» rental property

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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Ways to maximise depreciation tax deductions

BMT team — Wed, 21 Feb 2024 04:53:27 +0000

With ongoing interest rate hikes and subsequent increases in mortgage repayments, it has become increasingly crucial for property investors to find ways to enhance their cash flow. A strategy to achieve this is to maximise the depreciation tax deductions on their investment properties. 1. Get an onsite inspection Research shows that 80% of investors don’t claim the maximum depreciation deductions on their investment properties. Only a specialist quantity surveyor will spot the dollars hidden in the details. Quantity surveyors are highly specialised and when construction work is undertaken or assets are added or removed from a property during its income-producing period, an expert will be able to calculate the depreciation tax deductions accordingly. New as well as older properties can qualify for substantial depreciation tax deductions, but these are often not visible without a physical site inspection. A site inspection by a specialist will ensure that every potential deduction is uncovered and maximised, so that the highest possible depreciation amount can be claimed. In 2023 the Australian Institute of Quantity Surveyors released a white paper stating that the most reliable and secure way to maximise the depreciation deductions on an investment property is by engaging a qualified, reputable quantity surveyor with an onsite inspection to ensure a reliable depreciation schedule. Choose a property depreciation expert like BMT Tax Depreciation who will conduct a site inspection before completing the depreciation schedule. 2. Talk to a specialist Property tax depreciation refers to the wear and tear of an income-producing property and its assets over time. Irrespective of the type of property, renovating and completing upgrades may be an effective way to increase rental income and grow the value of a property, while maximising tax deductions on the investment through depreciation. When it comes to commercial property, both the owner and tenant can claim depreciation tax deductions. The BMT Tax Depreciation Schedule can include separate reports where multiple entities or tenants control different assets or have different acquisition dates. Using industry specific legislation, a specialist will assess the property to ensure every deduction is uncovered and maximised. This includes any fit-out installed or assets removed during an upgrade or renovation. It can also include new amenities like bathrooms, kitchens, accessible parking and security, which be an effective way to add value to the property and secure top-end tenants. In the case of a residential strata complex, all common property items where legislation allows, will be considered when the depreciation schedule is compiled. It is therefore important to keep a record of any documentation related to the purchase agreement and subsequent changes that may have been made to the strata agreement. 3. Tailor your schedule to your investment strategy Plant and equipment depreciation can be claimed using different methods. Determining a property investment strategy at the outset of the property journey, will impact the depreciation method chosen. Diminishing value and prime cost are the two methods of calculating property tax depreciation over the life of the property. Both methods claim the same amount of depreciation over time but achieve different short and long-term cash flow outcomes for the investor. You can only choose one of these depreciation methods for the lifetime of your depreciation schedule, so it is important to analyse and compare how this choice will affect cash flow before making a decision. If you purchase a property as a short-term investment with the purpose of selling again in the coming years, the diminishing value method will offer the most deductions in the earlier years of the property’s effective life. The diminishing value method may therefore be a more attractive option for an investor looking for higher depreciation tax deductions over the short term. Alternatively, the prime cost method, also referred to as the straight-line method, offers equal deductions calculated as a percentage of the cost. If a property is purchased as a long-term investment, the prime cost method will return lower, but more consistent deductions in the later years of the life of the property. We always recommend that investors consult with an accountant or financial adviser to discuss their personal circumstances and investment strategy. A BMT Tax Depreciation Schedule includes both the prime cost and diminishing value methods of depreciation to help make an informed decision before claiming. Request a quote today.

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Property Market Update 2024

BMT team — Mon, 15 Jan 2024 23:34:44 +0000

2023 was a year filled with more than its fair share of challenges, but Australians are tough and the property market was resilient in the face of multiple interest rate hikes and hesitant investor sentiment. Residential home prices across Australia grew by 7% over the year to November 2023, with dwelling prices in the combined capital cities peaking in May, slowing again towards the end of 2023 and settling at 8.2% growth over the year. In contrast residential property values in regional areas showed slower growth, at a rate of 3.4% over the past year. Interest Rates As expected, interest rates continued to rise and many fixed-term mortgage rate loans came to an end, putting some Australians under mortgage stress. Despite these pressures, residential house prices continued to grow, due to the continued imbalance between housing availability and strong demand. This housing imbalance has also impacted the rental market with national rental increases averaging 8.1% over the past year. Despite these increases in rental values, rental yields have shown much smaller growth rates due to interest rate hikes impacting mortgage repayments. Loan Approvals First time loan approvals have increased by 11.8% over the past year, but investor lending was still strong, comprising of more than a third of total approved loans across Australia in 2023. Rising interest rates have done little to slow down the residential property market outlook in most parts of Australia, with monthly sales volumes trending higher than the five-year average despite rising house prices and tighter lending. This upward trend in residential property prices is forecast to continue well into 2024 due to the housing shortage. Investment in alternative property classes will continue to grow in the year ahead. The return of international students is expected to stimulate the demand for student housing and Build-to-rent investment opportunities. Recovery in tourism will also boost consumer demand and growth in the hotel and short-term accommodation market. In line with this predicted growth, we at BMT have seen 15% growth in tax depreciation schedule orders for hotels and motels, affirming the expansion of this sector. Commercial Property Commercial property investors will remain focused on attracting top tenants who are prepared to pay for prime location and amenities, reinforcing the ‘flight to quality’ trend. BMT Tax Depreciation Schedule orders in the industrial sector have grown by 8% while the embattled office sector has shown a 6% decline in the request for tax depreciation schedules in line with market trends. BMT News Overall, it was a challenging but positive year for BMT. We completed more than 40,000 depreciation schedules in 2023, earning our clients hundreds of millions in tax deductions. In 2024 we will have completed close to 1 million depreciation schedules across Australia; an accomplishment that solidifies our position as the number one choice in tax depreciation. In 2023 the Australian Institute of Quantity Surveyors released a white paper validating our approach to property depreciation, insisting that a site inspection by an expert quantity surveyor remains the most reliable way to maximise the depreciation deductions on an investment property. They have also encouraged our industry to move away from referral fees, a practice that BMT has always avoided. Video link We look forward to another great year of partnering with you at BMT. To maximise the tax depreciations on your investment property Request a quote.

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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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TR 97/23 – Repairs and maintenance vs capital improvements

BMT team — Wed, 25 May 2022 06:05:48 +0000

Taxation Ruling TR 97/23, released in December 1997, outlines the tax deductibility of expenses incurred on repairs to premises, plant, machinery, tools and articles. Investment property repairs, maintenance and capital improvements are distinct from each other in the eyes of the Australian Taxation Office, as outlined in TR 97/23. Costs to repair or maintain an investment property can typically be claimed as an immediate tax deduction in the year that the expense was incurred, while capital improvements are not immediately deductible and must be classified as either a capital works deduction or as plant and equipment depreciation. Given that these things are not always clear cut, judgment often needs to be exercised when determining whether something falls under repair, maintenance or capital improvement. This can be difficult, so we provide some simple guidance here. Repair Maintenance Initial repair Capital improvement Answers to common questions Repair Under section 25-10 of the Income Tax Assessment Act 1997 (ITAA 97), repair means ‘the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense).’ For the most part, repair is simply to replace or correct something that has become worn out or dilapidated. It involves restoring to former appearance, form, state or condition without changing character. Works can fairly be described as ‘repairs’ if they are performed to fix: deterioration that has occurred by ordinary wear and tear, or accidental or deliberate damage, or the operation of natural causes (whether expected or unexpected) over time. For example, fixing a crack in plaster would be considered a repair. When determining whether work constitutes repairs, it is important to consider whether the work restores the efficiency of function of the property without changing its character. A minor degree of improvement, addition or alteration can be a repair, however, if substantial, it is not a repair and not deductible under section 25-10 of ITAA 97. According to TR 97/23 ‘renewal, replacement or reconstruction of the entirety (i.e., the whole or substantially the whole) of a thing or structure is an improvement rather than a deductible repair’. Maintenance According to TR 97/23, if work is in anticipation of, or to prevent, damage or deterioration, it is considered maintenance. Some examples include routine preventative work such as repainting faded walls, maintaining plumbing and deck oiling. Repairs and maintenance often go together, in that repairs will frequently include maintenance work. And some kinds of maintenance work are ‘repairs’ in terms of section 25-10, for example, painting premises to rectify existing deterioration and to prevent further deterioration Initial repair There is also a difference between a ‘repair’ and an ‘initial repair’. While a repair is performed to restore an item, an initial repair is to fix damage which was pre-existing when the property was purchased (whether known to the buyer or otherwise). Initial repairs are of a capital nature, so are not deductible under section 25-10 of ITAA 97. Capital improvement Any works that improve a property beyond its original state are classed as capital improvements. According to TR 97/23, an ‘improvement ‘provides a greater efficiency of function in the property – usually in some existing function. Some indicators that the work performed is an improvement include whether the work will: extend the property’s income-producing ability significantly enhance its saleability or market value, or extend the property’s expected life. A capital improvement will be classified as either a capital works deduction or as plant and equipment depreciation. Capital works deductions Capital works refer to the deductions available for the building’s structure and permanently fixed items. If the property owner is replacing an entire structure that is only partially damaged or is renovating or adding a new structure to the property, it is likely to be capital works. The rate of deduction for capital works is typically 2.5% per year for 40 years from the date of construction. An increased rate of 4% can be used for some property types. Plant and equipment depreciation Plant and equipment assets are items which are mechanical in nature or can be easily removed from the property. If the property owner is installing a brand-new asset such as an appliance, curtains or floor covering, then it is likely to be a depreciating asset. Each asset’s condition, quality and effective life determine the allowances available. Plant and equipment assets can be depreciated using either the diminishing value or prime cost method. Example Let’s consider the example of a rental property that is undergoing a kitchen renovation. Retiling splashbacks and installing a new marble benchtop would be deemed as capital improvements and be claimed as capital works deductions at a rate of 2.5 per cent over 40 years. A new rangehood would be claimed as a plant and equipment asset and be deducted based on the asset’s effective life. If the rangehood was purchased and installed for less than $300 it would be 100 per cent tax deductible in the year the expense was incurred. And if a crack in a cabinet was fixed, it would be considered a repair as a damaged asset is being restored. The expenses involved would then be claimed as an immediate deduction. Answers to common questions How can I tell if the work constitutes a repair, maintenance or capital improvement? It can get complicated when work falls under more than one category. For example, repair work doesn’t stop being a ‘repair’ if it is also maintenance i.e. the work is performed to prevent – or in anticipation of – defects, damage or deterioration. Repairs can also take place at the same time as capital improvements. The best rule of thumb when determining something is a repair, is to consider whether the work restores the efficiency or function of the property without changing its character. As mentioned previously, a minor degree of improvement can still be a repair, but if the change is substantial it is not a repair and therefore not deductible under section […]

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Best ways to advertise a rental property

BMT team — Wed, 16 Feb 2022 05:18:26 +0000

There are many reasons why you might need to advertise a rental property. Maybe the investment property is being advertised for the first time. Perhaps an existing tenant doesn’t want to renew the lease or has handed in a notice to terminate. Whatever the circumstances, your property professional will be able to walk you through the best advertising options available to you. When listing a property it’s best to have your ‘perfect’ tenant in mind. This will help your property professional work out how to reach them effectively to minimise the period of lost rental income. Here are some of the best ways to advertise a rental property in today’s market. Online listing portals Social media Newspapers Signs and flyers Online listing portals When Australians are looking to find a rental property, they generally head online. Online portals like Domain and realestate.com.au have a substantial audience reach, with millions of users accessing these portals nationwide. Your property professional will be able to guide you as to which listing portal is more common in your area and will reach a more suitable audience. Example, Allhomes is more common in the ACT than other sites. These portals are easy to understand and navigate. Social media Advertising rental properties on social media platforms like Facebook, is becoming more common. With the opportunity to use both free and paid advertising, social media can be cost effective. While it’s not necessary to use paid ads, there are many benefits to doing so. These include micro-targeting for specific audiences, reports and analytics, ad forecasting, performance estimates and more. For instance, your ‘perfect’ tenant is easier to target than ever with Facebook’s audience targeting software. Using filters that target specific demographics like age, location, interests and even online behaviours can track and target potential tenants to receive your rental property advertisements. If paid ads are not an option, posting rental properties on real estate agency or personal pages can still be an effective advertising option, reaching a targeted audience with key word and filtered searches. The Facebook Marketplace page is also an alternative. Newspapers Newspapers are another effective way to advertise rental properties. Online newspaper ads can include links to other websites with directory to further information and photos. This could be a real estate agency website or the original property listing. It is good to keep in mind that online newspapers generally have a younger average reader whereas printed newspapers generally reach an older audience. If advertising in a printed newspaper, listing rental properties on Saturdays and Sundays may be more effective as people read newspapers more often on weekends. These advertising slots may be more expensive than weekdays but will likely reach a larger audience. Signs and flyers Signage and flyers can be an effective way to advertise and generate interest for an investment property in surrounding streets and suburbs. They are an inexpensive way to broadcast in specific locations, providing receivers with property and contact information. This may be important if seeking a specific type of tenant or advertising in areas with similar community engagement or services. Hire flyer delivery services are available in most main cities in Australia for a relatively cheap price, with some packages starting at $130 per thousand flyers. It’s important to remember that rental advertising costs can be claimed at tax time. The advertising expenses can be claimed in the same year that they were incurred, reducing an investor’s taxable income and improving their cash flow. A vacant investment property can also present an opportunity for improvements to be made to the property, since tax deductible expenses can be claimed as long as it is genuinely available for rent. If planning to make improvements to an investment property, it’s best to reach out to a tax depreciation specialist like BMT. A BMT Tax Depreciation Schedule outlines every depreciation deduction claimable from the rental property. To learn more about depreciation contact BMT today on 1300 728 726 or Request a Quote.

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The pros and cons of allowing pets in rental properties

BMT team — Sun, 16 Jan 2022 21:38:41 +0000

As a landlord, one of the many considerations to make when looking for suitable tenants is whether to allow pets. About two-thirds of Australians own a pet, and while most states don’t have laws restricting tenants’ rights to own pets, many landlords include a clause in their leases that prohibit pets, which is within their legal rights to do. A major reason for landlords to include these clauses, is the perception that pets can devalue a home through damage to the property such as chewed up carpets, unpleasant odours and stains and moulting of fur. However, not all pet owners can be deemed irresponsible. Typically, pet owners will pay higher rents for the premium of having a pet friendly home, so will it work in your favour to consider adding ‘pet friendly’ to the lease? To help you decide, here are some pros and cons to consider before deciding if your property will be pet friendly or not: Pros of a pet friendly property You may be able to charge higher rent and thus achieve higher rental yields You will get a higher response from advertising if you mention that pets are allowed Due to this increased interest, your property may rent quicker and avoid vacancy periods where you are not earning rental income Pet owners generally stay longer as there is a limited number of pet friendly rentals available If tenants are mature enough to take good care of an animal, there is a good chance they will treat your property with the same respect If you are worried about pets damaging your investment property, you could ask for a refundable pet damage deposit Cons of a pet friendly property Individual pet owners might not be very good at cleaning up after their animals Pets can scratch floors, chew carpets and stain floor coverings, possibly leaving unpleasant odours Dogs barking, birds squawking and cats wandering can become a nuisance to neighbours through noise and damage There is increased liability to the Landlord if the pet bites or attacks others Making the decision whether to allow your property to be pet friendly or not should be taken into careful consideration to ensure that it feels right for you and your investment property. Check your insurance coverage and liability for animals If you decide to have a pet-friendly property, you should check your insurance policy to find out what type of coverage you have. Make sure you know the amount of liability coverage your policy includes. Enquire with your insurance company if there are any exclusions to your coverage, such as if they have a list of ‘dangerous’ dog breeds which will not be covered under the policy. Include your pet policy in your lease You should include a ‘pet clause’ in your lease and require each new tenant to sign it. This policy should clearly state your pet policy (whether or not you allow animals) and your expectations of the pet owner. Make it clear that by signing the lease, the tenant agrees to these terms and if they violate these terms, it will be considered a breach of contract. What is a pet resume? The introduction of pet resumes can make it easier for tenants to secure an animal-friendly rental property and helps Landlords protect their investment properties. Pet resumes are designed so animals can make a good impression. It also gives tenants a competitive advantage, proving they’re serious about the rental application and finding the perfect pet-friendly rental. Allowing pets in rentals could provide great advantages to Landlords. Don’t just write off pet owners in fear that your hard-earned investment is going to be destroyed. With most Australian households owning pets and with pet-friendly rentals in such short supply, the right changes to a lease agreement can open up the pool of potential tenants significantly.

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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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Are refinance costs tax deductible on a rental property?

BMT team — Tue, 25 Feb 2020 23:08:11 +0000

Interest rates are at historic lows and many property investors are searching for a better deal on their mortgage. When weighing up the costs and benefits of refinancing, investors need to be aware of what refinance costs are tax deductible on rental property to boost their cash flow. In this article, we will answer the following: Are refinance costs tax deductible? How are costs deducted? Why investors choose to refinance Some costs are considered capital and will impact capital gains tax Key points: Refinancing involves replacing an existing mortgage with a new one A key reason why someone refinances is to get a lower interest rate and reduced fees For investors, some of the costs of refinancing their rental property are tax deductible Are refinance costs tax deductible on rental property? Refinancing a mortgage is when a property owner replaces their existing loan with a new one. Unlike owner-occupier homeowners, property investors can benefit from many refinance costs tax deductions. Some of the fees an investor can expect to claim are: loan establishment fees such as the application fee early discharge fees fixed rate loan break fees any title search fees charged by your lender valuation fees charged by your lender mortgage broker fees lenders mortgage insurance billed to the borrower The average cost of refinancing fees can change, so it’s always a good idea to discuss these with your lender to get a full picture. How are the costs deducted? If the total refinancing fees are more than $100, they can be claimed over a five year period or the term of the loan, whichever is earlier. When an investor uses part of their refinanced mortgage for private purposes, all deductions must be apportioned. For example, if 30 per cent of their rental’s refinanced mortgage was used to purchase a new private residence, all deductions for the borrowing costs and ongoing interest expenses need to be apportioned. Why property investors choose to refinance their mortgage A property investor’s new mortgage could be with a different or the same lender. Deciding whether to refinance is a significant decision that should only be based on your own circumstances. There are many reasons why an investor would decide to refinance their mortgage, such as to get a lower interest rate, shorter terms, reduced fees or changing their mortgage rate from a fixed to an adjustable rate. Some costs are considered capital and will impact capital gains tax Any capital costs that an investor incurs from refinancing aren’t tax deductible and instead form a part of the property’s cost base. Capital costs can include conveyancing fees, building and pest inspection fees, valuation fees when a private valuation is done by your solicitor and if applicable, stamp duty on the transfer of property. The capital costs an investor may need to pay when refinancing their home can decrease the amount of payable Capital Gains Tax (CGT) when selling the property. We recommend speaking with your accountant to make sure all capital costs are included. For more information about how BMT Tax Depreciation works closely with your accountant to maximise your return, request a quote or contact our specialist team on 1300 728 726.

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Australian smoke alarms regulations and rules for landlords

BMT team — Fri, 23 Aug 2019 00:20:36 +0000

Smoke alarm rules vary across Australia, but generally they must meet Australian Standards. Below is a summary of the regulations in your state. It’s recommended to refer to your relevant state authority for specific legislative requirements. Contents Queensland New South Wales Victoria Tasmania South Australia Western Australia Northern Territory Australian Capital Territory Why comply? Depreciation deductions for smoke alarms Queensland New smoke alarm legislation states all Queensland residences must be fitted with interconnected photoelectric smoke alarms. They must comply with Australian Standard (AS) 3786-2014 and are required in all new dwellings and substantially renovated dwellings (this applies to building applications submitted from 1 January 2017). To ensure you remain compliant, and for more information visit New Queensland smoke alarm legislation. New South Wales In New South Wales, smoke alarm compliance is regulated by the Environmental Planning and Assessment Amendment (Smoke Alarms) Regulation 2006 and the Residential Tenancies Act 2010. Smoke alarms installed after 1st May 2006 must comply with Australian Standards AS3786. There must be at least one working smoke alarm installed on every level of a home or residential building where people sleep. This includes rental properties, relocatable homes, caravans and campervans. Fire and Rescue New South Wales recommends additional precautions be undertaken, including placing interconnected smoke alarms in all bedrooms, living areas, hallways, stairways and also within the garages of homes. Landlords are responsible for replacing wireless smoke alarms with new batteries at the start of a tenancy. Once the tenancy has begun, the tenant then becomes responsible for replacing the battery, as required. In addition, landlords are also responsible for replacing hard-wired smoke alarm back-up batteries. Victoria All homes, units, flats and townhouses constructed after 1st August 1997 require smoke alarms that must comply with Australian standards AS3786 and are interconnected to 240-volt mains power. Additionally, a backup battery must also be installed within the smoke alarm itself. Homes constructed after 1 May 2014, which have undergone any major renovations require more than one interconnected smoke alarm installed. Tasmania From 1st May 2016, all rental property smoke alarms must be mains powered or have a ten year non-removable lithium battery. The device must meet the Australian Standard AS 3786 – 2014 or AS 1670.1 – 2015. Tenants must test each smoke alarm and notify the owner or property agent if it’s not working. Landlords must ensure smoke alarms are compliant with regulations and repair or replace the smoke alarm or battery as soon as possible, if notified by tenants of any issues. They must clean, test and ensure all alarms are working correctly prior to leasing a property. Alarms should also be replaced every ten years. South Australia Homes or residential rental properties purchased prior to 1st February 1998, must have a replaceable battery powered smoke alarm installed to comply with legislation. Homes or residential rental properties purchased on or after to 1st February 1998 must comply with Regulation 76B of the Development Regulations 2008 and smoke alarm(s) must be installed within six months from the day of title transfer. They must be a 240 volt, mains-powered smoke alarm or contain a 10-year life tamper proof battery, permanently connected. Homes or residential rental properties built on or after 1 January 1995 must comply with The Building Code of Australia, requiring a 240 volt, mains powered smoke alarm be installed. For any new residences, additions or extensions to existing properties require interconnected smoke alarms be installed and both homeowners and residential landlords are responsible for ensuring compliant working smoke alarms are installed. Western Australia Western Australia’s Building Regulations 2012 requires homeowners to comply with Building Code of Australia (BCA) guidelines on the placement and installation of smoke alarms. From 1st May 2017 all newly installed smoke alarms must now comply with AS3786:2014. Regulations require that smoke alarms for homes newly built after 1st May 2015, must be interconnected to power mains. For those intending to sell or lease their property, smoke alarms should also have been installed less than ten years prior and must be in good working order. Northern Territory Legislation requires hard-wired photoelectric smoke alarms or those with sealed battery units containing a ten year life lithium battery be installed in all residential properties and movable dwellings, including caravans. Any hardwired smoke alarms must be installed by licensed electricians, but battery-powered smoke alarms can be installed by anyone following manufacturer instructions. Property owners are required to test each smoke alarm at least once per year. Where impractical for an owner or investor to personally maintain, test or replace alarms, they can nominate a proxy, such as a property manager to act on their behalf. Tenants are obligated to test each smoke alarm at least once per year and notify the owner or property agent of any smoke alarm issues. Australian Capital Territory The ACT residential Tenancies Act was amended on 24th August 2017. Existing rental property owners have until 24th August 2018 to ensure their smoke alarms comply with the legislation. Property owners must install working smoke alarms that comply with Australian Standard AS3786(1) and with the Building Code of Australia. Working smoke alarms must be installed on each level of the property and with one located in each space between bedrooms. Homes constructed after 1994 must have at least 240 Volt hard-wired smoke alarms. Homes constructed prior to 1994 can have 9 Volt battery-operated smoke alarms. Tenants are required to test and replace smoke alarm batteries as required. Why comply? Ensuring your property and the tenants are protected is paramount. Complying with the rules and regulations surrounding the type and installation of smoke alarms will also ensure you can continue to lease and/or sell your investment property and avoid non-compliance penalties. Depreciation deductions for smoke alarms You can benefit financially from the legislative changes for smoke alarms. Residential property smoke detectors are considered a plant and equipment asset and can be depreciated at a rate of 10 per cent per year over a maximum twenty year effective life. If the smoke alarm costs less than $300, these […]

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