» off the plan

What does off-the-plan mean – and what do you need to know?

Ironfish — Mon, 21 Sep 2020 00:14:49 +0000

Whether owner-occupier or investor, the majority of people in Australia buy ‘second-hand’ property – that is, a property which has already been built, ranging from a few years old, to over a hundred years old in the case of Federation era homes or terraces. A second category is new property or buying ‘off-the-plan’ – which tends to be far less understood, and therefore more difficult to navigate on your own, especially as a new investor or first home buyer. Buying a house, apartment or townhouse ‘off-the-plan’ means signing a contract to buy a property that is yet to be built. You can view the developer’s plans, designs and renders for the property, but can’t view a physical building. Buyers pay an initial deposit – typically around 10% – and pay the balance at settlement once construction of the property is completed. The timeline can vary depending on whether it’s a house or apartment as well as a number of other factors. Currently most of the Government incentives for first home buyers apply primarily to new or off-the-plan property only. In NSW for example, the state government recently announced that stamp duty will be waived for first home buyers purchasing new properties costing up to $800,000 – representing up to $31,335 of savings. But while first home owner grants and stamp duty savings may be the first draw card for some, there are other factors which greatly increase the appeal of off-the-plan property, particularly for investors with a ‘buy and hold’ strategy. Experienced investors are aware of certain cashflow advantages. For example, the difference between the depreciation claimable for second-hand versus new properties is substantial; representing potentially thousands of dollars-worth of depreciation – resulting in a positive cashflow over the year. There are other benefits too; from being able to enjoy contemporary, architectural design to less maintenance requirements than older, established properties. At the same time, there are also some factors to be aware of prior to making a purchasing decision. Uncertainty around construction timelines, quality and markets are key considerations as well as the finer details such as contract structure, inclusions or certain tactics such as ‘bait pricing’. To help potential first home buyers or investors understand this subject, Ironfish has put together a comprehensive ‘buyers guide’ to buying off the plan. Ironfish is a national property investment services company with an in-house property selection and research team which monitors the market and identifies great quality apartments, townhouses and house and land packages in excellent locations for our investors. The property team conducts a rigorous due diligence process to assess each property, to make buying off-the-plan as simple and convenient as possible and to provide additional peace of mind for buyers. Bringing together Ironfish’s 14+ years of experience in this specialised area, reviewing thousands of new developments, this guide covers each property type in detail – houses, townhouses and house and land – complete with checklists and FAQs. As a preferred property partner, Ironfish is offering BMT customers a free copy of this eBook which can be downloaded below: Download “A Guide to Buying Off-the-Plan” For more information about Ironfish’s property selection and other investment services, or to learn more about buying off the plan, please book a free consultation with one of Ironfish’s experienced strategists or visit www.ironfish.com.au. Article supplied by Ironfish. Information current at time of publishing.

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Depreciation and off-the-plan properties

BMT team — Mon, 18 Jun 2018 04:24:29 +0000

Investors who are looking to purchase a new property often look at buying off-the plan. Buying off-the-plan essentially means you are entering into a contract to purchase a property prior to, or during the construction phase of a property or a development. One big benefit of purchasing off-the-plan that investors often fail to consider is the property depreciation benefits available. There are significant depreciation deductions available to the owner of a property purchased off-the-plan. It is important to note however that the property must be completed and be generating an income to claim depreciation deductions. A completed property purchased off-the-plan will typically attract between $8,000 and $14,000 in depreciation deductions in the first full financial year, so it is fair to say that the new owner can make significant savings and increase their available cash flow by claiming depreciation for the property once it is income producing. Newly built properties constructed off-the-plan will contain new fixtures and fittings*. Therefore the depreciable value of these items will be higher. The owners are also eligible to claim the maximum capital works deductions for the building structure, which means more deductions are available to claim over the life of the property (forty years). When it comes to the fixtures and fittings in an off-the-plan property, investors should be aware that not all assets are created equal. In most cases, those assets with a higher starting cost will generate higher depreciation deductions. For this reason, investors may want to consider the brand and price range of assets in an off-the-plan property. Focusing on a kitchen in an off-the-plan property, the below table illustrates how the depreciation deductions available will vary depending on the model or price range. As you can see, those assets with a higher starting cost generate higher deductions than those with a lower base cost, both in the first full financial year and over the first five years combined. As one example, a high range oven costing $5,150 will receive $858.51 in first year deductions and $3,080.74 in the first five years, while a low range oven purchased for $1,425 will get $237.55 in first year deductions and $1,183.42 over the first five years. This is a difference of $1,897.32 in the first five years. If this is the difference an investor can see from just one asset, it’s understandable why they would want to give due thought to all the plant and equipment assets installed, as they add up to substantial depreciation differences. Please note that the low-range microwave oven purchased for $220 would receive a 100 per cent write-off in the first year. It is recommended that investors consult with their Accountant to seek advice when purchasing a property off-the-plan and also speak with a reputable Quantity Surveyor to get an estimate of the likely depreciation deductions available for the property. A specialist Quantity Surveyor such as BMT Tax Depreciation will liaise with the Property Developer to request information about the property. This information is used to provide a detailed estimate of the depreciation deductions that will become available once the property has been completed and is income producing. By obtaining this information, the owner will have a far more comprehensive idea of the end cost involved in holding the property. The additional cash flow created from a depreciation claim can be put towards future loan repayments or to help save for future investment property purchases. * 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 property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand new property will still be able to claim depreciation as they were previously. To learn more visit bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at bmtqs.com.au/2017-budget-whitepaper

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Save the headache with a depreciation estimate

BMT team — Mon, 15 Feb 2016 02:53:49 +0000

Don’t let loan restrictions stop you from buying off-the-plan With the Australian Prudential Regulation Authority (APRA) recently restricting capital held against loans by banks, this has resulted in limitations to investor lending. Many Australian property investors are now fearing the consequences if they are unable to meet Loan to Value Restrictions (LVR) particularly when buying through unconditional contracts. It is fundamental for property investors to take the time to research the economic environment against their financial position before plunging into purchasing off-the-plan. Buying off-the-plan generally means you are entering into a contract to purchase a property prior to, or during the construction phase of a development. The recent changes by APRA could result in investors having no choice but to pay a higher deposit than anticipated to meet the new LVR requirements. When purchasing off-the-plan, depreciation is an area investors don’t always consider when making purchase decisions. Claiming depreciation on off-the-plan properties can significantly improve an investor’s cash flow. Finding out what depreciation deductions are available on a proposed property is considerably important to help investors make astute financial decisions when taking this next step. BMT Tax Depreciation can provide a free depreciation estimate of the likely deductions available. This helps property investors crunch the numbers and consider their after tax position once a property has been purchased. For developers a depreciation estimate can help them ‘pitch’ their projects to potential buyers. Learn more: Crunch the numbers and save A depreciation estimate can be calculated for off-the-plan properties at any stage of the development. On average, BMT will find between $7,000 and $12,000 in deductions in the first full financial year alone for owners of off-the-plan units. The deductions found can make a huge difference to an investor’s cash flow and long term financial success. It is recommended to seek advice from a Mortgage Broker with regards to a loan when purchasing off-the-plan. Banks and Mortgage Brokers will take into account the potential income earned from the property when considering a potential investors loan. They may also take into consideration any expenses incurred such as property management fees and repairs and maintenance and the depreciation deductions the owner is entitled to claim. They will do this by asking potential investors to supply rental appraisal for the property and an estimate of the deductions they are entitled to. For a depreciation estimate of the likely deductions available for any off-the-plan design, visit www.bmtqs.com.au/tax-depreciation-estimates.

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