it can! Property is not a particularly volatile investment, so as long as you do your research and take on sound advice from the likes of agents and financial planners, there is every chance you will see solid capital gains over time.

If you plan well in advance and buy a home long before you retire, you may see some significant steady value gains that allow you to sell for a tidy profit as you retire.

Positive gearing to have you cheering

Another way that buying a rental property can benefit you into retirement is through making it positively geared. This means setting the rent that tenants pay above your mortgage repayments, so you earn profits. While you will pay tax on this, it keeps you afloat.

Keeping it in the negative

The alternative is negative gearing, where your rent does not cover your mortgage costs. This comes with its own tax write-off benefits, but means you have to have more capital put aside to cover the shortfall in the short term. The other side of this is you may be able to achieve some great windfalls in the long term!

Everyone will be in a different situation when it comes to investing for retirement – shop around and see what works for you