Construction costs explained

BMT team — Tue, 18 Aug 2020 23:48:24 +0000

When building an investment property, you must budget for both the construction cost and any other surprises. While every property is different, gaining a ballpark figure of the cost of constructing an investment property can help you build the best-suited property possible. In this article we will explore: What are construction costs? Construction cost calculations explained Regional variations and construction costs How do construction costs help investors? BMT Tax Depreciation is the specialist What are construction costs? Construction costs can be estimated for any number of property types, including residential houses, units and apartments, townhouses and duplexes and commercial buildings. Construction costs provide a guide of costs for construction and can be as detailed as required. Construction estimates usually range in detail from a preliminary estimate which is based on rates for the various building elements to a very detailed cost plan that identifies all individual materials and installation costs. Some of the key factors that impact construction costs for residential buildings include the type, level of finish, availability of materials, site conditions, current demand levels and the region it’s built. A specialist quantity surveyor is one of the few professionals that can calculate construction costs for property depreciation purposes. Construction cost calculations explained The BMT Construction Cost Table is a useful guide and calculates costs based on the Gross Floor Area (GFA) rate. The GFA rate is based off two important elements. The first being the Fully Enclosed Covered Area (FECA) that includes items like staircases, basements, columns and piers. The second element of this rate is the Unenclosed Covered Area (UCA) that includes items such as roofed balconies, attached covered walkways and porches. Generally, the GFA rate is the sum of both the FECA and UCA floor area of a building as a square metre rate. Regional variations and construction costs A building’s construction cost will change depending on its location. For example, you wouldn’t expect to pay the same amount for a build in a major city such as Sydney as you would in somewhere more regional like Cairns. This is because region pricings vary based on supply, demand, land type, resources and trade availability. The BMT Construction Cost Table is based on the Sydney region, however percentages are available to allow for regional variations. How do construction costs help investors? There are three key ways that understanding construction costs can help investors. 1. Depreciation As discussed, a specialist quantity surveyor is one of the few professionals recognised as having the skills and qualifications to estimate construction costs for depreciation purposes. The structural part of a build, like walls and mortar, are depreciated using capital works deductions. On average, capital works make up 85 to 90 per cent of total depreciation claims. 2. Insurance Holding suitable insurance on your investment property is crucial. Fundamentally, your property’s insurance should cover its construction cost, or replacement cost, if it was destroyed. If your insurance doesn’t cover this cost, you are underinsured. Unfortunately many find out that they are underinsured too late and the consequences can be costly. Contacting an insurance specialist with access to comprehensive construction cost data is the most effective way to protect your investment against underinsurance. 3. Budgeting It almost goes without saying, but building a property is a large expense. Accessing a guide of construction costs, down to the square metre, can help you in the very early stages of planning your budget. BMT Tax Depreciation is the specialist BMT’s extensive experience and construction cost knowledge ensures that all depreciation deductions are maximised correctly. To learn more about depreciation and how BMT can help you maximise the cash flow form your investment property, call 1300 728 726 or Request a Quote.

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BMT Tax Depreciation – The Maverick Newsletter Issue 37

BMT team — Mon, 23 Mar 2015 22:30:53 +0000

The latest edition of BMT’s bi-annual newsletter Maverick is now available. In this issue there is some great insights into depreciation, new tax rulings, back claims, granny flats and depreciation, updated construction cost tables and a whole lot more valuable information for you and your clients. Inside issue 37: What are you missing out on? Go back and amend previous tax returns for 2 years. Those 2 years could add up to over $26,000 in deductions. Read about how much investors are missing out on and how they can recoup some of these valuable deductions to increase their cash flow. It’s your insurance Find out more about BMT’s new RepCost app which allows individuals to estimate the replacement cost of their property. Use the reminder function to receive updated replacement costs each year. Download Rep Cost now Australian Tax Office (ATO) states estimates are acceptable Estimates of construction costs for the purposes of depreciation have been determined to be acceptable by the ATO. Outlined within the Income Tax Assessment Act initially, a recent ATO Issues Log provides greater clarification. Quantity Surveyors shouldn’t offer referral fees Quantity Surveyors should not offer referral fees. If your tax advisor or real estate professional refers you to a depreciation provider, ask if they are receiving a referral fee. If so, ask yourself, ‘why would a consultant need to pay someone to refer their product?’ 4% gone, but capital works shouldn’t be forgotten The 4% capital works rate of deduction has now expired. Find out how capital works deductions can still be claimed on older properties. A gold mine in your own backyard No longer just for grannies, the granny flat or secondary dwelling has grown in popularity after legislation changes in some states across Australia now allow them to be used as investment properties. Read about the amount of deductions available for these secondary dwellings. Subscribe to The Maverick Newsletter here.

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Construction costs explained

BMT Tax Depreciation – The Maverick Newsletter Issue 37