What is the value of having a depreciation schedule?

May, 2017 by

Before you know it, 30 June will be here. If you haven’t already, organise your depreciation schedule so you don’t miss out on valuable deductions.

Eighty per cent of landlords fail to claim the maximum depreciation deductions available, according to quantity surveying firm BMT Tax Depreciation.

For some, it’s simply because they haven’t yet had a depreciation schedule completed. This is a report done by a quantity surveyor who assesses the building, plant and equipment on the property, and the deductions that can be claimed. To have a depreciation schedule done generally costs between $650 and $700, which is 100% tax deductible.

Other investors fail to make deductions for depreciation because they’re not aware of the benefits. Deductions are available for:

  • Cost of building structure. For properties or structural work completed after 15 September 1987, property investors can claim 2.5% of the cost of the building structure annually for up to 40 years. Additional deductions may be available for some structural renovations, even if they were completed by a previous owner.
  • Plant and equipment. Property investors can claim between 10% and 20% of the value of plant and equipment such as carpets, blinds, hot water systems, air conditioners, cook tops and smoke alarms.

On average, investors can claim between $5,000 and $10,000 in depreciation deductions in the first financial year alone.

The greatest depreciation benefits come from new homes, with up to 60% of the purchase price potentially tax deductible over the life of the property. According to BMT, a brand-new residential property valued at $300,000 could potentially provide a landlord with cumulative depreciation claims for the structural component of $30,000 over a 5-year period.[i] And don’t forget, on top of that the landlord can claim depreciation deductions for plant and equipment within the property. That said, it’s important to note that deductions are calculated on a case-by-case basis and every depreciation assessment is different.

Significant tax allowances won’t always offset some of the costs of purchasing or building a brand-new investment home, and that’s also where a tax depreciation schedule can prove useful.

[i] http://www.bmtqs.com.au/rental-investment-property-depreciation.aspx

What is the difference between a property repair and a capital improvement?

May, 2017 by

The Australian Tax Office (ATO) considers ‘repairs’ to an investment property differently to ‘capital improvements’.

A repair is work completed to mend a defect, damage or deterioration to a rental property – and might involve the replacement of a broken window, a faulty electrical appliance or a new coat of paint. In other words, a repair returns an investment home to its original state and can be claimed as a deduction in the current tax year.

Other costs that can be claimed as an immediate deduction in the income year you incur the expense include: advertising for tenants, bank charges, body corporate fees and charges, cleaning, council rates, electricity and gas, gardening and lawn mowing, in-house audio and video service charges and building insurances. On the flipside, the ATO draws a line at expenses such as acquisition and disposal costs of the property. Also expenses not actually incurred by you, such as water or electricity usage charges borne by your tenants won’t be allowed as deductions.

If the work completed improves the value of the property, it is considered by the ATO to be a capital improvement and the expense is claimed over a number of years via ‘depreciation’ – usually at the rate of 2.5% per year in the 40 years following construction, according to www.ato.gov.au. A capital improvement can be anything from a major renovation to a new gazebo or carport. It also may be as simple as replacing a tired wooden paling perimetre with the latest in brick and wood fencing.

To add to the complexity, when you buy an investment property, there are often items that need repairing before you can lease it to tenants. The ATO calls these expenses, ‘initial repairs’ and they can’t be claimed as deductions or depreciated as improvements. Instead, they are considered part of the costs of buying the property and may be included in the capital gains tax (CGT) cost base. In other words, these expenses can be used to reduce your CGT liability when the time arrives to sell the property.

If you’re unclear about what constitutes a repair or capital improvement, be sure to speak with your accountant before 30 June 2017.


[1] http://www.bmtqs.com.au/rental-investment-property-depreciation.aspx

Why do I need landlord insurance for my rental property?

April, 2017 by

Our thoughts go out to everyone in Queensland and NSW affected by Cyclone Debbie and its aftermath. This extreme weather event is the latest reminder of just how vital it is to have adequate landlord insurance in place.

In the event of floods, fires and other natural disasters, landlord insurance covers damage to the structure of your building and for lost rental income until repairs are complete and your property is liveable again. It also covers damage to contents that belong to a landlord, such as carpets, curtains and furnishings. However, it’s worth making sure your tenants are aware that if they want their belongings to be covered, they will need to purchase their own insurance policy.

All insurance policies are not created equal, so it’s essential to read the find print. When it comes to flooding, such as that after Cyclone Debbie, check if your policy has any exclusions. For instance, some policies don’t cover flooding caused by a river bursting its banks, which might be an important consideration depending on where your property’s located. Also keep an eye out for any caps the insurer puts on payouts or conditions that limit payouts, and be aware that you may need to pay an extra charge to cover certain types of damage.

If your rental property is a unit in a strata-title building, check the body corporate’s insurance policy. If you’re worried it falls short, you have the option to buy “strata title protection” from an insurer.

Landlord insurance may also protect you from loss of income when tenants default on their rent and from property damage caused by tenants, but again it’s important to check what’s covered and for how long the insurer will pay out for rental default.

For peace of mind, it’s smart to research a range of insurers and policy options, so you can compare premiums, coverage and claims handling processes. Consider contacting RH Assist on 1800 960 230 or help@rhassist.com.au to discuss your needs and the landlord insurance products they offer

What is rentvesting?

April, 2017 by

Housing affordability has been a hot topic of late in the key capital cities, especially in relation to first home buyers. Some have taken an innovative approach to getting their foot in the door: rentvesting. A rentvestor buys a property as an investment and rents it out to a tenant, while renting and living in another property.

Industry research has shown that the number of rentvestors has grown to the point where they account for 3% of first home buyers in Australia.

Proponents of rentvesting say that in the country’s more expensive real estate markets it gives people a way to live in the type of home they want but can’t afford to buy, while at the same time enabling them to get into the property market and invest in their financial future. For some, rentvesting is a way to save a deposit on the home they really want to live in. Others enjoy the flexibility of renting so they can move if they switch jobs. There are tax benefits to rentvesting, too, as the interest you pay on the loan for your investment property can be claimed as a deduction, along with accounting and body corporate fees, cleaning repairs and insurance.

Whether rentvesting is the right choice depends on your individual circumstances. For those who are considering it, there are several key factors to look for in a property. You will want to buy in an affordable location where homes are expected to appreciate in value at a healthy rate, and that tenants find appealing. Infrastructure is often what underlies all of those factors – for instance, good public transport, access to major roadways, and proximity to a CBD, schools and universities, retail, hospitals and services. Nearby employment opportunities can also make a significant contribution.

Some first home buyers are taking another approach: buying an investment property and living with Mum and Dad, rather than renting a place to live. The same industry research showed that’s what 13% of first home-buyers in Australia are doing. In NSW the figure jumps to 24%, and in Victoria it’s 20% – it’s little wonder, given that Sydney and Melbourne are our most popular state capitals.

Finally, many property managers prefer tenants who own investments properties. It’s often a good indication that a tenant will appreciate the value of the asset they’re renting.

What are some tips for investment property success?

March, 2017 by

If you’re new to property investing, taking the time to put in the research to find a quality, well-located asset will put you on the path to financial success.

As part of the journey to property success, you need to get your investment strategy right. For starters, residential real estate is generally speaking a long term investment. Consequently, holding your property for an extended period, and using the generous tax incentives, such as depreciation and negative gearing, can help pay for it over time.

That said, the ultimate indicator of investment success is capital growth. Therefore as we mentioned above, a winning investment property will be well-located, and come with a quality build standard. Also avoid, where possible, properties that won’t appeal to prospective tenants. Choose properties that offer a suitable layout, plenty of natural light, and air-conditioning, as properties with these features are highly desired by renters. Be mindful that tenants want properties that are well-served with ample transport, entertainment options, schools, retail precincts and so on.

Inspect several properties before you buy. This is part of the legwork needed to find a suitable investment. The industry leading Raine & Horne website (www.rh.com.au) will be a valuable tool in assisting your search.

Typically you should treat the purchase of an investment property like any other major business decision. This means ensuring the numbers stack up and all the boxes mentioned above are ticked. That said, it’s acceptable to choose an investment property that excites you, offers some notable features and is in an excellent location. In combination with a suitable purchase price, these features will attract a steady flow of tenants and make a difference to your investment returns long-term.

On the issue of tenants, you need to choose wisely, and this is where a Raine & Horne property manager will prove indispensable. A good quality tenant is someone who will pay the rent on time and look after your property. To find a suitable tenant, a Raine & Horne property manager will follow a thorough screening process, which includes scrutinising references and the history of potential tenants.

If you would like more information about investment property opportunities anywhere in Australia, please visit the Raine & Horne website at www.rh,com.au, or contact a Raine & Horne agent directly, who will be able to assist you through the buying process and answer your questions.

Why would I use a self managed super fund (SMSF) to invest in a commercial property?

March, 2017 by

If you’re seeking a high-yield investment for your self managed super fund, it’s hard to go past a commercial property asset such as a small office, a retail space or industrial unit.

Think of it this way. Darwin apartments are producing average gross yields of 6%, which is the highest return of any residential capital city sub-market in Australia, according to CoreLogic. That said, a gross yield of 6% is often the starting point for commercial property, which to be fair, is generally more about income returns than capital growth.

Moreover, using your SMSF to purchase a commercial property has additional benefits. For example, a commercial property purchased through an SMSF can be leased by a business operated by a member of the fund. Even better still, a DIY superfund can invest 100% of its money in commercial real estate, if a member operates a business through the fund.

An SMSF can also borrow to purchase a commercial property, which is a great option for a member if he or she is seeking to expand the business. What’s more, your business can pay the lease for the commercial space to a member’s superfund.

Before buying into a commercial real estate property with your superfund, be sure to seek some finance advice. At the same time, be aware, that anyone, including your accountant, who gives you advice about an SMSF, must have an Australian Financial Services Licence (AFSL). ASIC Connect’s Professional Registers will tell you if the company or person holds an AFSL.

In the meantime, if you’re new to commercial property investment, be sure to contact your local office of Raine & Horne Commercial. Since our launch in 1984, Raine & Horne Commercial has been an active market participant and is now the largest commercial property group in Australia, with over 35 offices servicing every state capital, key regional growth centres and the Asia-Pacific region.

Why is a residential property a good long term investment?

February, 2017 by

When it comes to investing, there are four main asset classes, cash, bonds, shares and property that we can choose to put our money into.

Cash investments such as bank accounts and term deposits, along with fixed interest investments such as bonds, are low risk (or defensive) asset classes. This means your money is relatively safe, but you’ll never build wealth by leaving your money in the bank. This is because cash and fixed interest assets produce minimal long term returns – and even less after inflation. As many retirees are discovering, our current low interest rate environment, make it very challenging to live on money in the bank.

Shares, on the other hand, can produce excellent long-term returns. Over the long term, shares can produce average annual returns of 10%. However as many investors have discovered, equity market volatility can make it very hard to sleep at night, even for the most robust among us. For instance, it’s a fair bet some investors reached for the Stilnox on Monday 12 September, 2016, when the Australian share market lost 2% of its value.

In contrast, a quality, well-located residential property consistently doubles in value every seven to ten years, and when compared with shares, it won’t give you insomnia. For example, since January 2009, research from CoreLogic shows that Sydney’s dwelling values have almost doubled, rising by 97.5%. In Melbourne dwelling values have increased by 83.5% over the same time frame.

That’s not to say that an owning an investment property guarantees long term returns either. To give you the best chance of investment property success, look for a quality property located in a high growth area. Typically this will be a suburb, town or region that will have decent employment opportunities and ample infrastructure such as roads, schools and hospitals.  A high growth area will also have abundant recreational and retail outlets for prospective tenants, such as decent shopping centres, cinemas, restaurants, parks and beaches.

Other tips to consider before buying an investment property

Seek out areas where rental income is high compared to the property value. High yields are great if you’re looking for a decent income stream from your investment. A high-yielding investment property usually appeals to retirees, or those approaching the end of their working lives.

Research is priceless when it comes to securing the right investment. Examining recent sale prices can provide an indication of what you can expect to pay for an investment property in the same area. Visit the Raine & Horne website (www.rh.com.au) to find the latest market statistics and sales results, or talk to your local Raine & Horne agent.

What types of insurance do I need to protect my property investment?

February, 2017 by


If you decide to purchase an investment property, you’ll need to consider ‘landlord insurance’. Typically a landlord insurance policy covers accidental loss or damage to buildings and contents. Alternatively, if tenants default on their rental payments, a landlord policy can cover this default. Some landlord insurance policies cover acts of nature such as floods and bushfires.

The good news is that the ATO helps you ease some of financial pain of paying landlord insurance by allowing you to deduct this cost against any income you earn from the investment property or other means such as a salary. To find out more about landlord insurance or to secure a suitable policy, contact Raine & Horne’s financial services division, Our Broker on 1800 913 677.

If you invest in an apartment or townhouse, you will need to contribute to residential strata insurance. Also known as body corporate cover, this generally covers common property such as lifts, pools, car parks, gardens, wiring, balconies, walls, windows, ceilings and floors. It also provides liability cover if a person is injured on common property. Your strata manager can provide more advice about residential strata insurance.

Finally, if tenants’ rental repayments don’t cover your loan repayments entirely, some income protection insurance might be worth considering. This cover can provide a valuable source of income if you’re unable to work for a period of time due to illness or injury. It will also help you top up the mortgage repayments on your investment loan. To find out more about income insurance, contact Our Broker on 1800 913 677 or visit the Our Broker website.

What types of insurance do I need to protect my property investment

What is the benefit of owning a negatively geared investment property?

December, 2016 by

Thankfully the Federal Government ruled out any changes to negative gearing despite the urgings of the New South Wales Liberal Government in November.

It’s always a bit rich for state governments to seek the trimming of tax breaks, especially as they refuse to consider dropping stamp duty on property purchases. But we digress.

But how does negative gearing work? A property is negatively geared, when the costs of owning it – municipal and water rates, strata levies, land tax, insurances, repairs, depreciation, maintenance and so on, exceed the rental income. In other words, your investment must make a loss before you can claim the benefits of negative gearing.

Apart from ‘revenue deductions’ such as those mentioned above, property investors may also claim capital items such as a hot water service while any white goods can also be ‘depreciated’. In other words, landlords can claim the costs of capital items over several years rather than as a once off deduction. Depreciation schedules are established by the ATO and range from a few years to 20 years or longer.

Ultimately negative gearing enables you to increase your stake in an asset (over and above what you could afford with your own savings) and this has the potential to produce solid returns. But on the flip side it can also magnify losses. It’s for this reason that you must do your homework before borrowing money to buy an investment property.

Typically, this involves finding a quality, well-located property, with the help of a Raine & Horne agent, which has the potential to produce positive long-term returns. In other words, make the right investment decision first and then consider the tax benefits.