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Is investing in commercial property a good idea?

BMT team — Mon, 21 Dec 2020 00:43:49 +0000

The current environment has many asking whether investing in commercial property is a good idea. With conflicting media reports and best-to-worst case scenarios reported daily, many are questioning this more and more frequently. Answering this question isn’t exactly black and white. But there are a few key factors to consider when making your decision. First, what are commercial investment properties? These are properties that can be used for business activities. Some of the most common commercial property types include: Office buildings Hospitality venues Retail centres Industrial warehouses Accommodation facilities such as hotels Some commercial property types aren’t so obvious as you don’t usually perceive them as physical buildings. But if they are producing a commercial-based income, they are a commercial investment. Some examples include private car parks, taxis and farmland. Top three considerations when choosing to invest in commercial property 1. Investment strategy When deciding if you should invest in commercial property, your investment strategy must always be front of mind. Property, whether it’s residential or commercial, is a long-term commitment so it’s always best to be strategic rather than reactive. If you’re investment strategy includes commercial property, the key consideration is the sector of the commercial market you’re going to home in on. Do you want to invest in office space? Or maybe agriculture or accommodation? Mixed-use is also an option where you combine office space, retail and residential into the same property. 2. Supply and demand for commercial property types by location You don’t want to enter an already oversupplied market, but at the same time you don’t want to miss out on investing in an industry that’s already thriving. Supply and demand is a key factor when determining if investing in commercial property is a good idea. You don’t want to purchase an office building in a location where owners are finding it hard to find office tenants. Meanwhile, farmland in reliable rainfall areas are in high demand but low supply, with owners holding onto the property. Some factors around the supply and demand that affect a commercial investment property can be hard to predict. The key thing to look out for is the longevity of the property. For example, retailers are fighting for warehouse space as consumer online-shopping demand reaches record heights. Online shopping is here to stay, with major retailers shifting strategies to meet the online demand. Therefore, investing in warehouse space suitable for ecommerce could be a good long term option. 3. Deductions available A successful commercial investment property offers reliable long-term cash flow, lower ongoing costs and lucrative depreciation deductions. Commercial leases are usually much longer than residential, this is where the reliable long-term cash flow stems from. It’s common for commercial leases to last five, ten or even fifteen years as a business needs a reliable base for its operations. Depreciation deductions aren’t often a key consideration when choosing to invest in commercial property, but they should be. As a non-cash deduction, and the highest following interest repayments, depreciation can boost your cash flow by tens of thousands in just one year. During this year alone, BMT Tax Depreciation has found record-breaking depreciation deductions for commercial properties. The following are just some examples of the lifetime deductions BMT has found. $4.2 million for a poultry farm in New South Wales $14 million for an office building in Victoria $40 million for a CBD hotel New South Wales $205 million for a solar farm in South Australia $330 million for a major shopping centre in Queensland BMT can provide an obligation-free depreciation estimate of any commercial building you are considering. To learn more about the additional commercial services BMT offer, visit their commercial property page or Request a Quote.

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How long can you claim depreciation on a rental property to maximise your cash flow?

BMT team — Tue, 20 Oct 2020 22:00:48 +0000

Rental properties come in all shapes and sizes, from studio apartments in the city to rural homesteads. The length of time that you can depreciate your rental property depends on several things. The key determining factor is the age of the property, along with its fixtures, fittings and assets. Improvements such as renovations can also stretch the length of time you can claim depreciation. In this article we explore: How long do capital works deductions last? How long can you depreciate plant and equipment assets? Can you still claim depreciation for your rental property after living in it? Claim depreciation with the specialist How long do capital works deductions last? The first element of a depreciation claim is capital works deductions. This refers to only the structural part of your rental property and fixed fittings that depreciate at an annual rate of 2.5 per cent. Some of the most common capital works deductions are found from the building’s walls, fencing, doors, built-in cupboards and roofing. On average, capital works deductions make up 85 to 90 per cent of the total claim available. Any residential building that was constructed after 15 September 1987 can take advantage of capital works deductions for forty years. However, this depends on the property’s construction and purchase date. If a property was built in 1990 and you purchased it second-hand in 2010, you can claim capital works deductions for twenty years or until 2030. Whereas, if you purchased a brand-new investment property in 2020 you can take advantage of capital works deductions for the full forty-year period and claim this lucrative deduction until 2060. If your rental property was constructed before 1987, don’t rule capital works deductions out just yet. Older properties can still get capital works deductions back in their pocket if the property has undergone a renovation. For example, if a rental property was built in 1980, and the owner completed a bathroom renovation in 2005, they can claim capital works deductions on the bathroom until 2045. How long can you depreciate plant and equipment assets? This is where determining ‘how long’ you can depreciate a rental property gets a little more complicated. Plant and equipment depreciation are claimed on the property’s mechanical and easily removable assets. Some common examples include hot water systems, carpet, blinds and ceiling fans. Each plant and equipment asset has its own dedicated effective life set by the Australian Taxation Office (ATO). Each asset also has its own diminishing value and prime cost depreciation rate, rather than a set rate. The effective life of an asset determines how long you can depreciate it. Under the prime cost method, you claim an even amount each year. While the diminishing value method results in a higher claim in earlier years. Different types of plant and equipment assets that fall under the same category can depreciate for different periods. The below table demonstrates how this works for some floor coverings. Can you still claim depreciation for your rental property after living in it? You can claim depreciation on your investment property after you lived in it, but the length of time you can depreciate it does change. The time you lived in it counts towards the forty-year lifespan of capital works deductions. For example, if a property was constructed in 2000 and you moved into it then made it an investment property ten years later in 2010, you will claim capital works until 2040 (thirty years) on the original structure. If you made a capital improvement like an extension, this changes. The capital works on the new extension would restart from the improvement date, while the original structure will continue to depreciate from the 2000 start date. Plant and equipment depreciation deductions work completely differently once you have lived in the property. Due to 2017 legislation changes ‘previously used’ plant and equipment assets in residential properties can’t be depreciated. This means you can’t claim depreciation on any of the plant and equipment assets that were in the property when you lived in it. However, new assets you purchase for the property once it’s an investment can still be depreciated for their effective lives. Claim depreciation with the specialist A tax depreciation schedule lasts the lifetime of the property, so it’s important to get it right from the very beginning. To start claiming depreciation with the leading specialist in the industry, call BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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Farm investment opportunities continue to attract investors

BMT team — Tue, 03 Mar 2020 22:51:03 +0000

Despite the relentless drought and tough conditions, Australian-grown products such as beef, nuts and wool are in high global demand. As a result, farm investment opportunities across the country continue to attract investor groups looking to expand within the industry. In this article we will look at: What farm investment opportunities are investors looking for? 3 key elements to look for in farm investment opportunities Depreciation available for farm investment properties Key points: Large scale farms in reliable rainfall regions are popular among commercial investors Water infrastructure, land quality and logistics are key elements to look for in farm investment opportunities Valuable depreciation deductions are available for farm investments, and specific rulings are in place for primary production assets What farm investment opportunities are investors looking for? Australian farmland is widely dispersed. Large-scale properties, with high production abilities in reliable rainfall regions, are popular among commercial investor groups. Farms close to regional towns with strong water infrastructure are also drawing a crowd. More conservative trends are seen in regions such as the north-west of New South Wales. Agents are finding that while inquiries are rolling in, owners and buyers alike are waiting for more favourable climate conditions before they consider selling or buying. Experienced investors and farmers that are looking to develop their farming portfolio are taking a geographical approach. Expanding their portfolio across the country, rather than being localised, helps them spread their risk and be more sustainable against natural disasters. 3 key elements to look for in farm investment opportunities 1. Water infrastructure The Australian climate can be unpredictable, so farm owners can’t rely solely on consistent rainfall to provide the large amount of water that they need. Water infrastructure provides storage and distribution of water across the property. Dams, bores, tanks and irrigation systems are some key examples of the type of water infrastructure that farm investors are looking at. 2. Land quality You can always change the farming infrastructure to suit your needs, but you can’t change the land. When looking for the right farm, investors must make sure that the land is suited to the livestock or crops that it will hold and grow. Size and soil type are the determining factors for how the land can be used. It’s also important to test the land for any degenerative signs of erosion and contamination. 3. Logistics Every farm must be easily accessible to buyers and suppliers. Before deciding whether to invest in a farm, investors need to do their research on where the farms sits on the map logistically. This is especially important for smaller farms, where getting trucks to the property can be costly if they are far away from the usual routes. Depreciation available for farm investment properties Both owners and tenants of farms used for income-producing purposes can boost their cashflow by claiming depreciation deductions. Capital works deductions can be claimed for the wear and tear of structural assets, such as the farmhouse, sheds, and driveways. Plant and equipment deductions can be claimed for the easily removable items from the property such as tractors and tools. Most assets found on a farm can be depreciated under normal depreciation principles. However, primary production depreciation assets such as water facilities, fencing, fodder storage and horticultural plants are depreciated using their own specific rulings. For more information on how to claim the maximum depreciation deductions for your farm investment property, Request a Quote or contact the specialist BMT team on 1300 728 726.

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How does negative gearing work with depreciation?

BMT team — Sun, 23 Feb 2020 22:57:56 +0000

If you paid close attention to the 2019 Federal Election, you would be familiar with the term negative gearing. The election put negative gearing policy into question, with Labor including a proposal to limit negative gearing to brand-new residential housing. However, with The Coalition retaining their position, no changes to negative gearing were made. In this article we will explore: What is negative gearing and how does it work? If it means making a loss, why do investors keep their negatively geared properties? How does negative gearing work with tax depreciation What is negative gearing and how does it work? Negative gearing is when someone borrows money for an investment, and the rental income is less than the interest repayments and expenses. An investor’s rental property can be positively or negatively geared. When an investment property is negatively geared, the property’s expenses and deductions are more than the property’s rental return. This means that the investor is making a loss that is deducted from their taxable income for that financial year. Whereas, for a positively geared property, the rental income produced by the property exceeds expenses. An investor of a positively geared property makes a gain that is included in their taxable income. If it means making a loss, why do investors keep their negatively geared properties? You must consider the sustainability of a negatively geared property in all your investment decisions. For investors in Australia, there are some benefits of having a negatively geared property, including: Reduction of taxable income: You can use the loss of a negatively geared property to reduce your taxable income and boost your after-tax cash flow. This can be beneficial in the short term and for rentvestors that are in the early stages of entering the market. Long-term capital growth: National property values have increased significantly over the past decade, and the current outlook suggests that they will continue to rise. While a negatively geared property does mean making a short-term loss, the investor can offset the losses by benefiting from the long-term capital gain of selling the property once its value increases. How does negative gearing work with tax depreciation Investment property deductions include expenses such as interest payments, maintenance costs, insurance and property depreciation. Both capital works and plant and equipment deductions are included in property depreciation. Find out more information on available plant and equipment deductions. Tax depreciation deductions can change a previously positively geared property to be negatively geared without incurring a further loss as depreciation is a non-cash deduction. Below is a simplified example to show how this works: Example: Property gearing with and without depreciation An investor earns $80,000 a year and pays approximately $17,500 in tax. The investor receives $25,000 in rental income from their investment property. The taxdeductible expenses include interest expenses of $10,000, maintenance expenses of $10,000 and landlord insurance of $2,000. The property is positively geared with a $3,000 return. By including depreciation, the investor was able to claim capital works and plant and equipment deductions in their tax return, which came to $6,000 for that financial year. This changes the previously positively geared property to be negatively geared with a $3,000 loss. The investor’s tax liability decreases to approximately $16,500 rather than increasing to approximately $18,500 when positively geared. A reliable pre-tax cash flow is key for a sustainable investment, and we recommend speaking with a financial adviser to determine your investment strategy. If your goal is to hold onto a negatively geared property to benefit from the long-term capital gain, you must also be aware of the Capital Gain Tax (CGT) liabilities of making this profit. To find out more about CGT and how it works, we have included further information in the articles below. For more information on tax depreciation and how it can maximise your tax return, request a quote or contact our specialist team on 1300 728 726. Related articles Negative gearing: basics for beginners What should you know about negative gearing before the 2019 Federal Election When do you pay capital gains tax on investment property? Does depreciation affect capital gains tax?

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Shining the investor spotlight on Flemington, VIC

BMT team — Mon, 05 Nov 2018 05:35:34 +0000

As Melbourne Cup fever sweeps across the country, what better time to take a closer look at the suburb of Flemington VIC and its property investment opportunities. Home to the race that stops the nation, Flemington is a trendy inner city suburb of Melbourne located just a few kilometres outside of the city centre. It has a vibrant night life and a distinct multicultural flavour, with local restaurant Laksa King topping lists as a Melbourne favourite. The property landscape in Flemington was traditionally made up of older houses, terraces and small unit blocks. However, there has been a surge of new unit developments recently such as ONLY Flemington, an ultra-modern apartment complex with 400 one and two-bedroom apartments. BMT Tax Depreciation prepared tax depreciation schedules for close to 100 investors who purchased an investment property in the ONLY complex. Based on our estimate, the average three-bedroom apartment attracted a depreciation deduction of $17,155 in the first year alone. Owners of two-bedroom apartments were able to claim an average of $14,647 in the first full financial year. Over the past two years, both residential and commercial investors in Flemington have engaged BMT to obtain tax depreciation schedules for their investment properties. Of these, 84.5 per cent of properties were units, 8.5 per cent were houses, 4.7 per cent were townhouses and 2.3 per cent were offices and retail premises. Investing in Flemington Flemington has a population just topping 7,500, with most residents being young professionals. Due to its proximity to Melbourne’s CBD, Flemington VIC is a desirable location for workers wanting to avoid a long commute to the city centre. The mix of location, demographics and culture make Flemington an attractive investment location. View Flemington’s suburb profile here. Let’s take a look at the depreciation deductions investors are entitled to based on the average purchase price of a unit and three-bedroom house in Flemington. The depreciation deductions in this scenario have been calculated using the diminishing value method. The second hand, three-bedroom house is affected by the 2017 budget changes. Based on the figures in the above table, we can see that the owner of a brand new two-bedroom unit with a purchase price of $490,000 can claim $12,764 in depreciation in the first full financial year alone. This adds up to an impressive $55,501 in the first five years of ownership. To compare, let’s look at the depreciation deductions available in a typical second hand, three-bedroom renovated house in Flemington, purchased in January 2018 with a purchase price of $1,105,000. In the first financial year, the owner can claim $6,850 in depreciation. Over the first five years, this figure increases to $34,250. Considering investors can claim depreciation deductions over the life of the property (40 years), you can see how it can dramatically improve an investor’s cash flow and why it shouldn’t be overlooked. If you have a property and aren’t already claiming depreciation, request a quote for a tax depreciation schedule today. Alternatively, if you have a depreciation schedule but want to check if you’re maximising your claim, contact the expert team at BMT Tax Depreciation on 1300 728 726. View the latest Flemington real estate here. View our previous Melbourne Cup Day related posts. The only sure money on Melbourne Cup day How to be a winner in property and beat the Melbourne Cup odds Do you dream of being a Melbourne Cup winner?

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Negative gearing: basics for beginners

BMT team — Thu, 03 May 2018 02:13:43 +0000

In this article we will explore: What is negative gearing? Benefits of negative gearing Things to look out for What is negative gearing? While many people go into property investing thinking their investment will be an instant source of cash flow, this isn’t always the case. Depending on the net income earned from a property, an investment property can be positively, neutral or negatively geared. Neutral gearing is when the income earned from an investment property is the same as the total expenses, which may include mortgage repayments, maintenance costs, property management fees and other ongoing or one-off costs associated with owning an investment property. In a situation where an investor is receiving a higher rental return than the outgoing expenses, the property will have positive cash flow and the owner will pay tax on this income earned. By contrast, a negatively geared property has a rental income which is less than the outgoing expenses including deductible losses. Therefore, the property investor is making a cash loss on their investment. This cash loss can be used to offset any income received, such as a salary, meaning that overall an investor with a negatively geared property will be required to pay less tax to the Australian Taxation Office. For many, this is a short-term solution until an investment property can start making a positive cash flow. However, this is a popular strategy for many Australian investors and some choose to remain negatively geared as part of a longer-term strategy. As with any choice relating to an investment property, it’s important for investors to weigh up the pros and cons of this approach, in line with their individual investing goals. Benefits of negative gearing The benefits of negative gearing are hard to deny – it essentially turns a negative into a positive. Here are some of the main benefits of negative gearing: One of the biggest benefits is that it reduces taxable income, so you use these losses to offset your income and pay less tax as a result It can provide a financial boost in the short-term, which is particularly beneficial in the early years of owning an investment property when costs often outweigh income. As such, it makes it more viable to own an investment property It can offer long-term success as negative gearing allows investors to invest for longer terms and take advantage of long-term capital growth as the value of their investment increases over time. Often properties owned in areas with lower yields (as a result negative geared) usually have very good capital growth Investor are able to use a range of tax deductions more efficiently; including deductions for borrowing costs, advertising, insurance, capital works, depreciation of plant and equipment assets, council rates, water rates, repairs, maintenance, interest on loans, and many other expenses associated with owning an investment. Things to look out for Despite these undeniable benefits, there’s a few things investors should consider: Although it reduces taxable income, a negatively geared investment property is still running at a loss. Investors should consider if they have the financial means to cover these losses each week, month and year, as well as for the entire period of time they plan to negatively gear Investors should consider the risk of their property not growing in value, which could mean they’re unable to achieve the longer-term capital gain often associated with this strategy Investors who negatively gear should regularly evaluate the performance of their investment property to ensure that it will eventually make them money through the form of capital growth Investors who use this approach need to be disciplined with their finances and can use the spare funds to offset their loan There are some political considerations to take into account. On both sides of the political fence, there are ongoing arguments for and against negative gearing, as well as calls for changes to negative gearing legislation. Investors should consider how any future changes may affect their investment and financial position. Minor changes were made to negative gearing legislation in the 2017 federal budget, which you can read more about in BMT Tax Depreciation’s 2017 Budget Whitepaper.

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Investing in a holiday home

BMT team — Fri, 25 Nov 2016 00:25:24 +0000

It’s easy to understand the appeal of a holiday home. It seems an ideal situation to have a property in a holiday town you love and can regularly visit while other holiday makers lease it out at other times, helping you pay off the mortgage on your investment. But are holiday homes really a good investment? Let’s take a look at the pros and cons of this popular property choice. Advantages In addition to the obvious lifestyle benefits of owning a holiday home, the other main advantages relate to the taxation benefits and extra cash flow. Extra cash flow By leasing the property out to other holiday makers on a short term basis, the owner will have extra funds that can be put towards mortgage repayments, land fees and general upkeep of the property, which is less money out of their own pocket. Taxation benefits The principles that apply to a rental property also apply to a holiday home if it is rented out –meaning owners can take advantage of tax benefits such as negative gearing and depreciation. Holiday rental property owners often assume that because they are personally using their property, depreciation cannot be claimed. This can lead to investors missing out on thousands of dollars in lost deductions annually. The owner of the property can still claim depreciation for any periods of time it is untenanted so long as it is available for rent. However, depreciation cannot be claimed during the portion of the year the property is used for personal use, meaning it can only be claimed on a pro-rata basis. In addition to claiming depreciation on both capital works and the plant and equipment* within the property, holiday home owners can also claim extra deductions from a furnished property. They can claim depreciation on everything from couches to televisions and mattresses. Investors who are considering purchasing a holiday home or have already done so should seek advice from a specialist Quantity Surveyor such as BMT Tax Depreciation to find out what deductions they are able to claim. Higher weekly rental yields The rent charged on holiday homes per night or week is typically higher than the rent from a traditional residential lease for the same period. If the owner can manage to lease the property out for most of the year, this could see them with higher rental returns than from a traditional investment. Disadvantages Despite the optimism many holiday home owners portray with this type of property purchase, they might later find that the hidden costs and downsides sometimes outweigh the advantages listed above. Understanding the tax implications In order to qualify for the tax benefits available, the holiday home owner must make sure the property is genuinely available to rent and does not have unrealistic rent conditions imposed on it. Visit the Australian Taxation Office website for a full breakdown of these conditions and guidelines. Record keeping Holiday home owners can only make claims for depreciation and other tax benefits on a pro rata basis. This often calls for meticulous record keeping to ensure they have all the relevant figures and dates to qualify for these tax concessions. Hidden costs There are several costs associated with owning a holiday rental. There are property management fees, which are usually higher than for standard rental properties due to the higher turn around and greater amount of work involved. There are also costs for short stay insurance, land tax, advertising fees, regular cleaning, general maintenance and holding costs. Prolonged vacancies in the off-season With a short-term rental in a holiday location owners risk prolonged periods of vacancy, particularly in the off-season. This may mean they won’t be getting the returns originally imagined and could be paying ongoing costs out of their own pocket. Damage A higher turnover of guests may lead to damage to the property and faster wear and tear. Lack of capital growth In holiday destinations, capital growth is often more unpredictable than in city locations, meaning the owner may not get a profit when it comes time to sell one day. Furthermore, there are risks to buying in a one industry town – such as a tourist town. If there is a downturn in this industry, there may be no other reason for guests to come, which could make the property hard to lease out. Clashing schedules While the owner might plan to take advantage of the home as a regular holiday destination, they may not be able to visit at the times they wish. The property is likely to be most in demand during peak holiday times, meaning the owner may have to visit in the off-season or less desirable times. CGT When it comes time to sell, the owner may be subject to the Capital Gains Tax. Sharing your home A holiday home owner may find they are limited in terms of decorating the place, leaving personal items there and making it a secondary ‘home’. They might have to style the house to please a range of holiday makers, as opposed to personal preference. Also, they must question how they feel about having a constant stream of strangers sleeping in their bed and using their space. Tips for buying a holiday home Don’t purchase on emotion or a whim. Do your research, understand the local market and treat it like any other investment. Make thorough calculations prior to any purchase to understand the realistic returns. Calculate the returns you are likely to see for the whole year, not just in the peak holiday period. Also take into account realistic figures for insurance, depreciation, property management fees and land taxes. Seek professional advice. Before diving in and purchasing a holiday home, investors should seek advice from relevant professionals such as a Property Manager, an Accountant, a Financial Advisor and a Quantity Surveyor. * Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential […]

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