» commercial property investment

Commercial property repairs and maintenance – who’s responsible?

BMT team — Fri, 08 Sep 2023 01:52:46 +0000

Commercial property repairs and maintenance is typically shared between the landlord and the tenant. However, the specific obligations and responsibilities can vary depending on the terms of the lease and the applicable state or territory legislation. In this article, we outline: Definitions of repairs, maintenance and capital improvements Landlord’s responsibilities Tenant’s responsibilities Professional property management Claiming deductions for repairs and maintenance Definitions of repairs, maintenance and capital improvements According to the Australian Taxation Office (ATO), repairs are completed to fix damage or deterioration of a property, such as replacing part of a damaged fence. Maintenance, on the other hand, is completed to prevent damage or deterioration of an asset. For example, re-painting a wall the same colour as it was previously, is classified as maintenance. Any works that improve a property beyond its original state are classed as capital improvements. According to TR 97/23, an ‘improvement ‘provides a greater efficiency of function in the property – usually in some existing function. For instance, extending a building is considered a capital improvement. Landlords are typically responsible for structural repairs, pre-existing issues and common areas while tenants are typically responsible for routine maintenance and tenant-caused damage. The following outlines which party is commonly responsible for specific repairs and maintenance. Landlord’s responsibilities The following is typically the responsibility of the landlord: • Structural repairs: – Ensuring the structural integrity of the property, including the foundation, walls, roof and major systems like plumbing and electrical. • Pre-existing issues: – Addressing pre-existing problems or defects which existed before the tenant occupied the property. • Essential services: – Ensuring essential services such as water, gas, electricity and heating/cooling systems are in working order. • Common areas: – Repairing and maintaining areas that are part of a larger complex or have shared areas. Tenant’s responsibilities The following is typically the responsibility of the tenant. • Routine maintenance: – Day-to-day tasks including changing light bulbs, replacing batteries in smoke alarms and general cleaning. • Tenant-caused damage: – Damages caused beyond natural wear and tear such as holes in walls or broken windows, are the responsibility of the tenant. • Reporting repairs: – Tenants should promptly report any necessary repairs or maintenance issues to the landlord or property manager, depending on their agreement. It’s important to note that these responsibilities can be modified by the terms of the lease agreement, so it’s essential for both parties to review the agreement and understand their respective obligations. Additionally, state or territory-specific tenancy legislation may impose additional requirements or guidelines for repairs and maintenance, so it’s advisable to consult the relevant local authority or seek legal advice for precise information based on your location. Professional property management to avoid disputes Commercial property owners often don’t have the time, expertise, or inclination to handle repairs and maintenance directly, in most scenarios they opt to hire professional property management companies. Property managers play a crucial role in overseeing and coordinating repairs, maintenance, and vendor services on behalf of the property owner. They ensure that routine inspections are conducted, maintenance issues are promptly addressed, and the property remains compliant with relevant regulations. Claiming deductions for repairs and maintenance Fortunately, for commercial property owners and tenants, deductions are available for commercial property repairs and maintenance. Repairs and maintenance are immediately deductible in the year the cost incurred while capital improvements are depreciated over time depending on the effective life of the asset or the construction commencement date and the industry in which the building is used. Claiming deductions for commercial repairs and maintenance allows property owners and tenants to recoup often unavoidable expenses throughout the year. Claiming deductions lowers the taxable income of the landlord and tenant, which in turn, improves cash flow and reduces taxation liabilities. By effectively managing repairs, maintenance, and depreciation, property owners can optimise their investments and achieve long-term success in the commercial real estate market. Commercial property owners and tenants should consult with a quantity surveyor that specialises in depreciation, such as BMT Tax Depreciation, to fully understand the specific regulations and requirements related to claiming depreciation and repairs and maintenance to ensure compliance and maximised deductions. To learn more about the deductions available in commercial property repairs and maintenance, get in touch with BMT on 1300 728 726 or Request a Quote.

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Commercial property tax deductions for owners

BMT team — Sun, 30 Jul 2023 16:30:48 +0000

Navigating the world of commercial property investment isn’t always easy. Investors must consider economic factors like population growth and demand to work out if it’s worthwhile investing in a commercial property. As with residential investment, there are many ongoing expenses involved with owning a commercial property which can sometimes deter investors from making the leap into commercial property investment. It is important to be aware of the deductions available to investors which make holding a property much more affordable. Here are some common commercial property tax deductions available to investors. Contents Maintenance and management costs Depreciation Depreciation: capital works Depreciation: plant and equipment Renovations BMT are the commercial depreciation experts Maintenance and management costs According to legislation governed by the Australian Taxation Office (ATO), commercial property owners can claim deductions for related expenses for the period their properties are rented or available for rent. Owners can claim an immediate deduction for any expenses relating to the maintenance or management of their property. This may include things like interest on loan repayments, leasing agent fees, council rates, air conditioning repairs, water leaks, cracked tiling or replacing smoke alarms. Depreciation Depreciation is a lucrative deduction available to owners of income-producing properties. As a building and its contained assets age, they depreciate in value. ATO-governed legislation allows owners of investment properties to claim a tax deduction for this wear and tear called depreciation. Owners can claim under two different categories, capital works or division 43 and plant and equipment or division 40. Depreciation: capital works Capital works is the deduction for the building’s structure and any permanently fixed assets. It is commonly referred to as building write-off and can be claimed at either 2.5 per cent over forty years or 4 per cent over twenty five years depending on the property’s construction commencement date. For more information, read BMT Tax Depreciation’s tax depreciation overview. Commercial properties qualify for capital works deductions if construction started after the 20th of July 1982. Examples of qualifying capital works assets include roofs, bricks, mortar, wiring, walls, windows, flooring and other permanently fixed assets. Depreciation: plant and equipment Owners can also claim for plant and equipment assets they own or those which are left behind by tenants. Plant and equipment refers to assets that can be easily removed from the property and includes items like rangehoods, ovens, carpets and air conditioning. Plant and equipment depreciation is calculated based on each asset’s individual effective life as determined by the ATO. Effective life and depreciation rates for commercial and residential assets can be found on BMT Tax Depreciation’s Rate Finder tool. Renovations Commercial property owners can claim depreciation for renovations on their properties including those completed by previous owners. This includes things which may not be so obvious, like updated plumbing, water-proofing and wiring. For renovations of a structural nature to qualify for capital works deductions, they must have commenced within the qualifying dates set by the ATO. BMT are the commercial depreciation experts To maximise the depreciation claim for your commercial investment property, it’s important to engage specialist Quantity Surveyors such as BMT for a tax depreciation schedule. BMT is the largest and most successful tax depreciation company in Australia with extensive experience in creating comprehensive, ATO-compliant schedules. BMT has prepared tax depreciation schedules for commercial properties ranging from primary production, manufacturing, retail centres, mining, office towers, medical centres, traveller accommodation and many more. Find our more about BMT Tax Depreciation’s extensive experience with our Commercial Capability Statement. If you’re considering commercial property investment, contact BMT on 1300 728 726. Alternatively, if you need a quote for your existing commercial property, request a quote here.

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Three facts about investing in commercial warehouses

BMT team — Wed, 12 Jan 2022 05:55:42 +0000

The demand for modern warehouses has grown significantly in recent years. Since warehouses are centres for many forms of logistics activity, warehouse investment is on the rise. It doesn’t look like this growth will slow down any time soon, with CBRE predicting e-commerce will drive requirements for an additional 350,000 SQM of new space each year. Here are three facts to know about investing in commercial warehouses. Fact 1: There are a variety of warehouse investment types Different types of commercial warehouses fit different purposes. Broadly, a warehouse will fall into one of four categories. Production warehouse: This type of warehouse is used to manufacture and produce goods. Typically located within a manufacturing or production site, a production warehouse will hold stocks of raw materials to ensure there is always enough supply to make the manufacturer’s product. Storage warehouse: This warehouse type is often used for long-term storage of inventory or finished goods. Storage warehouses may also be used to store the components needed to create the finished product, so that they are available quickly when required. Fulfilment warehouse: Also known as a distribution centre, this type of facility serves as the link between suppliers and customers. A fulfilment warehouse moves goods along quickly, acting as a centre for order fulfilment, packaging, labelling and transportation. Technology is often used to improve cost and efficiency, and hence customer service. Sorting and consolidation warehouse: Rather than being used for storage, this type of warehouse receives inbound shipments from several suppliers and sorts the items according to their end destination. This type of warehouse might combine smaller shipments into larger, more economical loads intended for the same area. Fact 2: Warehouses may use manual labour or automation Some of the more traditional warehouses use manual handling systems, operating in a non-automated way. In these facilities, operators manually move the goods with equipment such as forklift trucks, conveyors and pallet trucks. Semi-automated warehouses are more high-tech than traditional warehouses, but manual handling still plays an important role. A company might opt for a semi-automated solution if there are safety issues or a high number of manual handling errors impacting profitability. A pallet shuttle system is an example of a semi-automated solution, where an operator places the pallet in the first position of a storage channel using a forklift, then a motor-driven shuttle loads and unloads the pallets. Fully automated warehouses use state-of-the-art mechanised technology to maximise warehouse efficiency. This kind of warehouse uses robotics to assist humans with retrieval, moving, sorting and picking. This machinery helps to save on labour costs and improves both efficiency and operational safety. Due to the additional equipment required for automation there will be more plant & equipment depreciating faster than the building, and therefore higher deductions may be available. Fact 3: Warehouse investment yields lots of tax deductions BMT wants to remind both industrial space investors and the businesses that operate from them to ensure they are claiming every tax deduction they are entitled to. Depreciation is the natural wear and tear of the commercial warehouse and its fit-out, which can be claimed to reduce taxable income. The sheer size of the structure of a warehouse generally means that there are ample capital works deductions available. Depending on the warehouse type, the capital works deduction fixed rate can change. For example, currently manufacturing industries (including warehouses used for manufacturing) capital works deductions are calculated at a fixed rate of 4 per cent. Storage and distribution warehouses capital works deductions are depreciated at a rate of 2.5 per cent. The other side of commercial warehouse depreciation is the fit-out. This is usually owned and claimed by the party that is using the warehouse as their business operations. These assets depreciate at a rate based on their effective life as set by the Australian Taxation Office. A business that owns a new warehouse with a fit-out including shelving, machinery like forklifts, picking/packing equipment and office furniture could reasonably expect to claim a first full year depreciation deduction of $140,000 and $2,700,000 in total (this does not consider business incentives such as temporary full expensing and backing business incentive). Tax depreciation schedules are the key to claiming the maximum depreciation deductions when investing in commercial warehouses. A BMT Tax Depreciation Schedule applies all industry specific legislation to ensure commercial depreciation deductions are claimed to their full potential and compliantly. BMT Tax Depreciation has optimised its commercial process to ensure both owners and tenants claim the most deductions possible. To learn more about commercial warehouse depreciation, call BMT today on 1300 268 628.

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What beginners need to consider when commercial property investing

BMT team — Tue, 11 May 2021 23:46:11 +0000

Whether you’re a seasoned investor or just getting started, it’s important not to rule out commercial properties. While the price tags and unknowns of this varied sector can be overwhelming, doing it right can mean thousands in your pocket in a short time. In this article, we will cover: What is commercial property investing and why you should get involved Key considerations for beginners The mistakes we see too often What is commercial property investing and why get involved? Commercial property investing is the activity of purchasing property, such as stores, offices, warehouses and hospitality venues to rent to commercial tenants. There are several drawcards to commercial property investing that attract beginners to the sector. The first and most important is the potential of a strong, reliable cash flow provided by long-term tenants. Commercial properties are often leased for years, not just months like their residential counterparts. Risk mitigation through portfolio diversification is another element that attracts investors to the commercial sector. Unlike residential property investors, commercial investors have the option of multiple industries and property types. Key considerations for beginners If the thought of commercial property investing has you sold, then there are several key considerations to make before taking the leap. Do the research There are multiple facets to investigate when performing your due diligence and deciding on any commercial investment you make. These can be broken down into two areas: situational and industry-specific. Situational elements include the location features, nearby developments, local supply and demand, demographic factors like population and employment rates. Then there are the industry-specific factors. These are those that are unique to the commercial property type you are looking to invest in. For example, if you’re looking to invest in an office building you will need to look at the competition in the area, office vacancy rates, the demand for office space and historical office trends in the area. Upfront capital and financing options Commercial investing isn’t cheap and you need to hold the upfront capital to get involved. It’s likely you will need ample financing options, so it’s always recommended to meet with a financial expert before getting started on your commercial investing journey. Commercial property financing options can be very different to the residential equivalent. Banks usually see commercial as a higher risk compared to residential and will need a larger deposit and a higher loan to value ratio. Consider ownership structure Are you wanting to invest alone or in a partnership? This is largely dependent on your situation. Each option has its pros and cons but the decision should be underpinned by three main things – your financial situation, investment goals and your partnership options if that’s on your agenda. Three beginner mistakes we see too often Investing mistakes are inevitable, but here are the ones we see often at the start of any investing journey. Influence by unreliable sources Getting sucked into media hype can be the downfall of investors cutting their teeth in the property market. This is especially relevant in commercial investing where industries are subject to different macroeconomic factors. To avoid this mistake, ensure you’re getting your information from reputable sources. Look past the newspapers and use research from reputable organisations like the ABS and CoreLogic that specialist in property research and statistics. Failing to invest in an expert team The team you surround yourself with will help you make your commercial investment as successful as it can be. Key players in your team include your property manager, accountant and a financial expert such as a mortgage broker. Partnering with a buyer’s agent when purchasing your commercial property will also help you identify if the property is worth the price tag. Not claiming all deductions available A major mistake many beginners make is not understanding the tax deductions available to them. These deductions can make a huge difference to the property investor’s bottom line, giving them thousands back in their pockets. Just some expenses that a commercial investor could claim include interest repayments, repairs and maintenance costs, insurances and property management fees. It’s important to remember the hidden deductions to be claimed, including property depreciation. This is the natural wear and tear of a property and its assets over time. Depreciation is often overlooked as no money needs to be spent to claim it. As a commercial owner, you will be able to claim depreciation on the property’s structure, fixed fixtures and assets you own. BMT Tax Depreciation can provide an obligation-free quote for a depreciation schedule for any property you are looking to buy. To find out more, contact the team today.

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Commercial property depreciation offers reliable cash flow

BMT team — Tue, 21 Jul 2020 00:00:46 +0000

Commercial facilities come in all shapes and sizes such as multi-story office towers, solar farms, gyms and restaurants. Many factors can affect the profitability of a commercial building and the business operating from it. One of the most constant and reliable sources of cash flow is the depreciation deductions that both owners and tenants can claim. In this article we will look at: What is depreciation of a commercial facility? How can both commercial owners and tenants claim depreciation? How is commercial property depreciation claimed? Determining plant and equipment depreciation based on the commercial industry Benefits of investing in a commercial property Renovating a commercial property What happens when selling a commercial property? Claim the most commercial property depreciation with a specialist What is depreciation of a commercial facility? Property depreciation is the wear and tear of a building’s structure and assets over its lifetime. Depreciation is a natural process and commercial owners and tenants can claim this depreciation as a tax deduction. For commercial owners, depreciation can boost cash flow by thousands each year. Depending on the type of building, lifetime depreciation deductions can fall into the hundreds of thousands, sometimes millions, of dollars. How can both commercial owners and tenants claim depreciation? Commercial owners can claim depreciation for the natural wear and tear that occurs to a building’s structure and its fixtures and fittings over time. Some common deductions that BMT find commercial owners includes the buildings walls, doors, roof, bathroom fixtures, sheds, roads and driveways. Depreciation deductions for commercial tenants work differently. They only claim depreciation for the assets they own within a property. BMT find many different deductions for commercial tenants based on their industry. Common deductions include desks, shelving and power tools. Sometimes an owner also occupies the commercial building. For example, a mechanic may own the workshop that he operates his business from. In these instances, the mechanic can claim all deductions available on both the building’s structure and assets held by the business. How is commercial property depreciation claimed? The building structure and any fixed assets are claimed under capital works deductions. Where constructed commenced after 20 July 1982, capital works can be claimed at a rate of 2.5 per cent per year. These deductions are available for the lifetime of the property, which can change based on the industry. Some industries that face increased wear and tear can claim a higher rate of 4 per cent. Easily removable fixtures and fittings, or those that are mechanical in nature, can be claimed as a plant and equipment deduction. Plant and equipment assets are common in a tenant’s fit out and depreciate at a rate based on their effective life which is set by the Australian Taxation Office in TR2020/3. There are also a number of depreciation incentives available for plant and equipment assets including temporary full expensing and and low-value pooling. Determining plant and equipment depreciation based on the commercial industry As mentioned, plant and equipment deductions can be depreciated throughout their effective life at a rate based on the commercial industry. Let’s look at how this works. In practice: Depreciation rates in different industries Jen is a business owner and commercial investor with a portfolio consisting of a number of different types of commercial buildings. A café and retail gift store are two properties within her portfolio. In 2018, Jen decided to install new carpets in her café and retail store. Following this, she organised an adjustment to be made to her tax depreciation schedule for each property. Doing so ensured that she could claim depreciation on the new carpets.She found that while both carpets are very similar and valued the same, each depreciate at different rates. Using the diminishing value method, the café carpet has an effective life of five years and therefore depreciates at a rate of 40 per cent, while the carpet in the retail store has an effective life of eight years and therefore depreciates at a rate of 25 per cent. Benefits of investing in a commercial property For property investors, there are two key benefits of investing in commercial property. 1. Long leases available Commercial properties are generally leased by tenants on longer leases than residential properties. Some leases can span across five to ten years, or even decades. Longer leases can ensure that the investor has a strong and reliable cash flow trajectory that helps their future planning. 2. Diversified and flexible portfolio The current economic climate has made the importance of having a diverse investment property portfolio more apparent than ever before. Commercial investment properties offers the owner many more possibilities than residential properties can. Not only can owners spread their properties across location, the commercial industry also allows them to hold different property types across many industries. They also have the potential to be repurposed to meet current consumer trends and preferences. Renovating a commercial property A commercial property renovation provides many benefits for the owner, including increased depreciation deductions. Any assets removed during a renovation are ‘scrapped’. Scrapping allows them to claim any residual value of removed assets in the same financial year. This is in addition to the first year deductions of the newly installed assets. The same applies for removed tenant fit-out. If the tenant is required to remove their fit-out at the end of their lease, they can scrap these assets and claim further deductions for that financial year. Completing a structural renovation lets owners claim capital works deductions on their older properties. Even if the property was originally constructed before 20 July 1982, they can still claim deductions on any new capital works renovations they have completed, plus any renovations completed by previous owners. What happens when selling a commercial property? When an owner of a commercial building sells the property and makes a capital gain, they may have capital gains tax (CGT) liabilities. CGT is a type of tax you pay on the capital gain made from the sale of an income-producing […]

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Why you should invest in commercial property

BMT team — Tue, 16 Jul 2019 23:08:40 +0000

Many investors tend to stay in their comfort zone when it comes to investing in property and typically this means they purchase residential houses and apartments. However, investing in commercial property has become more popular in recent times as investors look to diversify their portfolio and seek out affordable alternatives in a tightening residential market. In fact, recent data from Cushman and Wakefield has revealed a 22 per cent rise in commercial transactions. $42.6 billion has been spent on commercial properties during the 2019 financial year, up from $34.9 billion in 2018. Unlike residential property, vacancy rates for commercial property are low and this combined with higher returns and depreciation benefits means there are several reasons to consider commercial properties as a potential investment. As such, we’ve taken a look at some reasons why commercial property is worth adding to your property portfolio. Contents: Investing in commercial property can provide higher rental returns Commercial rents increase annually Commercial properties generally have longer leases There are fewer ongoing expenses for commercial properties Investing in a commercial property will diversify a property portfolio Commercial property depreciation deductions are lucrative Expert advice will improve cash flow for a commercial property investment Investing in commercial property can provide higher rental returns Commercial property typically offers higher rental yields than residential investments. According to realcommercial.com.au, commercial properties offer rental yields between 5 and 12 per cent. This is much higher than residential properties which have an average rental yield of 4.1 per cent according to CoreLogic. This means a commercial investment is more likely to provide a positive cash flow. Commercial rents increase annually Most commercial leases have fixed rental rate increases written into the agreement. Annual increases of between 3 and 4 per cent are common practice, much higher than the current level of rental increase for residential leases. Commercial properties generally have longer leases Commercial leases are generally longer than residential properties, ranging anywhere between twelve months to ten years depending on the industry and property type. By comparison, residential tenants are unlikely to sign a lease for longer than a year, with no guarantee of renewal after that period. Commercial tenants are also more likely to invest in a property by installing fit-out. If a tenant does invest capital in a premise, it’s likely they see their business operating within the property in the long-term. There are fewer ongoing expenses for commercial properties Some of the outgoing expenses involved in holding a commercial property include council and water rates, insurance, body corporate fees and any repairs and maintenance to the building. Often some of these costs are covered by tenants and as such, landlords have fewer ongoing costs. Investing in a commercial property will diversify a property portfolio Commercial real estate encompasses a broad range of property types and therefore caters to a variety of budgets and investor needs. While retail outlets, petrol stations and large office complexes often sell for tens of millions of dollars, other commercial sites can be purchased for far cheaper. For example, investing in an inner-city car space can sell for less than $100,000. With such variety, commercial real estate is the perfect way for investors to diversify their property portfolio. Expanding your investment portfolio can reduce the economic risks involved and establish a financial buffer. It can also help strike a healthy balance between cash flow and capital growth. Commercial property depreciation deductions are lucrative As a building and its assets age, they depreciate in value. The Australian Taxation Office (ATO) legislation allows owners of income producing properties to claim deductions for this wear and tear. Commercial property owners can claim depreciation under two different categories – capital works (division 43) and plant and equipment (division 40). Capital works deductions are available for the building’s structure and any permanently fixed assets such as bricks, mortar and windows. For most commercial buildings these deductions can only be claimed if the property commenced construction after the 20th of July 1982. Plant and equipment assets are items that can be easily removed from the property such as hot water systems, air conditioners, exhaust fans and security systems. Depreciation deductions for these assets are calculated based on the individual effective life of each item as set by the ATO and can be claimed by both owners and tenants. Owners are eligible to claim deductions for any plant and equipment assets they own. In certain instances, owners can also claim any assets left behind by previous tenants. Tenants can claim depreciation on any fit-out they add from the starting date of their lease. If a tenant removes items at the end of their tenancy, they may also be able to claim any remaining depreciation for assets that are removed and scrapped when they vacate the premise. Immediate write-off and low-value pooling rules may also apply if an asset is below a certain value, particularly for small and medium sized business owners. As plant and equipment items are rarely the same age as the property and are often replaced and updated, there can be significant deductions available. It’s important to note that fit-out installed by tenants can also be structural in nature and can therefore be claimed as capital works deductions. Given that both the owner and tenant can claim property depreciation simultaneously and there are specific rules and regulation, it’s also best to seek expert advice when lodging a claim. Expert advice will improve cash flow for a commercial property investment To maximise depreciation deductions for a commercial property, it’s important to speak with a specialist quantity surveyor. These experts are recognised under Tax Ruling 97/25 as one of the few professionals with the appropriate qualifications necessary to estimate construction costs for depreciation purposes. A quantity surveyor will inspect the property to make sure every deduction is claimed correctly. Tax depreciation schedules make the process easy and enable you to claim the maximum deductions possible. A BMT Tax Deprecation Schedule outlines all available deductions over the forty-year life of your property […]

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Mechanic shop owners can repair their tax return by claiming depreciation

BMT team — Tue, 08 Aug 2017 06:50:01 +0000

Many mechanic shop owners are unaware that the Australian Taxation Office allows them to claim depreciation deductions based on the wear and tear of their building and the plant and equipment assets contained in the property. As such, many of these owners are losing thousands of dollars annually by failing to have a tax depreciation schedule prepared for their property. Items commonly found in mechanic shops including power tools, vehicle hoists and automatic garage doors are all depreciable, as are other more generic assets such as air conditioning units or fans, shelving, security systems and computer equipment. BMT Tax Depreciation specialise in maximising depreciation deductions to ensure investors put more money back in their pockets. By obtaining a BMT Tax Depreciation Schedule, property investors – including mechanic shop owners – can rest assured that all available depreciation deductions are found and can be claimed in their tax return each year. The fee for a schedule is 100 per cent tax deductible. The following is an example of the deductions we found for an owner of a mechanic shop purchased for $535,000. Items that you may be able to claim depreciation for include: As this example shows, the depreciation deductions for this type of property can be quite substantial and should not be overlooked. In the first full financial year alone, the owner of this property could claim $27,806 in depreciation deductions. Over the life of the property, the owner was able to claim $341,780. As part of the process of arranging a depreciation schedule for any commercial property – including mechanic shops – our specialist staff will perform a site inspection to uncover the structural and fixed items which can be claimed as capital works deductions, as well as all of the removable plant and equipment assets contained within the property. They will also uncover any renovations that have been completed to the property, even those completed by a previous owner. If a mechanic shop owner is intending to undertake any renovations or improvements in the near future, is also important to be aware that they may be able to claim additional deductions for this. A depreciation schedule should be arranged prior to commencing any renovation work and updated after the renovation is complete. This will ensure the owner can claim deductions for the remaining un-deducted depreciable value of any assets scrapped and removed during the renovation and also include deductions for newly installed assets. To learn more about claiming depreciation for any commercial property, visit our commercial property depreciation page.

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The pros and cons of commercial property investment

BMT team — Tue, 18 Jul 2017 05:07:21 +0000

When people think about investing in property, residential real estate is often what comes to mind. But commercial property investment is always worth considering, whether you’re looking to diversify your portfolio, create an alternative avenue of cash flow or simply want to take advantage of the benefits of this type of asset. Below we outline some of the key considerations when investing in commercial property as well as the advantages and disadvantages of this type of investment. Contents: Commercial investment considerations Advantages Disadvantages Commercial investment considerations There are three commercial property sectors – retail, office and industrial. Each sector has its own risks, rewards, trends and considerations and these must carefully be weighed up before deciding which will be the best choice. Furthermore, there are a multitude of different industries you can be involved in within these sectors, from retail to aged care or warehousing, for example. Each industry will offer different yields and returns for the owner, depending on the performance of that industry. Investors should carefully consider this performance as well as future forecasts when deciding what industry they’d like to be involved in. If you’re going to invest in commercial property, you need to understand how this particular market works, how it differs from the residential market and what its drivers are. In addition to population growth, which is the main driver in the residential market, commercial property is also driven by a number of wider economic factors. The economy and interest rates – This will impact on consumer spending, demand for services and business performance as well as the landlord’s ability to pay back a loan. Demographical trends and patterns can affect commercial property and demand. For instance, with the rise of baby boomers making a sea change, there is now more demand for healthcare services in areas traditionally considered holiday locations. As further examples, our aging population has driven the demand for more aged care facilities while the growing need for childcare services has created more competition and demand for this type of property in Australia. Changing consumer habits, often going hand in hand with evolving technologies, have an impact on the commercial property market. Take for instance the rise in online shopping in the past decade which has created demand for more industrial warehouse properties. Financial considerations – obtaining finance for a commercial property differs from getting a residential mortgage and can often be more complex. For instance, pricing may not be set in stone and the terms can sometimes be negotiated. Individuals should consider whether a commercial finance structure will suit them and their investment goals. It’s different in nature to residential investing and these differences should be understood by investors. For instance in commercial property, tenants are able to make alterations, such as a new fit out in a hairdressing salon. It also differs in terms of who pays what bills. This is discussed further below. Advantages There is the potential for greater return on investment. In residential investing, yields are often in the 3-5 per cent range while it’s not uncommon to get yields of 6-12 per cent for a commercial property. Leases tend be longer – three, five or ten year leases are quite common in commercial property. Ideally, this means the owner won’t have to deal with the costs associated with bringing in new tenants so frequently. It may be a way to get into the property market sooner if a would-be investor is struggling to save up for a traditional home deposit. For instance, they may choose to get their foot on the property ladder by purchasing a commercial car park that costs less than a house but still offers solid returns and allows them to build some equity. It allows investors to take advantage of booming industries and changing societal trends. Although there may be greater risk, the rewards can also be superior. Disadvantages While commercial leases typically last longer than residential leases, it usually takes longer to find a tenant when the property becomes vacant. Investors need to consider whether they’ll be able to cover the costs of holding the property while it is untenanted. Commercial real estate is often more sensitive to economic conditions. The commercial property market can be volatile and is often less predictable than residential markets. It can be more complex to obtain finance for a commercial property. For instance, certain types of commercial property may be considered higher risk to the lender or prove more difficult for them to value. This can mean that financing may be trickier than for residential property in some instances. Due to financing requirements, the investor may need a larger deposit to secure approval for a mortgage.

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Why childcare centres are the next big thing for property investors

BMT team — Fri, 21 Apr 2017 01:25:15 +0000

The growing demand for childcare centres is no longer just from parents jostling to get their kids on waiting lists. It’s increasingly also coming from investors looking to get a slice of this burgeoning real estate market and to take advantage of the significant tax deductions available for this type of property. There are a number of reasons why childcare centres are becoming more attractive to investors. First of all societal trends are leading to a growing demand for this type of service and property. Increased government funding, higher birth rates and a greater number of females returning to the workforce have created a demand for childcare services like never before. And this demand will only become greater with an estimated 500,000 children to be added to the 0-5 years population over the next fifteen years, according to figures published in the 2016 Colliers International Whitepaper on childcare in Australia. In addition, long term leases of ten or more years and typical yields of around 6 per cent are making childcare centres an appealing option to investors. Finally, investors are also becoming increasingly aware of the depreciation benefits they can claim from such properties. These deductions are often in the hundreds of thousands of dollars over the life of the property and even into the millions for some larger centres. In the last two years BMT has seen a notable increase in the number of childcare centres ordering a BMT Tax Depreciation Schedule. In the last financial year (2015-2016) BMT recorded a 67 per cent increase in depreciation schedules for childcare centres and a further 37 per cent increase in the year prior. This increase is supported by findings from the Colliers International whitepaper, which noted a 4.6 per cent annual growth rate for this industry. It appears childcare centre operators are realising the value of claiming depreciation to improve cash flow and remain competitive in what is becoming a sought-after market. Many of the childcare centres BMT has prepared schedules for have been able to claim hundreds of thousands to millions of dollars in deductions over the life of the property. Recently – as one example – a large childcare centre was able to claim close to $2 million in total deductions and $127,000 in first year deductions alone. Common items located in childcare centres, such as artificial grass, sandpits and play equipment, are unexpected yet valuable sources of additional income for operators and owners. For instance, one operator BMT prepared a schedule for was able to claim $8,950 in first year deductions for artificial grass and $15,000 in first year deductions for play equipment. Other childcare centre items that can be claimed include food processors, bathroom accessories, refrigerators, ceiling fans, computer equipment, washing machines, partitioning, dishwashers and vinyl, among many other assets. Unlike for a residential investment property, both owners and tenants of childcare centres can claim depreciation deductions, as well as those running child care services from their homes. Owners can claim capital work deductions while tenants can claim depreciation for plant and equipment assets, such as those listed above. For operators who might be struggling with cash flow, depreciation deductions can provide additional income to help with day to day expenses and business operations, which should prove beneficial in what is becoming an increasingly competitive industry.

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The eleven benefits of investing into commercial properties

Chan Naylor Team — Tue, 07 Mar 2017 04:53:24 +0000

Investing in commercial properties is not the same as investing into residential properties. There are different dynamics driving commercial properties to residential properties. Here we’ll discuss the eleven benefits of investing in commercial properties. Rental returns The rental return for owning a commercial property is generally better than residential properties and is easier to achieve a neutral return. For example, you can generally achieve a 6 per cent net annual return whereas residential properties would only achieve a 2 per cent to 3 per cent net return after deducting all the other costs such as council and water rates, repairs, land tax etc. Renting an office location versus owning one If you have a business and you are leasing an office; you’d be better off by buying your factory or office through your Self-Managed Superannuation Fund (conditions apply). Instead of paying rent to the landlord, you can effectively pay that rent back to yourself via your SMSF. Rent paid by your company is tax deductible at 30 per cent and when it goes into your SMSF it’s only taxed at 15 per cent. Capital gains are only taxed at 10 per cent. Contribution limits Where there is a limit on how much you can contribute into your SMSF as your Super contribution, there is no limit on how much rent you can pay as long as the rental price is within market rates. Depreciation value Commercial properties have much more generous depreciation rates than residential properties. This is extremely tax effective. Tax free return If you want to earn $200,000 a year (completely tax free), just buy a commercial property that has $200,000 in depreciation. Effectively $200,000 of your received rental will become tax free. Leveraging your commercial properties The ability to leverage your assets via the use of debt is an extremely effective strategy. Example, you have $200,000 cash deposit and you could borrow $400,000 at an LVR of 67 per cent you can buy a commercial property at $600,000. You now have $600,000 working for you instead of $200,000. Assume (a) capital growth is 5 per cent per annum and (b) rental return of 6 per cent per annum (c) Interest rate of 5 per cent In very broad terms the rental basically covers interest (neutrally geared in this example) and if we achieve capital growth of 5 per cent ($30,000 per annum) we are able to achieve a 15 per cent return on our cash of $200,000. ($200,000/$30,000) Caution Some properties do not achieve any capital gains including some residential properties. It’s all about property selection. Property leasing options Tenants are generally businesses and they prefer to sign long term leases such as 5 x 5. Meaning it’s signed for five years with an option for another five years. Commercial property leasing terms Many leases require the tenant to pay all outgoings so the rental received by the landlord is net. Percentage of rental increase is tied to the capital growth Many leases have clauses that give the landlord an automatic rental increase of 4 per cent per annum or Consumer Price Index (CPI) whichever is the highest. This means the capital growth of the property is also tied to the rental increases. Commercial property valuations are more clinical than residential properties In the main It’s closely tied to the rent. For example: If the rents were $60,000 per annum and the market was paying a 6 per cent return on investment it the n simply values the property at $1m ($60,000 divided by 6 per cent).However, if there was a lot of demand for the property and investors were willing to accept a 5 per cent per annum return the property value would be worth $1.2m ($60,000 divided by 5 per cent). If rents reduced to $50,000 per annum and assuming a 6 per cent return is expected than the property would have reduced in value to $833,333 ($50,000 divided by 6 per cent) If rents fell to $50,000 and returns dropped to 5 per cent per annum than the property value would have increased to $1 million ($50,000 divided by 5 per cent). As you can see it’s a lot less emotional than residential properties where residential properties are valued by comparable sales. www.chan-naylor.com.au Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.

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