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What is landlord insurance and is it more expensive than homeowners

BMT team — Sun, 24 Jan 2021 23:20:07 +0000

Maximising returns from investment properties is essential. Protecting your investment is just as important. Investors new to the property scene are sometimes wondering if landlord insurance is more expensive than homeowners. The answer isn’t necessarily straightforward, or a ‘yes or no’ answer that most are looking for. This is because insurance is a complex product, and several individual contributing factors can impact an individual’s insurance premium. In this article, we will cover: What is landlord insurance? Why landlord insurance is essential for investment properties 3 tips when searching for a landlord insurance policy What is landlord insurance? Landlord insurance is a type of insurance the covers an investment property’s structure and any contents owned by the landlord (e.g. carpets, blinds, dishwashers). Some landlord insurance policies include added protection against tenant damage, loss of rent and rent default. While insurance policies vary, the table below provides an overview of the difference between the insured events generally covered. If landlord insurance includes extras like loss of rent, then why isn’t it automatically more expensive than homeowners? It’s ultimately like comparing apples and oranges. An owner-occupied home that has thousands of dollars’ worth of loose assets (i.e. furniture, personal belongings) can’t be compared against an empty investment property even if the property itself is of similar value. If you used the hypothetical of comparing the identical, completely empty property then it is possible for landlord insurance to be more expensive than the homeowners option. But realistically this isn’t possible as an owner-occupier wouldn’t live in an empty house. The key takeaway here is that homeowners is designed for you and your belongings in your home. While landlord insurance is specifically designed for investment property and the risks they face. There are a lot of different sections of cover in insurance policies that just don’t apply for both. For example, if you’re electricity failed and all the food in the fridge spoiled, you can’t claim this spoilage on an investment as you don’t live there but you may be able to with homeowners. The same applies to temporary accommodation if it’s required following an insured event. Why landlord insurance is essential for investment properties Like any investment, rental properties are exposed to risks. Even with the most reliable tenants, the unexpected can always happen. If you don’t hold an adequate level of insurance, you could be out of pocket by thousands of dollars in the event of claim. Not holding landlord insurance also poses the risk of not being covered for the right type of legal liability. For example, homeowners insurance generally has an exclusion to legal liability if the property is used for any ‘business use’, and as an investment property makes income this can be classed as business use. Therefore, if you held homeowners insurance on an investment property you may not have liability cover if someone were to get hurt on the premises. Despite off of this, research suggests that approximately 83 per cent of properties are underinsured. This could be reasons such as not holding the right type of insurance (e.g. only holding home and contents but not landlord) or having the right type of insurance, just not enough. 3 tips when searching for a landlord insurance policy 1. Understand what you need insurance for Is your investment property a short-term or holiday rental, long-term rental, shared accommodation or in a strata complex? There’s no ‘one size fits all’ approach when it comes to insuring property and the first step is always to have what you need to be insured for. For example, a short-term rental such as a holiday home leased for three months of the year doesn’t have the same insurance needs as a long-term rental. 2. Analyse different policy options The cheapest option isn’t always the best and it’s essential to know your options. Know what you are and aren’t covered for, read the fine print and feel comfortable knowing you are covered if the unexpected happens. An insurance broker can assist you in finding an adequate policy, helps you throughout the process and can manage any claim process that may arise. 3. Know the property’s replacement cost Your property’s replacement cost is essentially how much it would cost to completely rebuild your property. This includes factors such as the cost of construction, considering the site constraints, cost changes over time, demolition costs and the removal of hazardous materials. Knowing this will inform how much insurance cover you will need. This is especially important if you’re turning your main residence into an investment property and making improvements before leasing it out. Any improvements, whether due to damage or simply renovating will add value to the property and your insurance coverage must reflect this. BMT Insurance is committed to protecting investment properties with the most suited insurance policy. BMT Insurance works with policy providers and uses extensive construction cost data to ensure the right level of coverage. To learn more about BMT Insurance and to get an obligation-free quote, call the team on 1300 268 467 or Request a Quote.

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What is a depreciation schedule for a rental property and why you need one

BMT team — Sun, 02 Aug 2020 23:58:24 +0000

Local rental rates, market demand, unemployment, wage growth and other economic conditions can affect the return from your investment property. A common trait held by successful property investors is their ability to maximise cash flow during both the peaks and troughs of the market. One way they do this is by always claiming maximum depreciation deductions from their properties. In this article we will look at: What is rental property depreciation? Why do you need a depreciation schedule for a rental property? Do all investors need a rental property depreciation schedule? What does a depreciation schedule for a rental property include? How to organise a depreciation schedule for a rental property Key points: A depreciation schedule for a rental property allows the owner to claim thousands in depreciation deductions each financial year All rental property owners need a depreciation schedule to maximise returns Organising a BMT Tax Depreciation Schedule is easy. What is rental property depreciation? Rental property depreciation is the natural wear and tear of a building and its fixtures and fittings over time. As a property investor, you can claim depreciation as a tax deduction each financial year. One little-known fact about depreciation is that it’s a non-cash deduction. This means that you don’t need to spend any money in order to claim it. Despite this, many investors don’t claim rental property depreciation because they don’t know how or aren’t aware of the benefits. Why do you need a depreciation schedule for a rental property? If you’re thinking that you can go to your accountant and they will automatically determine your depreciation deductions, this is not the case. A tax depreciation schedule completed by a specialist quantity surveyor is an essential step to claiming depreciation. Your accountant then uses this to determine your depreciation deductions each financial year. Do all investors need a rental property depreciation schedule? Essentially, if an investor wants to claim depreciation they must have a tax depreciation schedule completed prior to the claim. This includes single owners and split owners. What does a depreciation schedule for a rental property include? A tax depreciation schedule holds everything you need to claim depreciation for the life time of your property (forty years). Some key features of a BMT Tax Depreciation Schedule includes: Breakdown of both plant and equipment and capital works deductions You can claim depreciation under two categories – capital works and plant and equipment. Your schedule breaks down these deductions to the year, making tax time simple and easy. Forecasts It’s always good to see what deductions are available in the future. A BMT Tax Depreciation Schedule provides multiple forecasts to ensure you know how much money you can get back in your pocket each financial year. Diminishing value and prime cost deductions Plant and equipment deductions can be claimed using either the diminishing value or prime cost methods of depreciation. Once a method of depreciation is chosen, it can’t be changed. A schedule provides an overview of the deductions using both methods and your accountant can help you choose the best method for your investment strategy. Pooling schedules Plant and equipment assets that are eligible for the low-value pool can be depreciated at an accelerated rate. The specialist BMT team identifies every qualifying asset for the low-value pool and includes these in pooling schedules. Designed for accountant software and ATO MyTax BMT works closely with accountants to make sure that claiming depreciation is both beneficial and easy. A BMT Tax Depreciation Schedule is designed to seamlessly integrate with accounting software and the Australian Taxation Office MyTax portal. Easy to amend Property is a tangible asset, therefore changes and improvements can be made over time through renovations and repairs. If you’ve made an improvement to your investment property, you don’t need to have an entirely new schedule completed. BMT can easily update your current schedule to include any new additions at a small, tax deductible fee. How to organise a depreciation schedule for a rental property The first step is to enlist a specialist quantity surveyor, such as BMT Tax Depreciation. BMT can provide an obligation-free estimate of likely deductions. If you wish to proceed with having the schedule completed, a specialist BMT site inspector will come to your property to complete a comprehensive site inspection. The site inspection is a significant step. Doing so ensures that nothing is missed, and any deduction determined from the schedule is compliant. Both the Australian Institute of Quantity Surveyors and the National Tax and Accountants’ Association support the requirement for physical site inspections and note that costly errors can be made when they are not completed. To learn more about what a depreciation schedule is for a rental property, Request a Quote or contact BMT on 1300 728 726.

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How to become a property investor while earning less than $80k per year

BMT team — Thu, 19 Sep 2019 06:10:25 +0000

You don’t have to be a high-income earner to purchase an investment property while living in Sydney or Melbourne. There’s a simple solution for those earning less than $80,000 per year who are struggling to get on the property ladder – rentvesting. How to become a property investor by rentvesting Rentvesting involves purchasing a property in an affordable suburb whilst continuing to rent in an area suited to your lifestyle. It’s a great way to get into the property market sooner, particularly if buying a home in the area you live is currently out of reach. By buying an investment property, rather than a home, you can build a property portfolio which can later be used as leverage to help afford a home, or even additional investment properties down the track. For many on a moderate income, buying a property in Sydney or Melbourne has been unachievable in recent years. According to the latest CoreLogic data, the median dwelling value in Sydney and Melbourne is $720,072 and $626,703 respectively. While these figures may be out of reach for those earning under $80,000, there is ample opportunity outside the metropolitan areas for savvy rentvestors. Regional vs Metro Current BMT Tax Depreciation data indicates the majority of Australians don’t look outside their local areas when it comes to buying an investment property, significantly limiting their investment opportunities. FY 2018/19 data shows that 92 per cent of those who live in metro properties only purchased an investment property locally, compared to just 8 per cent who invested regionally. Regional investors are far more likely to invest elsewhere, with 64 per cent owning a property locally and 36 owning an investment property in metro areas. While the stats show some investors are limiting where they buy, those who earn a moderate income should be encouraged by the fact that they fall within the majority when it comes to the average Australian property investor. The latest data from the Australian Taxation Office for the FY 2016/17 found 64 per cent of people who own an investment property have an income under $80,000. For those who do make their way onto the property ladder there are lucrative tax advantages. Owners of income producing properties are eligible to claim expenses relating to holding a property such as property management fees, council rates, insurance, repairs and maintenance and interest on their loan. They’re also eligible to claim depreciation deductions for the wear and tear that occurs to the building. By taking advantage of the depreciation deductions available, investors reduce their holding costs and can even achieve positive cash flow. BMT Tax Depreciation has worked with more than half a million property investors to help uncover tax deductions for the wear, tear and ageing of their investment properties. To learn more about the benefits of claiming depreciation, simply Request A Quote or call the expert team on 1300 728 726.

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Property market update September 2019

BMT team — Wed, 11 Sep 2019 01:49:09 +0000

National dwelling values increased for the first time since October 2017, as the Australian property market continued its trajectory to recovery throughout August. With the spring season forecast to lift the market, experts are predicting a slow and steady recovery. Property values Housing values increased across five out of the eight capitals and national dwelling values rose by 0.8 per cent throughout August. The increase in dwelling values lifted the national annual rate of decline to -5.2 per cent, an improvement from May 2019 when values reached their sharpest annual decline of -7.3 per cent. August was also the third consecutive month of capital gain in Sydney, Melbourne and Hobart and the second consecutive month in Brisbane. The weakest market conditions remain in Perth and Darwin where values have been declining for several months. Darwin values are now 30.7 per cent below their 2014 peak, while Perth values are down by 20.6 per cent. Despite this, there are subtle signs of improvements in the rate of decline for both cities. Residential property listings An increase in buyers combined with a lack of stock has contributed to further market recovery in August, with listing numbers expected to increase throughout spring. The beginning of September has already signalled a resurgence in the property market, with the largest seasonal rise in new listings in five years. According to CoreLogic data, the first weekend of spring recorded a 21.7 per cent increase in the number of homes listed on the market in Sydney, Melbourne, Brisbane, Adelaide and Perth. Out of the eight capitals, Melbourne had the most substantial increase in listing numbers, up 36.2 per cent from its winter low. Vacancy and rental rates Dwelling values and listing numbers are improving but the same cannot be said for the national rental market. Rents fell 0.1 per cent over August, the third successive month of decline. Brisbane, Adelaide and Hobart rental markets were the only exceptions. Sydney and Melbourne are leading the softening of rental yields, however if the market recovery continues, we could see this stabilise in the coming months. Auction clearance rates Auction clearance rates across the country continued to climb in August and are now at their highest levels since early 2017. Sydney’s auction clearance rate was almost 50 per cent higher in the last week of August compared with the same time last year, as experts predict a bumper spring with the number of property listings already rising. During the same week, Melbourne auctions returned a preliminary clearance rate of 76.1 per cent. Across combined capital cities, 1,605 homes were taken to auction in the final week of August, returning an average preliminary clearance rate of 73.6 per cent. Finance and interest rates Lending to property investors tumbled in July, however, could be back on the agenda as we head into spring. As rates drop and property prices stabilise, the rental investment market is showing signs of improvement. CoreLogic data shows the national average rental yield on residential property is currently 4.1 per cent, a return which experts suggest can comfortably surpass term deposit rates. In construction news, reduced interest rate cuts and tighter credit conditions have contributed to a fall in building approvals. Overall, the number of building approvals fell 9.7 per cent in July. Houses declined by 3.3 per cent and other dwellings, which comprises apartments and townhouses fell by a startling 18.4 per cent. Commercial property The retail property market is continuing to transform as major stores like David Jones, Myer and Big W announced the decision to reduce their store footprint. The reduction in retail stores could see further opportunities for commercial property investors in the warehousing sector, as businesses start to increase their online services. In the agriculture sector, the demand for rural properties didn’t waver throughout August, despite ongoing drought conditions. Reasonable commodity prices, particularly in the sheep market, seemed to lift the rural property market sentiment. Some purchasers were still showing hesitation, with limited cash flow from their existing holdings and little to no stock feed for additional properties.

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Should you include utilities for a rental property?

BMT team — Mon, 22 Jul 2019 00:29:09 +0000

There are many important decisions to make as a landlord and balancing outgoing and incoming expenses is paramount. Landlords want to maximise cash flow and boost the return from their investment property. When considering how best to do this, questions surrounding whether to include utilities for a rental property often arise. Contents Advantages Disadvantages Other considerations Advantages of including utilities in a rental property One of the main advantages of including utilities for a rental property is that bills don’t need to be double handled. Rather than receiving a bill, sending it to the tenant and collecting the sum in time for payment, the landlord can simply include it in the cost. This gives the landlord the potential to charge a slightly higher rental price. Plenty of prospective tenants will love the idea of having utilities included with the rent as it reduces stress and effort on their part. For electricity and gas, if a premise is not separately metered the landlord is required to include utilities for the rental property. A premise is considered separately metered if the usage by the tenant is measured distinctly from the usage of the landlord. While this is a requirement under most tenant agreements, it can prove to be beneficial for the landlord. Including utilities will save the landlord time and effort in calculating the percentage of energy used by the tenant. Utilities paid by the landlord are also tax deductible. The Australian Taxation Office governs legislation that allows landlords to claim an immediate deduction for costs like electricity and gas in the year the expense was incurred. If the tenant covers the cost of electricity and gas, the landlord cannot claim this. Disadvantages of including utilities for rental property Including utilities can be beneficial but there are certain drawbacks. The landlord will have higher financial responsibilities and even heightened liability. There is also the risk of tenants having an ‘all-you-can-eat’ attitude. That is, when tenants don’t have to pay for consumption they often consume more. The landlord may end up paying a hefty amount on top of their existing expenses if this is the case. If electricity or gas rates go up, this will also increase the utility bills. Even if a landlord has previous billing information to base their pricing on, utilities can be unpredictable. Price fluctuation and market conditions can both affect the price you pay each month. Other considerations If a tenant is paying for utilities, will the payments be fixed or variable? It’s important for landlords to consider this before leasing the property. A fixed rate is typically more convenient for both parties and can even strengthen the landlord-tenant relationship. On the other hand, a variable rate is harder to manage but is more reflective of the actual costs being paid. Landlords should also think about the structure of utility payments. Will the tenant pay for utilities and rent as two separate expenses or as one total cost? Will there be an additional fee if utility payments are late? It’s important to remember there is no right or wrong way when it comes to utilities for a rental property. There are several advantages and disadvantages for each investor scenario. Careful planning and proper consideration of your financial situation will help you make the best decision for your investment property.

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Shower yourself with $2,210 in bathroom and laundry deductions

BMT team — Tue, 02 Feb 2016 04:36:46 +0000

When it comes to depreciation, the bathroom and laundry areas of a rental property contain some of the items most often missed by property investors when claiming deductions. While shower curtains and bathroom accessories such as toilet brushes, soap dispensers and hampers have relatively low depreciable values, these items can provide property investors with returns straight away. Items contained in a rental property which have a depreciable value of less than $300 can be deducted as an immediate write-off in the first financial year after their acquisition. These plant and equipment assets experience wear and tear quickly so investors may also choose to update them frequently. This can become costly for an investor if they are not maximising their deductions and claiming them correctly. Similarly, low-cost assets which have a value below $1,000 when first purchased and low-value assets which cost more than $1,000 in the year of acquisition, but remaining deductions after the first year’s claim are below $1,000, are eligible to be added to a low-value pool. Pooling is a method by which plant and equipment items will be depreciated an increased rate of 18.75 per cent in the first year and at a rate of 37.5 per cent from the second year onwards. Read more: How does low value pooling help to maximise my depreciation claim Items which have a relatively low value add up and while bathrooms and laundries are not the only rooms in a rental property where these low cost items are found, it is a place Quantity Surveyors frequently spot them when completing a detailed site inspection. To examine this further, let’s take a look at some of the deductions BMT Tax Depreciation found for a rental property owner in the shared bathroom and laundry area of their property. In the first five cumulative financial years, the owner of this rental property can claim $2,210 in deductions from their shared bathroom and laundry area alone. Plant and equipment assets commonly found in a bathroom such as the shower curtains, the hamper and bathroom accessories such as the tooth brush and soap holders all had low depreciable values of $30, $40 and $80 respectively. As these items all were beneath the $300 threshold, the investor could claim an immediate write-off for these items in the first financial year claim. The washing machine on the other hand was found to have a depreciable value of $1,250. As this value does not meet the criteria for an immediate write-off or the low-value pool in the first or second year, the item must be depreciated based on an individual rate and effective life enforced by the Australian Taxation Office (ATO). However, after the first two year claims have been made the item will fall below the $1,000 threshold and the investor can then claim the remaining years at the increased low-value pool rate of 37.5 per cent. This means, that within five years, an investor can claim $1,055 in deductions for the washing machine alone. Clothes dryers are another common asset found in the laundry of a rental property which these same rules may apply to, depending on the depreciable value of the particular dryer found on close inspection. This is a good reason to have an expert assess the items in your property for you. A specialist Quantity Surveyor will ensure the maximum deductions for each item found within an investment property are valued and calculated correctly using the depreciation rules available. Capital works deductions for items found in the bathroom of a rental property pertain to the structural and fixed items. Examples include the bath, tiles, sink, taps, cupboards, the shower and towel rails. Depreciation for these items will be calculated at a rate of 2.5 per cent over forty years so long as construction commenced within the legislated dates enforced by the ATO. In the first five years, the capital works deductions found in the bathroom alone for this investor cumulate to $1,005. The results will multiply as all of the rooms within the property will have depreciation deductions available. To maximise depreciation benefits for your rental property, speak to one of our depreciation specialists today on 1300 728 726. The difference it can make when completing your annual income tax return and the cash flow benefit are well worth making an enquiry. This article originally appeared online on Sourceable. You can view the original article by clicking here.

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We’re going back… back to the future

BMT team — Wed, 21 Oct 2015 00:44:15 +0000

In honour of Back to the Future Day, we’re taking you on a radical journey through time to take a look at some of the key dates from 1985 which have impacted Australian history and influenced land ownership and property investment in this country right up until today. I wonder what Marty McFly and Doc Brown would have thought if they arrived on October 21st 2015 after travelling from 1985 to find out how some of the decisions made in that year would affect the course of Australia’s history? It’s Saturday, October 26, 1985 in Australia and Bob Hawke is the Australian Prime Minister. This may have been the day in which Doc Brown first discovered his time machine could transport Einstein, Marty and himself to any time throughout history, but in Australia this was a date in which we paid recognition to some of the traditional owners of this land by handing back ownership of Uluru to the local Pitjantjatjara Aboriginals. Recognition of Australia’s traditional land owners continues be a very important part of our national discourse still today. At the time when Doc first realised the invention of his time machine had been a success, Australia had only just recently introduced new tax legislation that would affect the ownership and sale of a rental property and the deductions which investors could claim. On the 18th of July 1985, legislation was introduced which allowed property investors to claim capital works allowance on a residential property. At the time of its introduction, investors were entitled to claim capital works deductions on the building structure at a rate of 4 per cent over twenty five years for any building in which construction commenced after this date. This legislation was later changed on the 15th of September 1987 and from this date onwards, investors could claim capital works deductions at a rate of 2.5 per cent for forty years. While changes to depreciation legislation have meant that owners of properties in which construction commenced prior to the 15th of September 1987 may no longer be eligible for capital works deductions (the twenty five year period in which investors could claim the 4 per cent has now past), this does not necessarily mean that owners of properties constructed prior to this date will not benefit from depreciation. In 2015, owners of both new and old investment properties still take advantage of depreciation. Today we continue to see thousands of investors maximise depreciation deductions by obtaining a BMT Tax Depreciation Schedule and the numbers are growing. However, many owners of older properties in particular fail to maximise their deductions because they assume they are ineligible to claim depreciation. While the above legislative rules apply, they don’t necessarily mean that there will be no depreciation available to claim. Older properties have often undergone renovations and any work completed within the legislated dates could entitle its owner to claim capital works deductions. “Great Scott!” There are also significant deductions available for the plant and equipment assets contained within the property. It is the individual effective life and depreciable value which determines what an investor can claim for these items. It is as important now as ever before to make the call to find out what depreciation deductions are available for the future. On the 20th of September 1985, the government introduced the Capital Gains Tax (CGT) One of number of key tax reforms originally introduced by the Hawke/Keating Government in 1985, CGT is basically the tax payable on the difference between what it cost you to purchase an asset and the amount you receive when you dispose of it. In the case of an investment property, this is the difference between the original purchase price of the property including any capital buying costs and the price the property is sold for plus any selling costs. When you sell an asset such as a property, this triggers what is called a ‘CGT event’ and the owner will make a capital gain or loss on the property. Legislation surrounding CGT changed significantly after the 21st of September 1999. From the 2000-2001 income year individuals or small business owners who held an investment property for more than twelve months from the signing date of the contract before selling the property were entitled to a 50 per cent exemption from CGT. This rule, and other CGT exemptions that become relevant if a property is a primary place of residence, still exist today. An Accountant can help by providing financial advice for your future to prepare for any capital gains tax implications should you decide to sell your property. 1985 median house prices compared with 2015 According to data from Australian Bureau of Statistics, the average median house price across the capital cities in Australia during 1985 was $70,782. This was led by Canberra with an annual median house price of $90,625 and followed by Sydney with an annual median house price of $88,350. Perth was the capital city with the lowest annual median house price recorded at the time at just $52,050. Fast forward in time to the Domain House Price Report released for the June 2015 quarter and prices have increased significantly. The national average median house price is now sitting at $701,827 with Sydney leading the way on house prices with a median of $1,000,616. It’s Wednesday 21st October, 2015 in Australia and Malcolm Turnbull is the Australian Prime Minister Based on the above increase in prices over time, it’s little wonder that housing affordability has become a hot topic for our government. What happens next, we’ll have to wait and see… that is, unless someone get’s a hold of a DeLorean and tells us where we will be thirty years from now…

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