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When do you need a depreciation schedule for your rental property?

BMT team — Fri, 05 Jan 2024 17:20:09 +0000

We know that depreciation is the natural wear and tear of property and assets over time. And in good news, investors just like you can claim it as a tax deduction that could result in thousands of dollars back at tax time. What is a tax depreciation schedule and who needs one? A tax depreciation schedule is a document prepared by a specialist quantity surveyor. This schedule outlines every depreciation deduction available throughout the lifetime of the property. If you own a rental property that is eligible for depreciation, you should get a tax depreciation schedule, or at least a depreciation estimate, to help with your decision. This will allow you to claim depreciation deductions each financial year when lodging your tax return, so you pay less tax. When do you need a depreciation schedule? Ideally, you will get a tax depreciation schedule after you make an investment property genuinely available for rent but before the end of the financial year. This is important because depreciation is only available for properties that are genuinely available as a rental. However, you can still obtain a depreciation estimate prior to this so you have a better idea of the likely deductions available. Getting this done before your first tax lodgement after the purchase of the investment property will ensure you can claim depreciation as soon as possible. This will provide a much-needed cash flow boost after your finances take the hit from the upfront costs of purchasing the property. What happens if you get a tax depreciation schedule later? Let’s say you purchased and rented out the property from the start of the 2021/2022 financial year but have only just realised you can claim depreciation. The good news is that it’s not too late to claim back dollars in missed deductions. A tax depreciation schedule will give you the information needed to back-claim missed deductions in a compliant way. How far back the claim can go varies. The schedule always starts from when you purchased the property and the ATO will usually allow you to back-claim for at least two years, sometimes more. The schedule gives figures for your accountant to amend previous tax returns, so you can adjust the taxable income with the applicable depreciation deductions for the given financial year. Do you need a new tax depreciation schedule after a renovation? This answer depends on the nature of the renovation. A substantial renovation can include removing and rebuilding entire parts of a property so it may need a new schedule. A cosmetic renovation like renovating a kitchen, retiling a bathroom or replacing a hot water system will only need an update to the current schedule. BMT Tax Depreciation can easily make updates to their existing schedules to ensure any addition or renovation is included where depreciation is concerned. Now that you know why and when a tax depreciation schedule is needed to maximise cash from your investment property, contact BMT on 1300 728 726 or Request a Quote today.

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Why you need a site inspection for a tax depreciation schedule

BMT team — Wed, 15 Jun 2022 23:35:41 +0000

Most of us wouldn’t purchase a car before seeing it or exchange unconditional contracts for a property without a building and pest inspection. We believe the same applies to site inspections when preparing a tax depreciation schedule. Property depreciation can save you thousands, sometimes tens of thousands, each financial year. A tax depreciation schedule holds the key to unlocking this cash flow. Your schedule lasts the lifetime of the property, so it’s important to get it right from the very beginning. In this article we will explore: What is a depreciation site inspection and what does it involve Importance of noticing improvements during a site inspection Maximising claims while maintaining compliance Support from the industry Site inspections make it easier for you Key points A site inspection ensures your depreciation claims are maximised and are compliant Hard-to-find assets are always found during a site inspection Both the AIQS and NTAA support the requirement of site inspections. What is a depreciation site inspection and what does it involve? A site inspection for depreciation purposes is different to other inspections like building or open houses. To complete a site inspection, a specialist needs to enter the property to find all the items that can be depreciated. During the inspection, you will see them documenting the property’s items, taking measurements and photographs and analysing the workmanship. An inspection is especially important if your property was purchased second hand. The site inspector will make note of all plant and equipment assets in the property. Although some of these assets may be impacted by 2017 legislation changes, they can still be included in your capital loss statement. In some scenarios this can be an important component if or when you decide to sell the property or dispose of the assets. More importantly though, a trained specialist will identify additional works that will qualify for depreciation via renovations or additions completed sometime many years ago. Importance of noticing improvements during a site inspection Renovations and additions completed to a property over many years ago can be hard to find and are often missed by the untrained eye. For example, if your investment property originally had a gravel driveway and if anyone concreted the section where cars are parked, it may not seem like a qualifying addition, but that driveway will increase your claim. In this scenario, you wouldn’t be able to claim depreciation on the gravel as it is soft landscaping. But you can still claim capital works deductions on the newly concreted section for up to forty years. A specialist site inspector will identify any renovations completed by the previous owner. This means that if the original structure of the building is too old and ineligible for capital works deductions, you can still reap returns from any recent renovations completed in the last thirty plus years. Data shows that of all the schedules completed by BMT, 66 per cent have been for properties that have undergone some kind of renovation or addition. Maximising claims while maintaining compliance Knowing what to include in a tax depreciation schedule can seem straight forward. You look at the property and include what’s there, easy right? However, a specialist knows what to look for during a site inspection to ensure that your claim is maximised correctly. For example, a ducted air conditioner has division 40 and division 43 components. The ducting needs to be valued separately and added to the capital works deduction while under TR2021/3 the packaged unit is considered plant and equipment and depreciated using its unique effective life. Another example might be properly using immediate deductions that allow the owner to instantly deduct qualifying assets in the year of purchase. While knowing the cost of the asset may appear to be the only thing required to claim the deduction, this isn’t the case. An asset must meet four important steps to be eligible. Support from the industry The Australian Institute of Quantity Surveyors (AIQS) is the peak professional standards body for build environment cost professionals. The National Tax and Accountants’ Association (NTAA) is the representative voice for the tax community. Both the AIQS and NTAA support the requirement of site inspections. They know that when site inspections aren’t completed, deductions are missed, and costly errors are made. Some of the most common errors that happen is incorrectly claiming capital works deductions and misusing depreciation incentives such as the immediate deduction. When errors such as these are made, you can come under Australian Taxation Office scrutiny. Site inspections make it easier for you As a property investor, you are already juggling many things from work to tracking your cash flow to mapping out your future investment strategy. When a site inspection isn’t conducted, it means you must do a lot of the heavy lifting, from organising stacks of paperwork to providing the property’s structural information that you have never needed to think about before and not being a specialist yourself things will get missed. A site inspection takes the guess work out of preparing your schedule. BMT Tax Depreciation can make it even easier by organising the inspection directly with your property manager. BMT has been conducting site inspections on properties for over twenty years. A BMT Tax Depreciation Schedule has never failed an audit and is the preferred supplier to thousands of accountants across the country. To learn more about depreciation and how a site inspection can ensure you claim the most from your investment, Request a Quote or call BMT on 1300 728 726.

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Are you looking to invest in property or shares? We’re here to help weigh up the pros and cons

BMT team — Thu, 30 Sep 2021 06:01:15 +0000

Property and shares are two popular choices when it comes to starting an investment journey. Each have their unique pros and cons and much needs to be considered before making a decision. When someone invests in property, they purchase it for the purpose of producing income (i.e. renting it out). You can invest in all types of property across the residential and commercial markets. While investing in shares involves purchasing a share (also known as ‘stock’) in a publicly listed company on a stock exchange, such as the ASX. Investors make money from shares through capital growth (selling the share once its value rises) and dividends. What’s a better investment choice? It’s important to consider the pros and cons of each. There is no straight forward answer to this question. Instead, it’s important to consider the pros and cons of each and how they align to your own investment goals. We recommend you speak to a financial adviser before you make any investment decisions. Property investment pros and cons Pros Capital gain Property historically grows in value over time even in the hardest of economic times. Currently economists from the major banks in Australia are predicting that Australian housing values will show annual growth by 18.5 per cent by the end of 2021. There are two key benefits of owning a property with capital growth. Firstly, it helps you build your equity which can help you reinvest. The second (and more obvious) way is selling the property at a profit. Reliable cash flow Attracting quality tenants to the property means you will have a reliable cash flow almost guaranteed for the lease term. The rental rate usually stays the same throughout a lease agreement which means you know how much money to expect and when. Increased tax deductions A key benefit of investing in property is the tax deductions that are unlocked. Essentially, most ownership costs associated with the property will become tax deductible. Examples are interest repayments, insurances, land taxes and real estate fees. This is all in addition to lucrative depreciation deductions that may be available. Unlike other deductions these can be claimed without an out-of-pocket expense which is why depreciation is often referred to as a non-cash deduction. The rental income from an investment property is offset by these tax deductions and any subsequent loss is further applied to reduce your overall taxable income, including your salary. Which means in this overall circumstance, you would pay less tax, saving you money. Cons Expensive Getting a step on the property ladder itself is expensive. Not only do you need the deposit at a minimum, but you also need to cover additional upfront costs. These can include stamp duty, conveyancing fees, lenders mortgage insurance if required and inspection costs. The upfront capital that is needed to get into the property market is the biggest roadblock for anyone, whether an investor or an owner-occupier. Understanding this when looking into your investment options is crucial. Tenant-related risk Like any investment, property has its risks. The most common one is those that are tenant-related. Even the most comprehensive tenant search can’t guarantee that accidents won’t happen. While a bond and landlord insurance can mitigate the risks, it doesn’t necessarily mean you’re covered for everything. Liquidity Selling an investment property is a long process. Even in a hot property market, the process from obtaining a property valuation to settlement can stretch out for months. This means that the liquidity of an asset like property is very low, it can’t just be converted into cash instantly and many variables impact how this occurs. Shares investment pros and cons Pros Ease of entry You can start investing in shares for as little as $50 through providers like Commsec pocket. While the bigger the investment, the bigger the risk and potential return, having the option to start off small can be a positive way to get started in the share market. For example, you can invest in what is called Exchange Traded Funds (ETF). An ETF is a passive, low-cost form of a managed fund which looks to gain exposure to specific areas through diversification across multiple shares or assets in that area to lower risk. ETFs are available for a wide range of tradable asset classes including Australian shares, foreign currencies and bonds. Capital gain A smart share investment choice can result in a big capital gain with little work. When you purchase a share at a lower price, hold onto it for a period of time and then trade it (sell) back on the share market at a higher price, you make a capital gain. However, a lot of patience can be required when making a significant capital gain on a share. Diversification You can become a shareholder in diverse range of listed companies. From tech stocks, the banking sector to health and retail players. Share portfolio diversification allows you to minimise risk and spread your investment across a number of profitable sectors. Liquidity Unlike property, shares have the added benefit of having high liquidity. This is because they can be sold very easily any day that the share market is open. This doesn’t guarantee that they can be sold at a higher price than what they were purchased for, but they can still be turned back into cash easily. Cons Shareholder rollercoaster Share prices can change significantly within a short period. Prices can go up and down due to internal or external macroeconomic factors that are impacting the company you hold a share in. Prices can also fluctuate with no reason at all which can make the process of investing in shares very stressful. Making a loss When you sell an asset at a lower price than you purchased it for, you are making a capital loss. The share market can be turbulent and you may be caught in a situation where you need to offload shares at a price lower than their original purchase price. Lack of or no dividends […]

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What is an interest only loan and why do property investors use them?

BMT team — Wed, 07 Jul 2021 00:31:41 +0000

Low interest rates effectively make borrowing more affordable. With the Reserve Bank setting the cash rate at a record low, the flow-on effect to lending has been evident. If a property investor is looking to maximise cash flow, one strategy is to pay only the interest portion of the property’s loan (and not repay the capital). But this raises the question, what happens to the interest-only loans when rates fluctuate? The answer is business as usual, but first, what is an interest only loan and why do investors use them? What is an interest only loan on an investment property? Where an interest only loan used to purchase an investment property, the loan repayments only cover the interest, not the principal. In other words, the loan amount (principal) to purchase the property remains unpaid. The interest only period usually has a set timeframe, for example the first five years of a 30-year loan. Several banks and lending providers offer them. Reasons investors use interest only loans There are two key reasons why investors use this financing option. 1. To reduce expenses early and amplify cash flow Principal repayments are a substantial non-deductible cost of owning an investment property. Some choose to delay principal payments to assist their cash flow earlier on in their investment property journey. Lowering the costs early on by delaying principal repayments provide investors with more cash than they would’ve had. This allows them to reinvest cash flow to assist them in achieving a stronger financial position when the time comes to begin principal repayments. 2. To increase the loan’s tax-deductibility It’s common for interest only loans to have a higher interest rate compared to interest and principal loans. This must be considered when deciding on a loan, but a result of this is the increased tax deductions. Interest repayments on an investment property’s home loan are fully tax deductible to investors. This means the higher the interest repayment, the higher the tax deduction will be. The deductions are also higher as the debt level isn’t being reduced. The higher deductions often help when an investor also has a home loan that isn’t tax deductible, as they can use the additional funds from not paying principal on their investment property to reduce the non-deductible debt. This is all while maintaining higher levels of deductible debt, which effectively increases deductions that reduce tax liabilities. Tax deductions reduce property investor’s taxable income, so higher interest repayment claims can result in less tax to pay. According to the Australian Taxation Office, an average investor makes an interest repayment tax deduction claim of over $9,000 each financial year. Pitfalls of interest only loans 1. Higher interest rate As previously mentioned, an interest only loan usually has a higher interest rate. While this does mean a higher interest repayment tax deduction, it’s important to remember that all deductions are taxed at the investor’s personal income tax rate. So $1 in deductions doesn’t necessarily mean $1 back in cash. Furthermore, tax deductions can only be claimed at tax lodgement time (unless a Pay as You Go Withholding variation is in place). So the investor must ensure the constant cash flow impact can be managed throughout the financial year. 2. Increased future principal repayments. Not making principal repayments in the early years of an interest-only loan has consequences in the form of elevated future repayments. Let’s use an example of a $500,000 loan with a total term period of thirty years, and the first five being interest-only. The annual principal repayment will be approximately $16,660. Not making principal repayments in the first five years means the $83,330 that would’ve been paid in this period must be paid in the remaining twenty-five years. This would increase the total annual principal repayments to $20,000 per year. 3. Risk of stalled equity The only two ways to build equity is through capital growth and paying down the principal of a home loan. This means by opting for an interest-only loan the investor can only count on capital growth to build their equity. This element can be unpredictable as it largely depends on property market conditions and other macro-economic factors. Despite the pros and cons, seeking the appropriate financial advice is paramount. Financial advisors and accountants are two key consultants to engage when deciding on the best financing option for your next investment property. They will be able to liaise with you as you discuss financing options with your lender or mortgage broker. Reminder: Interest only loans don’t impact property’s depreciation Despite the fact that the investor isn’t paying off the property’s principal, they can still claim depreciation on its structure and assets. Depreciation is a process of natural wear and tear and is an exclusive tax deduction to owners of income-producing properties, including property investors. Just like interest repayments, depreciation reduces your taxable income so you pay less tax. The key difference is that depreciation is a non-cash deduction – so no money needs to be spent to claim it. On average, depreciation can yield an average first full financial year deduction almost $9,000. To learn more about depreciation and how it can improve your investment property’s cash flow, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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Thinking about flipping an investment property?

BMT team — Fri, 16 Apr 2021 05:28:32 +0000

Shows like The Block have us dreaming at the possibility of doing up a rundown property, selling it and making thousands in profit. This has become a popular activity in Australia, and often has some asking, what are some of the implications when flipping investment property? In this article, we will cover: What is property flipping? Why flip an investment property? Key considerations when flipping investment property What is property flipping? Property flipping is a strategy involving the quick turnaround of buying and selling real estate for profit. There are two common ways to flip an investment property: 1. Purchase a low-cost property in an area with expected accelerated price growth, hold onto it short-term and sell at a higher price. 2. Purchase a property that needs work. Not a fixer-upper, but one where minor renovations can provide price increase through capital growth. Why flip an investment property? Property investment is often a long-term investment strategy – so why would a short-term strategy such as flipping be on the agenda? At the end of the day, everyone’s investment strategy is different. For example, maybe you don’t want to do an immediate flip, rather a ‘quasi-flip’, and want to take some time to earn money from the property in the meantime. Whichever the case, there are some key considerations when flipping property, especially one that is also being used as an investment. Key considerations when flipping investment property 1. Timing the market You don’t want your flip to be a flop, so it’s important to understand the market, do the research and time the sale right. You’re not a fortune teller so it’s impossible to determine the exact date that the property needs to be on the market. Instead you need to analyse what the market is doing, keep up-to-date with reputable property researchers such as CoreLogic and Propertyology while not getting sucked into the misinformed media-induced property hype. 2. Setting expectations with tenants Making improvements to an investment property means your tradespeople need access to the property, which of course comes as an inconvenience to your tenants. This is where it’s essential to be transparent and have open lines of communication to avoid disgruntled tenants. Before they even move in, ensure the conversation is had about your plans with the property, establish an agreement (in writing) when improvements are made and leasing terms. For example, offering discounted rent during disruptive periods could be a solution. It gets trickier when you need the tenant to move out temporarily while a renovation takes place. If the tenant needs to find temporary accommodation, they can stop paying rent from the date they leave the property. A tenant may be able to end the lease early if they can no longer live in or can only partially live in the property. For this reason, it’s always recommended to do major works like renovating an entire bathroom after the tenant has moved out. 3. Capital gains tax (CGT) Capital gains tax (CGT) is a tax payable on the capital gain made from the sale of an income-producing asset, including investment properties. Flipping an investment property usually means you want to make a capital gain, so you need to be aware of how CGT will impact the money you walk away with post-sale. Your capital gain isn’t simply your purchase price vs sale price. While many factors impact it, a more appropriate way to look at CGT is the difference between ‘cost base’ of the property (purchase price, capital costs) and the sale price. There are also several discounts and exemptions that can reduce the amount of payable CGT. The most common is the 50 per cent discount which you may be eligible for if you’ve owned the property for over twelve months. Your accountant will be able to provide further guidance on CGT as it’s their area of speciality and ultimately, they calculate any CGT payable. 4. Scrapping Removing assets and structure is part and parcel of renovating. The difference is that when you do this to an investment property, you can take advantage of a process called scrapping. Scrapping allows you to claim any undeducted depreciable value of removed assets. For example if you removed floorboards that still held depreciable value of $1,500 you can ‘scrap’ this as an immediate deduction. A tax depreciation schedule prepared by a specialist quantity surveyor is key to claiming the maximum scrapped deductions during your investment property flip. An accountant will use this schedule to determine the undeducted depreciable value of removed assets, which informs your scrapped deductions. To learn more about how a tax depreciation schedule can help you gain a financial advantage while renovating an investment property, contact BMT on 1300 728 726 or Request a Quote.

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6 common beginner real estate investing mistakes

BMT team — Tue, 16 Mar 2021 21:59:43 +0000

Thinking about getting your foot into the property investing door? With over 20 years of experience, we have seen investors make every mistake in the book. To save you some pain, here are six of the key mistakes we see and how you can avoid them. 1. Lack of research 2. Going heart over head 3. Rushing the purchase 4. Not planning for all expenses 5. Not having the complete team on board 6. Not considering depreciation 1. Lack of research Not doing the research before buying a property can be detrimental and could result in low returns, high levels of mortgage stress and maybe even a failed investment venture. It’s important not to jump the gun and make a big purchase without ticking the research-related boxes. Doing the leg-work early will streamline the purchasing decisions and increase the likelihood of a successful investment. You need to look at things like the location’s property value trends, average rental yields, vacancy rates, employment rates, local infrastructure, the time a property spends on the market and overall demographics. From a financial standpoint, you need to determine how a property purchase will affect your cash flow. 2. Going heart over head The investment property you choose isn’t necessarily the one you fall in love with. It’s the one that is going to make you the best return, while fitting into your overarching strategy. All too often we see investors purchase properties that they can see themselves living in. You should instead be looking at properties with tenant appeal. Things like proximity to local amenities, the property’s maintenance requirements and size are just some factors to consider. 3. Rushing the purchase It’s easy to get excited as you move along the process of buying any property. From the first open home to the offer, inspections, discussions with solicitors and everything in between – it’s easy to get swept up in it all and feel like it’s a race. It’s important to take a step back to avoid rushing the purchase. For investment properties, this includes looking at different aspects such as the property’s likely rental return and capital growth potential. It’s important to consider factors like these to avoid making a mistake and purchasing a lemon of an investment. 4. Not planning for all expenses If the investment is going to be the first property you have ever purchased, it’s easy to forget the additional upfront expenses. The deposit isn’t the only thing you need to save for. You must have a buffer to cover all of the other expenses that comes along with a property purchase. Just some of these upfront expenses include insurances, building and pest inspection fees, lenders mortgage insurance (if required), stamp duty, conveyancing and legal fees. 5. Not having the complete team on board When buying an investment property it’s important to have a team of professionals around you. What your team looks like depends on your individual circumstances, but some of the most common include: Mortgage broker: They will ensure you get the most-suited investor loan on the market and negotiate with the lenders for you. Conveyancer/solicitor: They specialise in property transfers and will ensure you have all the documentary requirements involved with buying a property. Accountant: They will be able to tell you what you can and can’t claim as tax deductions once you own the property. The rental income you receive is included in your taxable income so it’s essential to claim everything you’re entitled to compliantly. Property manager: Leasing the property is what will determine the return on your investment. Having an experienced property manager to look after the end-to-end process of leasing the property will ensure you get on the front foot early. 6. Not considering depreciation Depreciation is the natural wear and tear of a property and its assets over time. As a new investor, you can start claiming depreciation on your rental as soon as it’s available for lease. This deduction is easily missed as you don’t need to spend any money in order to claim it – so essentially, it’s a ‘non-cash deduction’. On average, we find investors a first full financial year depreciation deduction of almost $9,000. It’s important to consider depreciation when determining how the property is going to affect your cash flow. Depreciation has the potential to turn a negative cash flow into a positive one, all while boosting cash flow by tens of thousands of dollars for up to forty years. To learn more about depreciation and how it can provide a boost throughout your investment journey, Request a Quote or call BMT on 1300 728 726.

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How to evaluate a commercial real estate investment

BMT team — Wed, 24 Feb 2021 00:13:21 +0000

There are additional factors to take into account when evaluating the viability of commercial real estate investment versus residential. On top of the usual considerations, commercial property investors need to explore the macroeconomic elements that will impact the success of their investment and the industry it operates in. With this in mind, have you ever wondered how to evaluate a commercial real estate investment? In this article, we will cover: What is commercial real estate 5 tips to evaluating a commercial real estate investment What is commercial real estate? Let’s start simple. Commercial real estate comes in different forms – from agricultural facilities, retail stores, to office buildings and hospitality venues. Commercial real estate is property used to operate a business. The Australian commercial real estate industry holds a large footprint. According to CoreLogic’s latest data, commercial real estate makes up $1 trillion of Australia’s wealth. How to evaluate a commercial real estate investment Evaluating any type of investment property will include carrying out due dilligence which essentially means crunching the numbers. This includes factors like rental income and yield, demand vs supply, financing requirements, how the purchase will impact your cash flow and much more. These are all extremely relevant when evaluating a commercial real estate investment. You will also need to think outside the box and evaluate factors that will impact the success of the property. If you’re looking to purchase a commercial real estate investment, we have broken down these factors to five parts. 1. Know the property’s history If the property is already established and has been used as an investment in previous years, you’re fortunate to have plenty of information and data points. Go through the property’s history and determine how it performed for the previous owners. Some of this information will be confidential but a good indicator is the percentage of time the property was tenanted. This is important to know in the early stages as the higher the percentage the more likely it is to be a solid investment choice. 2. Research the current property market throughout your evaluation What is the commercial property market doing in the area you are looking to buy? The market can be volatile, and while you’re not expected to predict the future, a baseline knowledge is still essential. This means conducting activities like a year-on-year market analysis, evaluating the increase or decrease of rental rates, looking into overall market trends and projected growth in the industry. You can really drill down in this analysis and note things like if there is a new commercial estate opening up nearby that may take prospective tenants wanting new facilities. 3. Track industry trends Unlike residential property, commercial property is significantly differentiated throughout the industry it operates within. In addition to the property market in general, you need to know this industry like the back of your hand. The industry demand is a determining factor of attracting tenants. For example, the warehouse industry is currently in high demand and it looks like it is just getting bigger with consumer preferences moving online. Recent forecasts have suggested that online sales will grow by $12.8 billion in 2021, which would result in a demand of about one million square metres of warehouse demand due to e-commerce activities alone. Data points such as this are a good reference when evaluating a commercial investment. 4. Identify the tenant market and weigh up with supply vs demand How niche or broad is the property’s tenant market? An office space or hospitality venue are examples of properties that would have a broad tenant market. While a poultry farming facility or medical practice are examples of properties with niche tenant markets. Should you be targeting a broad or niche tenant market? The answer to this isn’t straight forward. What you should be evaluating is how the tenant market’s demand weighs up against property supply. Holding a property that’s in high-demand and not in an over-saturated market should be the goal. Anything else can impact the property’s success and how much power you may have in lease negotiations. 5. Estimating the likely depreciation available Property depreciation is the natural wear and tear of a property and its assets over time. You don’t need to spend any money to claim depreciation, so it’s the only ‘non-cash’ deduction available from the property. Depreciation can often be the difference between a positive and negative cash flow. Therefore, it’s essential to include it as part of your initial evaluation of the property. BMT Tax Deprecation is here to help with your commercial real estate evaluation. The team can provide obligation-free preliminary estimates on all types of commercial properties. To learn more, visit BMT’s commercial page or Request a Quote.

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What is an investment property and how to make it an income-generating machine

BMT team — Tue, 09 Feb 2021 22:09:01 +0000

Media outlets across Australia report on the property market daily. Housing price movements, sales volumes, affordability and buyer sentiment all make the news regularly. The investment property market is often part of the discussion, but let’s go right back to basics – what is an investment property? And more importantly what makes a good investment? How can a prospective investor make the most out of their property? What is an investment property? An investment property is a residential or commercial property used to actively produce income, otherwise known as rent. Seems simple, right? However, a number of factors determine just how successful an investment property will be. In this article, we will cover Types of investment properties Investment property income How to get the best return Types of investment properties Investment properties come in all shapes and sizes from houses, units, townhouses, duplexes to offices, warehouses, hotels and other types of commercial properties. When it comes to deciding what type of property to invest in, it really depends on your investment strategy and budget. Strata properties are usually a good starting point for first-time investors as they are sometimes more affordable. Meanwhile, owning an investment property with someone else can be an affordable way to enter the market while splitting ongoing costs. Investment property income Rental income and capital growth are the two main ways investment properties generate money for their owners. 1. Rental income Rent is the amount the tenant pays to the property owner (landlord) to occupy the premises. It is a regular source of income for the owner, although it can fluctuate with the rental market and tenant reliability – so it pays to do your research. Vacancy rate is a good indicator of rent reliability. For example, a high vacancy rate means there’s less demand for rental properties in the area. While a lower vacancy rate means there’s higher demand and rental rates can move up. Therefore, it’s important to check the vacancy rate in the area you’re looking to invest in. There are also tax benefits of owning an investment property that boost rental income further throughout the time it’s available for lease. You can claim many tax deductions in relation to owning the property, which will reduce your taxable income. Just some of the things you can claim as tax deductions include interest repayments, depreciation, property insurances, rates, repairs, maintenance, management fees and much more. 2. Capital growth It is important to understand that any property investment can be affected by market price fluctuations; the value of your property can rise and fall. But the goal of any property investor is capital growth. This is the increase in the value of their land and property over time. The outcome of this is when the time comes to sell the property, the owner may make a significant profit (or loss). Depending on the investment strategy, some may favour long-term capital growth over short-term rental income, others may be more interested in weekly cash flow. How to get the best return from an investment property Now that we are across what investment properties are and how owners make money from them, how do they maximise the return? Here are some of the key strategies savvy investors do. Strong rental returns vs strong capital growth Strong rental returns and capital growth usually work against each other. The key to getting the balance right is holding properties that are mixed or choose a location that it suitable for your overarching investment strategy. Attract high-quality tenants The rent you receive is what maximises your return throughout the lifecycle of your investment property. Therefore, it’s key to make sure that this flow of income is reliable and at market value. Finding high-quality reliable tenants is the key to safeguarding your rental income. Attracting these tenants from the very beginning is essential, while keeping them happy throughout the tenancy will increase the likelihood of them staying. Even the small tasks like getting repairs sorted quickly and efficiently, maintaining the property ang giving appropriate notice prior to inspections go a long way in keeping tenants happy. Make improvements wisely to accentuate returns Renovating an investment property is a costly exercise, but when done wisely can help you achieve the balance of increased rental returns and the overall value of the property. Achieving bang for buck is the trick to doing this; make improvements that will help attract high-quality tenants while increasing the amount of rent you can charge. These don’t necessarily need to be extravagant additions. For example, adding a functional internal laundry, a separate bath and shower in the bathroom or a quality stove and oven. Claim all deductions Holding an investment property means you have access to more tax deductions. Claiming these is key to boosting the return you receive from your property. It doesn’t need to be a hard paper-tracking practice and tools such as MyBMT help you keep track of all expenses and share them directly with your accountant. Claiming the hidden expenses can boost your cash by thousands in just one year. The biggest hidden deduction is the depreciation available from the natural wear and tear of the property and its assets. Depreciation isn’t easy to see as you don’t need to spend any money in order to claim it, making it a non-cash deduction. The table below demonstrates just some depreciation deductions you can expect for both new and old properties. BMT Tax Depreciation has helped hundreds of thousands of property investors get the best return through lucrative depreciation deductions. If you’re contemplating buying a property for an investment, contact BMT for an obligation-free estimate of the likely deductions you can claim on 1300 728 726 or Request a Quote.

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What happens if I don’t depreciate my rental property?

BMT team — Tue, 22 Dec 2020 21:53:22 +0000

Data reported by the Australian Taxation Office has revealed that property depreciation is the highest non-cash deduction claimed by investors. However, myths surrounding depreciation have some investors asking: ‘what happens if I don’t claim depreciation my rental property?’ You can’t simply not depreciate your rental property as it’s a natural process of wear and tear. You can choose not to claim depreciation as a tax deduction. But what happens when you do this and how can it be detrimental to your investment success? In this article we will look at: What is depreciation? Why an investor wouldn’t claim depreciation I don’t claim depreciation on my rental property but want to start, is it too late? What is depreciation? Imagine claiming money back when you haven’t spent any. Sound too good to be true? Well this is essentially how depreciation works. Depreciation is the natural wear and tear of a property and its assets over time. While all types of properties and assets depreciate, including your own home and car, you can only claim depreciation from income-producing assets such as your rental property. The structure of your property such as the walls, roofing and doors can be claimed for up to forty years. The easily removable and mechanical assets like air conditioning units, furnishings and light fittings are depreciated based upon the unique effective life for each asset. When you claim depreciation on your rental property it’s a deduction on your annual taxable income. This means it reduces your taxable income, resulting in you paying less tax and boosting your cash return. Why an investor wouldn’t claim depreciation There are two key reasons for this. 1. Eligibility for depreciation The first reason is that sometimes, claiming depreciation simply isn’t worthwhile. This could be the case if, for example, you purchased a second-hand property in 2019 that was constructed before 1987 and hadn’t undergone any form of renovation or improvement. In this scenario, you couldn’t claim depreciation on the previously-used plant and equipment assets and no capital works would be eligible. However, this would change if you purchased new assets for the property or if you or any previous owner made any improvements to it. In this case, it’s always recommended to contact a specialist quantity surveyor so that they can reassess and provide a depreciation estimate. If you are ever unsure whether claiming depreciation on your investment property would be worthwhile, BMT can provide an obligation-free estimate. Each BMT schedule is also backed by the BMT Guarantee, which guarantees there will be no charge if BMT can’t find more than double their fee in first full financial year deductions. 2. Depreciation and Capital Gains Tax (CGT) The second source is myths surrounding depreciation is concerning CGT. The amount of CGT you pay is based on the property’s cost base, and what you sold it for. When the sale price is more than the cost base, you make a capital gain and may result in a CGT liability. Claiming depreciation reduces your property’s cost base, which can make it seem counterintuitive, but this isn’t the case. The cash flow depreciation supplies throughout the property’s investment lifecycle far outweighs the potential affect it has on CGT. It’s also important to remember that CGT is based on your individual tax rate, so it doesn’t necessarily mean $1 in depreciation claimed is an additional $1 in CGT. Discounts and exemptions will usually always further reduce the CGT payable. If you owned the property for more than 12 months, you can be automatically eligible to a CGT discount of 50 per cent. If you lived in the property within the past six years you could also be entitled to a full CGT exemption. In most cases, the depreciation deductions are available in full, however CGT liabilities are reduced due to the variety of exemptions available to property investors. Your accountant can advise further on what you may be eligible for. I don’t claim depreciation on my rental property but want to start, is it too late? Firstly, it’s never too late to claim depreciation. If you have owned your rental property for several years and haven’t claimed depreciation, you can still claim these missed dollars back. A tax depreciation schedule prepared by a specialist quantity surveyor will allow you to do this by providing a history of deductions for previous tax returns. On average, BMT Tax Depreciation find almost $9,000 in first full financial year depreciation deductions. BMT’s team know what to look for and how to apply relevant legislation to ensure you claim the most deductions possible. Order your BMT Tax Depreciation Schedule today and Request a Quote or call the team on 1300 728 726.

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How to estimate the rental return of your property

BMT team — Tue, 06 Oct 2020 22:22:15 +0000

When estimating the rental return of your investment property there are two key things to look at. First, the rental rate you can charge in the current property market. The second is how this rental income determines the return on your investment. Estimating the rental return of a property will help you make smarter decisions as you grow your portfolio. In this article we will look at: What is rental return of a property? Rule of thumb Rental yield Gross rental multiplier Bottom line What is rental return of a property? Several return factors are considered when estimating the rental return of a property. Unlike your own home, your buying-decision is based on your longer-term investment strategy, not the property you can imagine yourself living in. You want to ensure that you’re building your portfolio with diversified and profitable assets. There’s no one way to do this. It requires a holistic approach and a lot of research. Here are three methods that can help estimate the rental return of a property. Rule of thumb This method is fairly self-explanatory. All you need to do is look at similar properties in the area and find out what their advertised rental rates are. While this isn’t the most scientific method, it’s an easy way to get a ballpark figure. If you have an investment property and there’s a big difference between your rent and other similar properties, it may indicate that you are overcharging or missing out on a higher cash flow. Rental yield Yield measures your return using the property’s annual rental income and the property’s value. Yield can be measured as either ‘net yield’ or ‘gross yield’. Net yield takes into account the property’s expenses. Determining what a ‘good’ yield is depends on the location of the property. CoreLogic’s May Hedonic Home Value has found that gross rental yields in our capital cities range between 2.9 and 5.8 per cent, and between 4.5 and 6.7 per cent in regional areas. Yield can tell you a number of things about the price of a rental property. For example, the location of a property can affect yield as a more desirable area usually commands a higher price and results in a lower yield. Gross rental multiplier Gross Rental Multiplier (GRM) is a common market analysis method used in the initial stages of researching an investment property. The GRM is a ratio of the price of the property and its gross annual income. This ratio represents the number of years it would take for the income to pay for the property. The lower the GRM, the more appealing the investment property is. The GRM isn’t the most accurate method however it’s a helpful, quick analysis tool that can give a surface-level idea of the return of investment. When searching for an investment property, you are often looking at many at once. Using the GRM can indicate whether you should prioritise properties above others or if further research is required. In practice: using the GRM method James is looking to buy his next investment property. He is researching a number of properties and just added a new one to the list. The property is valued at $900,000 and the rental appraisal indicates a potential weekly rental rate of $650, $33,800 per annum. Before doing more research, he uses the GRM method. $900,000 ÷ $33,800 = 26.6 GRM The GRM of 26.6 is much higher than James is looking for. While he doesn’t rule out this property completely before doing more research, he keeps this in mind especially when negotiating prices on the same or similar properties. Bottom line It’s important to look at several factors before making an investment property decision. Investing in property is a long-term strategy, but the market does fluctuate. Therefore its important to keep eye on the market and regularly compare your rental return. Get the most out of your investment property with the right team. Your accountant and property manager aren’t the only essential members. A specialist quantity surveyor, such as BMT Tax Depreciation, will make sure you boost your property’s cash flow with depreciation deductions. To learn more about property depreciation, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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