There’s a lot to consider when you’re looking to purchase an investment property. Before you begin it’s important to get yourself in the right frame of mind. It’s easy to become emotionally invested but you need to put your personal feelings aside. Purchasing an investment property is about what will appeal to renters, not you. It’s a financial decision based on research and future returns.
Once you’re ready to begin your search, here are the top three things to look for in an investment property:
We’ve all heard the saying ‘location, location, location’. But what exactly makes for a good location? Here are some key factors that increase the desirability and value of a location and property:
- Close proximity to amenities – for example schools, universities, public transport, shops, restaurants, cafes, parks and medical facilities.
- Close proximity to a major city – ten kilometres away from the CBD/capital city is always highly sought after and typically delivers strong returns. Whilst prices may be higher, look for emerging suburbs with strong growth potential.
- Strong job market – Locations with growing employment opportunities tend to attract more people and thus a higher pool of potential tenants.
- Planned infrastructure – Plans for new housing, shopping centres, business parks or transport facilities are all good signs that it’s a growth area.
- Population growth – A strong job market and planned infrastructure can lead to population growth and hence an ongoing tenant pool. Consequently, as population grows infrastructure improves, creates employment opportunities and further attracts more people to the area.
Regardless of whether you’re looking to purchase an apartment, townhouse or house and land package, features of the property to consider include:
- Amenities – Look for practical, sought afters inclusions like an internal laundry or garage/parking spot that will improve the everyday quality of living.
- Layout – Ensure there is ample storage space and look for something with a balcony or courtyard to increase the overall square footage.
- Views – Whilst not all views are made equal, avoid properties that look into a wall or anything undesirable.
- Size – Look for something at least 45m2 in size otherwise you may experience difficulty securing finance. Lenders may take the view that a smaller property offers less appeal and is therefore considered inferior security.
- Age – As a property investor there are benefits to purchasing a new property such as claiming depreciation as a tax deduction.
This is the main reason you purchase an investment property, for its returns. It’s important to do your research and look at the following:
- Rental income – Find out the average rent in the area for similar properties. If charging the average rent is not going to cover your investment loan and other expenses you may wish to keep looking. Otherwise, you need to ask yourself whether you are comfortable with a negatively geared property and if the tax incentives make it a sound investment.
- Capital growth – Capital growth is the increase in value of an asset or investment over time. It is one of the most fundamental objectives for a property investor. Research the annual capital growth of the area to see how it has performed. It is important to note however that past performance is not an indication of future returns.
- Vacancy rates – The vacancy rate is a measure of how many rental properties in a location are currently without a tenant and is usually expressed as a percentage. A low vacancy rate means strong tenant demand to rental property supply.
LJ Gilland Real Estate offer MARKET ASSESSMENTS INCLUDING market data statistics, along with suburb profile information, at no charge.
With tax time fast approaching now is the perfect time to get clear on what you, as the owner of an investment property, can claim as a tax deduction. Depreciation is one of many tax deductions available to property investors that will reduce your taxable income so you pay less tax. Unfortunately it is often overlooked, or forgotten, as property investors are not aware of it. Here we run you through the basics.
What is property depreciation?
Property depreciation is a tax deduction on the wear and tear of an investment property over time. There are two types of deductions available:
1. Capital works allowance (commonly known as building allowance) – refers to the construction costs of the building itself such as concrete and brickwork. This is calculated at between 2.5% and 4% per year of original construction depending on the date of construction.
2. Plant and equipment – refers to items within the building like ovens, dishwashers, carpet, blinds, etc. The rate at which it is calculated differs per item over their effective life.
As the current owner of an investor property you can claim deductions regardless of the fact that you may not have originally paid for them. All you need to do is obtain a property depreciation schedule, also known as a quantity surveying report, and provide it to your registered accountant at tax time.
Who can calculate a property depreciation schedule?
If your residential property was built after 1985 your accountant is not allowed to estimate the construction costs. Tax Ruling 97/25 by the Australian Taxation Office (ATO) has identified quantity surveyors as qualified to make appropriate estimates of construction costs where those costs are unknown. A quantity surveyor will inspect your investment property and provide a comprehensive depreciation schedule within two to three weeks.
When working with your quantity surveyor, be sure to discuss the following so it is included in your depreciation schedule:
- Your depreciation schedule should last at least 20 years. If your investment property is brand new, your depreciation schedule should last for 40 years
- If you have ever lived in your investment property, your depreciation schedule should reflect the periods that it was owner-occupied and the time it became an income-producing asset
- If you have purchased the property with a friend or family member, your depreciation schedule should reflect how much you each individually own of that property.
Make sure you also request a receipt as obtaining a property depreciation schedule is a tax deductable expense.
How much should I expect in deductions?
This will vary based on numerous factors such as property size, location, quality of internal fixtures, etc. We used an online calculator to provide you with an example. The following is based on a high rise Brisbane apartment built in 2016 and purchased for $460,000.
|YEARS||DIMINISHING VALUE||PRIME COST|
|FIRST 10 YEAR SAVINGS||$86,000||$85,000|
Please note: the example calculation is an estimate only and should not to be used for taxation purposes.
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