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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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Could depreciation deductions be a clue to the reserve order for The Block Glasshouse auction?

BMT team — Wed, 24 Sep 2014 05:08:34 +0000

Over the last three years, BMT Tax Depreciation has had the opportunity to prepare the tax depreciation estimates for The Block TV show on the various renovation projects they’ve taken on. Each year we have come to expect the deductions to be more than the previous year as the projects get bigger and better and this year is no exception. BMT Managing Director Bradley Beer will be appearing on tonight’s episode of The Block Glasshouse to help blockheads Darren and Dee understand what a property investor could expect in terms of depreciation deductions for their apartment. In presenting the estimated depreciation deductions for each apartment we could be revealing an inside scoop to the order of reserve pricing for all of the apartments heading into auction as it represents the total amount of construction expenditure. So, based on the depreciation deduction range for year one as well as the total minimum and maximum range of depreciation deductions that an investor can expect for each apartment on The Block Glasshouse, could this be the reserve price order also? Watch: Bradley Beer on The Block Glasshouse: Terraces Take Shape

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Depreciation deductions smash through glass ceilings

BMT team — Thu, 18 Sep 2014 05:27:37 +0000

The five apartments from the hit Channel Nine show ‘The Block Glasshouse’ could each become lucrative purchases for property investors when they go to auction on the 11th of October 2014. Opened for inspection this weekend, potential buyers will get to see first hand the massive amount of work that went in to the building of The Block Glasshouse. The 1980’s office building on High Street Prahran was reported to have been originally purchased for $8.25 million, an average of $1.65 million per apartment. The office conversion to five high end apartments, two food and drink outlets and fourteen parking spaces has undergone extensive renovation by the contestants including installation of both structural components as well as plant and equipment assets. Tipped to sell for more than $2 million, the properties are an underlying goldmine of deductions when it comes to depreciation. Appearing on an episode of The Block Glasshouse next Wednesday the 24th of September BMT Managing Director Brad Beer outlines the potential depreciable value of assets installed for contestants Darren and Dee. Watch: Brad Beer on The Block Glasshouse An investor purchaser could claim a minimum of $49,714 and a maximum of $62,545 as an average first year depreciation deduction for one of the five properties. The units will obtain the maximum depreciation potential for investors within the first five years of ownership. In a recent episode Newcastle couple, Maxine and Karstan were caught on the hop when Gold Logie winner and host Scott Cam ordered an audit of all renovating costs at the request of fellow contestants. The couples tiling invoice for one of their rooms was suspiciously low, and they were asked for a please explain. Apparently they had mistakenly under paid their quick working contractor $18 an hour. For two 8 hour days that’s $288.00 that most people would notice missing in a pay packet. In terms of depreciation, miscalculating your costs could mean you lose out on hundreds if not thousands of dollars in deductions, when all is accounted for. Recent statistics from the ATO stating the average depreciation claimed in comparison with the depreciation deductions we find for our clients, showed that investors were still missing out on thousands of dollars in depreciation claims and that’s money from their pockets. So, as a smart property investor make sure you don’t miss out on depreciation deductions by engaging a qualified Quantity Surveyor specialising in depreciation to prepare your property tax depreciation schedule. It could save you thousands. Related Posts: Could depreciation deductions be a clue to the reserve order for The Block: Glasshouse auction Think you can renovate like a Block Star? Well think again. It’s proven, when The Block airs on TV, the renovation industry gets a boost of $251 million

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BMT video on renovating your investment property

admin — Thu, 23 Aug 2012 05:48:21 +0000

The latest YouTube video from BMT Tax Depreciation discusses the hidden cash flow from investment properties when renovations are taking place. Are you throwing away your refund when you throw away your items? Visit our channel as we are happy to help you unlock these deductions. Related links BMT YouTube channel Read more: Australians love to renovate

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