Expert Advice by Tyron Hyde
Get ahead of the pack when competing for investment property
We all know knowledge is power. This is particularly important when you’re dealing with the stiff market competition this Spring, especially when you consider the big biccies involved in buying a property. There’s always competition but in the current market,
there’s a lot. Any competitive advantage can be crucial. I’m here to give you yours.
If you’re on the hunt for an investment property you’re going to try to ascertain what a good price might be once you find it. Before you start talking numbers, don’t forget to include depreciation in your calculations. This might give you the edge you need and at least you’ll have clear and accurate expectations of what your investment will return.
What’s the difference?
Some properties stack up better than others. As you are looking to purchase an investment, depreciation can make a big difference in how your investment performs at the end of next financial year.
A good investment property can also be a good depreciating property, especially if you know what to look for. If you are clever, it should not only outperform the other properties you are looking at in the first year, it should continue to do so year on year.
What’s depreciation all about and why bother?
Putting it simply, this is the writing down of specific items within the investment property and it’s structure to claim a tax break.
Items that are depreciating within the investment property can then be claimed as a loss. This is the difference between what it costs you as opposed to what it is now worth. This loss can then be offset against any income you make and thereby reducing your tax liabilities. Less to the tax man!
What to look for
Taller buildings attract higher plant and equipment allowances and the higher the plant and equipment, the higher the depreciation.
Residential properties built between July 18 1985 and September 15 1987 attract a 4% building depreciation rate. Everything built since then attracts a 2.5% rate. So, if you do buy a property built in 1986, all the depreciation is now all been used up because you get to claim 4% for 25 years. So from 1986 the 25 year period runs out in 2011.
If, however, you buy a property where construction commenced in 1994, you still have 20 years to depreciate the property, at 2.5%. That’s 50% of the original construction cost left for you as opposed to only 0%. I know which one I would prefer!
Tax depreciation benefits are at their greatest when the property is brand new. Investors can claim a 2.5% deprecation allowance on the construction costs. Personally, I prefer to buy property that is five to ten years old because I can still get lots of depreciation, I can also research resale values to make sure I am not paying too much. It’s also worth bearing in mind that lower priced property often has a higher depreciation ratio in relation to the purchase price.
Tyron Hyde is the CEO of Washington Brown and is considered one of Australia’s leading experts in property tax depreciation. He is also a registered tax agent. Washington Brown manages construction costs worth over $2 billion and completes 10,000 schedules annually. For a depreciation schedule quote CLICK HERE and follow the 3 simple steps or estimate your depreciation cost for Washington Brown’s online calculator CLICK HERE.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
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