2016 was yet another interesting year for property investors. Housing affordability continued to be an issue which dominated the press and as a result we saw the major political parties discuss whether changes should be made to existing housing taxation policy.
From our perspective it seems that a lot of the talk around affordability and capital growth comes from the Melbourne and Sydney residential markets which have shown median price growth of 11.3 and 13.1 per cent respectively during 2016.
The same can’t be said for Perth, which recorded a decrease in median prices of 3.4 per cent. Darwin only saw a modest increase of 1.1 per cent. Adelaide finished the year with around 4.7 per cent growth and Brisbane 3.9 per cent.
During the 2015-2016 financial year we saw growth in the number of depreciation schedules ordered by property investors for all states.
In New South Wales, there was an 8 per cent increase, while in Victoria there was a 7 per cent increase. These increases have continued to the end of 2016, with a further growth of 11 per cent seen in both of these states for the first half of this financial year.
Tasmania and Western Australia led the states with the highest increase in orders for schedules, achieving 15 and 12 per cent growth respectively over the financial year.
Growth in the number of depreciation schedules ordered during the 2015-2016 financial year for Queensland was 9 per cent, South Australia 8 per cent, the Northern Territory 7 per cent and the Australian Capital Territory 4 per cent.
With all of this property investor activity in the different states of Australia, I thought I would help you prepare for the year ahead and share a few of my 2017 New Year’s resolutions as a fellow property investor.
1/ Take advantage of cheap money
Interest rates are at an all-time low. The Reserve Bank lowered them to 1.5 per cent during August. Now is a great time for investors to take advantage of cheap money. Your ability to service the loan might be a little easier. It could be worth checking in with your bank or Broker to see what your borrowing power is and also to make sure you have the best rates on your current loans. It can be well worth getting pre-approval in place so you are ready to take advantage of any bargain that pops up. Keep in mind though that interest rates do rise sometimes and it is important to consider your buffer in a situation that it may cost more in the future.
2/ Consider rentvesting
For those finding it difficult to get into the property market or to invest in property while servicing a primary place of residence, it could be worth considering rent vesting.
Rentvesting offers an alternative way to enter the property market, by buying a more affordable investment property in a growth area while renting elsewhere.
Research suggests that rentvesting is a growing trend which has enabled many young investors to purchase investment properties when they may be finding it difficult to buy their first home in the area they would like to live.
Factors such as, increased flexibility on where you live as a renter, and the additional taxation benefits like depreciation associated with investing has made rentvesting appealing to a wider demographic. It could be just the way to make that first venture into property possible.
3/ Discover if you can grow and diversify your portfolio
Analysis by BMT Tax Depreciation suggests that most of our investor clients (83.64 per cent during the 2015-2016 financial year) own just one investment property.
I find this a little surprising considering the capital growth many areas have experienced. This is another factor that could really boost your borrowing power. Given the potential equity held in these properties, there could be significant scope for investors to expand their portfolios in 2017. See the Broker, get the valuations and see if you can work out whether or not you can buy into more property.
4/ Improve on your existing investments
If buying another property isn’t on the cards in 2017, maybe you could consider updating some of your existing investments.
Renovating an investment property can reward investors with increased value, improved rental returns and of course there will be those additional depreciation deductions.
Make sure you plan what needs to be done, ensure the renovations stick to a budget and crunch those numbers. Talk to your Property Manager and ask what the increased rental return might be if you update or renovate certain things. There also could be that considerable increase in value for minimal outlay.
You need to also ensure that you’re adding capital value to the property with the works you propose to do. It’s not about making a nice bathroom, it’s about increasing that value and increasing that rental return.
Speak with a Specialist Quantity Surveyor before starting any work because items that you remove, you may be able to claim scrapping value for which means instant deductions and potentially more cash flow.
5/ And finally – look outside of your own backyard
Many property investors only look at potential properties close to home. You know the area, you like the area so you think it is going to grow.
Property markets all over Australia move ahead at different times based on a variety of key growth drivers such as employment, infrastructure projects, population growth, housing stock shortages and changing demographics. As a property investor it is important to consider other suburbs, towns and states.
Get expert advice, read, learn and do research. Use key metrics that are available. While some property markets are slow, some property markets are growing.
I wish you all the best with investing in the year ahead and remember our expert team at BMT Tax Depreciation are always happy to help with any of your depreciation queries. Bring on a great 2017.