» landlord advice

Should you furnish your rental property?

BMT team — Thu, 07 Mar 2024 22:12:14 +0000

Have you considered leasing out your investment property furnished? When you furnish a rental property, the furnishings become part of the Division 40 plant and equipment assets allowing you to claim depreciation deductions for the wear and tear of the furniture over their effective lives, reducing your taxable income. To help you weigh up the pros and cons of renting out your property furnished, BMT has answered some commonly asked questions when it comes to rental furnishings. Q: Is furniture tax deductible for rental property? A: In most cases, furniture purchased by an investor for an income-producing property will attract depreciation deductions. Depreciation refers to the natural wear and tear a property and its assets experience over time. The Australian Taxation Office allows investors to claim a deduction for this wear and tear. Furniture within an income-producing property is typically claimed as a plant and equipment deduction, which refers to the easily removable items within an investment property. To be eligible to claim depreciation for furniture within a rental property, you must: purchase the items when the property is income-producing or genuinely available for rent directly incur the cost of the furniture. Q: What’s the easiest way to claim deductions for furniture? A: A tax depreciation schedule is the best way to ensure you claim all the deductions you’re entitled to. A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property (forty years) and is 100 per cent tax deductible. During the FY 2022-2023, BMT found residential property investors an average first year deduction of almost $9,000. Q: Can I claim deductions on second-hand furniture? A: The short answer is no. While second-hand furniture can be a cost-effective option, it’s ineligible for depreciation deductions. This is due to 2017 legislation changes that disallow depreciation deductions to be claimed on second-hand plant and equipment assets. This includes those that still have remaining depreciable value. Q: Can I charge higher rent if the property is furnished? A: A landlord can typically charge a higher rental rate for a furnished property. Depending on your location and property type, you may be able to charge between 15 to 70 per cent more. While this seems like a fantastic return on an investment, any landlord considering furnishing a rental property should first consider the reduced tenant demand. Most tenants are looking for unfurnished property, so be sure to assess your local property market carefully. Q: What type of tenants will a furnished property attract? A: Furnished properties typically attract travellers, young tenants who haven’t accrued their own furniture and business professionals who frequently move for work. With this in mind, furnished leases reflect the intermittent nature of such tenants and are usually between three and six months long. These types of leases are usually suited to major metropolitan areas or smaller regional centres that have a fly-in fly-out lifestyle. Q: What happens if my furniture is damaged? A: If the lease states that you are renting out a furnished house with appliances, then you’re not only responsible for keeping the building in good shape, but the furniture and appliances as well. However, if the tenant damages your belongings, you may be entitled to make an insurance claim so it’s important to have proper cover. Landlord insurance is a type of insurance policy designed to protect property investors from tenant-related risks including loss of rental income and malicious or accidental damage caused by the tenant. As landlord insurance is an investment expense, it can also be claimed in your annual tax return. It’s important to note that each landlord insurance policy will differ. For more information, contact BMT Insurance on 1300 268 467. Q: When is it a good idea to have an unfurnished property? A: An unfurnished property is more likely to appeal to tenants looking for a home over the long-term. Typically, this means that leases will be for six to twelve months. Some tenants prefer the opportunity to furnish the property and can be put off by a landlord’s furniture. This is especially the case if a tenant already has their own furniture that would need to be stored elsewhere. If you’re undecided on what to do, perhaps advertise your rental as unfurnished and include the option to have it furnished for additional rent in the listing description. There are a number of advantages and disadvantages to furnishing an investment property. It’s important for investors to consider their personal circumstances before making a decision.

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Moving into an investment property

BMT team — Tue, 26 Nov 2019 22:09:12 +0000

There are certain scenarios where an investor can end up living in an investment property. It’s important to be wary of the rules and regulations before doing so. How a property is defined for tax purposes will affect the deductions you can claim. Renting out part of a primary place of residence Living in your investment property while renovating Does living in your investment property affect capital gains tax? If you decide to move into an investment property and it becomes your primary place of residence (PPOR), meaning the place where you predominantly reside, you’ll need to declare this for tax purposes. You’ll no longer be eligible to claim tax deductions for property expenses like the interest on a home loan, council rates, land taxes and repairs and maintenance. It will also eliminate any property depreciation deductions you were previously entitled to claim. Renting out part of a primary place of residence A primary place of residence doesn’t offer tax benefits, but what happens if you rent out a portion of the property you live in? If you lease part of your property, the rent received is regarded as assessable income. As the property is income-producing, you’re entitled to claim a percentage of the property expenses as well as any eligible property depreciation. The percentage you can claim is based on how much of the property is being leased. For example, if you lease out a single bedroom, you can only claim expenses related to that portion of the house. A tax depreciation schedule will outline the depreciation deductions available and an accountant will calculate the final percentage you’re able to claim based on the portion of the home producing income. If you decide to rent out the whole property after living in it, you won’t be able to claim for any existing plant and equipment assets as they will be deemed second-hand under current legislation. You will still be eligible to claim capital works deductions and any new assets you install once the property is being utilised as a rental property. Living in your investment property while renovating As mentioned above, living in an investment property can affect the depreciation deductions you can claim. Legislation introduced in 2017 states that investors are unable to claim deductions for the decline in value of previously used plant and equipment found in second-hand residential properties. If you live in a rental property while renovating, any newly installed assets will be classed as previously used. Unless there is good reason, you should install new plant and equipment assets after you’ve move out of the property and it has been listed for rent. This will ensure you’re eligible to claim the maximum depreciation deductions available. It’s important to note the 2017 legislation does not affect buyers of brand-new property, residential properties considered to be substantially renovated or commercial properties. With this in mind, brand-new property generally holds the most lucrative value for investors from a tax perspective. Capital works deductions for structural assets such as new walls, kitchen cupboards, toilets and roof tiles are also unaffected by the legislation changes and can still be claimed by owners of income-producing properties. These deductions typically make up 85-90 per cent of a total depreciation claim. Does living in your investment property affect capital gains tax? A capital gains tax (CGT) event occurs when an asset, including property, is sold. The timing of this is important as it determines the income year the tax will be applied. There are certain circumstances in which CGT can be exempt. Some of the CGT exemptions relate to living in your investment property. For example, if a property is considered your primary place of residence, you’re entitled to a full CGT exemption. If you move out of a primary place of residence and rent it out, you’re exempt from CGT for a period of up to six years. If you move back into the property and afterwards move out again then a new six year period commences from the time you last moved out. There are also exemptions from CGT if you consider more than one property to be a primary place of residence within a six month period. To be eligible, you must meet one of the below conditions: The old property was your primary residence for a continuous period of at least three months in the twelve months before they sold it You did not use the property to provide assessable income in any part of the twelve months prior to selling. To find out more about CGT, read When do you pay capital gains tax on investment property?

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What is landlord insurance and what does it cover?

BMT team — Wed, 14 Aug 2019 01:15:13 +0000

Under-insurance and over-insurance can put financial pressure on property investors, yet research shows that more than half of people believe they’re sufficiently insured based on an inaccurate valuation. An Insurance Council of Australia report from 2014 found a staggering 83 per cent of Australians are risking their homes and other valuable assets by not having enough insurance. This is troubling for property investors given they could either be paying too much for their insurance or at risk of losing thousands due to inadequate cover. Landlord insurance is particularly important for property investors given there are several risks involved in leasing out a property. What is landlord insurance? Landlord insurance is a type of insurance policy designed to protect property investors from tenant-related risks including loss of rental income and damage caused by the tenant. Landlord insurance may protect you from: Malicious damage by tenants Accidental damage by tenants Theft or burglary by tenants Loss of rental income due to tenant default Loss of rental income due to an insured event where the property becomes partially or wholly untenantable Legal expenses involved in evicting a tenant As landlord insurance is an investment expense, it can also be claimed in your annual tax return. It’s important to note that each landlord insurance policy will differ. Some policies will cover all scenarios listed above, while others will only offer limited cover. Why is landlord insurance important? Property is usually the single largest investment you make and underestimating the importance and level of insurance can be devastating. Having landlord insurance offers peace of mind should the unexpected happen. It also offers protection from risks that aren’t always covered by other insurance policies such as home and contents or building insurance. For example, building insurance typically protects the landlord’s property in the event of a fire, flood or storm but doesn’t necessarily cover for damage caused by the tenant. So, if a tenant maliciously vandalises your rental property, you may be out of pocket if you have inadequate insurance. While most tenants are responsible and will respect your property, it’s worth protecting yourself from the few who may not. Given most investors rely on rental income for cash flow, landlord insurance can provide a financial safety net. Organise insurance today So, what’s the best way to organise landlord insurance? As you start researching, you’ll discover there are many policies and providers to choose from. It’s important to think about the type and level of cover you want for your investment property. BMT Insurance helps investors find house, contents and landlord insurance and works with some of Australia’s most experienced providers to select the most suitable and cost-effective cover for you. As BMT Insurance is partnered with BMT Tax Depreciation, your required cover will be determined by experts who have access to the expertise and knowledge of construction cost consultants within the BMT Group. BMT Tax Depreciation’s construction cost consultants are equipped with the skills to accurately calculate the replacement cost of your property, which helps BMT Insurance determine the right level of cover for your most valuable asset. For more information, contact BMT Insurance on 1300 268 467 or Request a Quote.

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How to show your tenants some love

BMT team — Wed, 14 Feb 2018 04:17:37 +0000

While there are lots of variables in property investing, there is one key thing that all investors have in common – they want to attract and retain good tenants. They’re the ones who take care of the property as if it was their own, keep it clean and in a good state, always pay rent on time and generally cause no trouble, all of which obviously benefit you as an investor. What will also benefit you – once you have a good tenant – is tenant retention. Keeping a good tenant in there will minimise re-leasing fees and periods when your property in untenanted. So how can you hold on to these good tenants when you find them? In the spirit of Valentine’s Day, here are some easy ways to show your tenants a bit of love and keep them happy in your investment property, which in turn, should keep you happy with your investment. Be respectful and allow them privacy Remember that while the property is your investment, it is the tenant’s home. As such you should respect their privacy – that means no unannounced showing up or driving by each night to check on the property. Leave this job to your Property Manager, who will perform inspections in line with tenancy laws. This is where keeping the emotional detachment from your investment also comes in handy. Keep on top of repairs and maintenance Not only is tending to repairs a legal requirement for landlords, but doing it in a timely and helpful manner will keep your tenants happy. As well as responding promptly to repair requests, be proactive and keep on top of what needs replacing, updating or fixing in the property. Getting onto repairs as soon as possible will help prevent damage from snowballing and leading to a cost blowout in the long run. Also, by having a well-kept and nicely presented property in the first place, you’re much more likely to attract a higher quality of tenant who will continue to keep the property in a good sate. Take requests seriously Before blowing off requests that you don’t think are needed at the property – like a hook in the wall for a picture, or painting the nursery wall a new colour – remember once again that this is the tenants’ home and their requests should be considered and taken seriously. All within reason, of course. Should you wish to deny their request, take the time to provide an explanation for your decision. Be fair and gradual with rent increases As a property investor, you should ensure that the rent you are charging is suitable for your property and suburb and in line with current market conditions, in order to maximise your returns and have a strong performing investment. This means that from time to time, a rent increase may be warranted. However, you should avoid increasing the rent just for the sake of it, or because you would like a bit more extra money in your pocket each month and think you can get it from your tenant. While it may seem like a quick fix, it can be detrimental to your strategy in the long run when your tenant moves on to a more affordable place, and you struggle to get a new tenant in at that price. A Property Manager will be able to tell you if you’re charging the right rent for a property in your area, and determine how much any increases should be. When it is time to increase the rent, try and do it gradually so it’s not such a deterrent for the tenant. Have good communications When it comes to communicating with your tenant and Property Manager, be open, honest and prompt in replying to any calls or emails. It can be frustrating for tenants when they want to ask a question or request a repair but the Property Manager cannot get in contact with the landlord. Once again, if you can’t fulfil a request or won’t be able to do it for some time, make the effort to explain why, to create better communication and understanding with your tenant. Be human It’s very easy for tenants to think of landlords in a negative light – they’re the unknown figure whose mortgage they are paying, often while struggling to put enough aside for their own home. But there’s a very simple way to help overcome this: If you have a good tenant, thank them! There are lots of easy ways you can do this without going over the top – you could send them a bottle of wine at their lease renewal, send a card at Christmas, or simply ask your Property Manager to pass along your thanks for them looking after the property so well.

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Celebrate Christmas and remember your tenants will too

BMT team — Wed, 23 Dec 2015 22:21:31 +0000

It’s that time of year when families gather around the dining table to dig into a Christmas roast, peel some fresh prawns to dip in some thousand island dressing or indulge in a sizzling barbeque in the backyard. While an investment property is likely to be far from the minds of most investors at this time of year, it is still a good time to think about how many of the items you’re using to make this Christmas a safe and memorable one are also being used by your tenants in a similar fashion. To get into the festive spirit, we wanted take a look at some of the depreciable assets used at Christmas time and why they are not only important to helping your tenants enjoy some seasonal down time, but also to helping investors improve their cash flow all year long. Air conditioners An Australian Christmas will often mean one thing – hot weather. Like their landlords, tenants will want to stay cool over the holidays. Most properties are equipped with either split or ducted air conditioning that can chill an Australian heat wave down to a few levels short of becoming a white Christmas. These assets can also enable the owner to claim substantial deductions. If an owner is planning on installing or even replacing an air conditioner in their investment property, they should be aware that split system and ducted air conditioners each depreciate over a different effective life and depreciation rate. Split system air-conditioners have an effective life of ten years and diminishing value rate of 20 per cent, while ducted air conditioning units will depreciate over fifteen years at a rate of 13.33 per cent. While ducted is obviously more expensive to install, if an investor were to only spend $5,000 on cooling, it is the split system air conditioner which would earn them the greatest depreciation deductions in the first financial year. At a cost of $5,000 an investor can claim $1,000 in deductions on a split system and for a ducted air conditioning unit for the same price they could claim just $667. Ovens All those ovens around the country which are carefully roasting Christmas hams are also deductible assets for investment property owners. Using the diminishing value method, an oven worth $1,019 will result in $170 worth in deductions in the first financial year for the owner. Be mindful that these items also need careful attention. Next time you’re whipping out the gloves and oven cleaner think about when the last time your Property Manager performed an inspection and may have checked the oven. For Property Managers, the oven often gets overlooked during regular inspections and it can be particularly hard for tenants to keep it clean if they plan on vacating the property later if it has not been done on a regular basis. Consider whether getting a professional oven cleaner in is an option, there are a number of providers who can do so and any maintenance costs involved in doing so are also a deductible expense for the owner of the property. As ovens have an effective life of just twelve years, if the asset is getting on the older side, it could also be time for a much needed update. Barbeques Barbeques are also an asset which often gets forgotten and may only be used seasonally by tenants. Although not as often found in rental properties, freestanding barbeques which may get exposed to the elements wear out quickly, with an effective life of just five years. Consider getting a freestanding outdoor garden shed to keep it out of the weather between use. Using the diminishing value method – a freestanding barbeque which set an investor back $4,500 would result in $1,478 in deductions. If a barbeque is a fixed asset, remember that structural items are claimed as capital works deductions, meaning the structure of the barbeque itself will be claimed at a rate of just 2.5 per cent per year. The sliding trays and cookers within the barbeque can be claimed however at a diminishing value rate of 20 per cent over an effective life of ten years. Building that freestanding outdoor garden shed might cost $855 but its well worth protecting those garden assets when you consider this will result in $160 in deductions in the first financial year also. Security devices While Christmas is mostly about sharing and happiness, unfortunately the season can also bring the unwanted attention of thieves. If you haven’t already, it is worth thinking about installing a security device into both your home and your investment property to keep things safe and sound. A full closed circuit television system so tenants can keep an eye on their property whether they are at home or even away during the holidays could cost the owner of the investment property $1.550 but also result in $775 worth in deductions in the first financial year. Smoke alarms In most states across Australia, smoke alarms must be fitted and comply with standards set by the Building Code of Australia. Most homes will have two devices which should be tested regularly. Landlords should give tenants notice before they come to fit or update existing smoke alarm systems and be particularly considerate if you are planning on doing so around the holidays. These little devices which no doubt will emit beeps to let you know if that Christmas turkey is over baked are also deductible for the owner. As they should cost under $300, the owner can claim these items as an immediate deduction. Smoke alarms costing around $145 for example will see the owner receive this same cost as a deduction in the first financial year after installation. Swimming pool assets While the kids are creating waves by bombing the deep end of the pool over the break, remember the pool of an investment property needs particular attention all year around. Chlorinators and filtration assets all wear out so once a year think about checking these devices […]

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