Depreciation is an aspect of property investing that most property investors fail to take advantage of.
And it costs them thousands of dollars every year!
So if you’re not claiming depreciation already, we’re going to explain what it is and more about how it can improve your returns on your property.
How can property investors take advantage of depreciation on their property?
Let’s hand over to Bradley Beer, CEO of BMT Tax Depreciation to explain.
While the value of your property goes up over time the value of the items within it will tend to go down, or ‘depreciate’ over time! This is just like buying a new car for example.
When these items like carpet and light fittings lose their value over time, the ATO will actually give you tax exemptions, because of the loss of value.
Wow, it turns out the Tax Office can be kind after all!
All sounds pretty amazing doesn’t it? So you must be asking…
How much can I save through claiming depreciation on my property?
Back to you for this one Bradley…
“Average return for the last financial year was $9,000”.
Gee, that’s not too bad.
Importantly don’t forget! Old properties can claim depreciation as well, just not as much as newer properties.
So enough beating around the bush. How do you get started?
Well even though this is tax, it’s not as simple as going to your accountant. You need what is called a depreciation schedule. This is done by a Quantity Surveyor. So let’s go back to Bradley one last time…
Can you use an accountant to claim depreciation?
There is no question that depreciation deductions are the most under-utilised part of property investing.
At Sydney Listings, our property management team gets proactive making sure our landlords and investor community make the most of depreciation. We partner with quantity surveyors and organise for the information and inspections required to take place.
We also extend a courtesy to others in the community to help you organise this. If you’d like our help, please contact us or email email@example.com.
Landlords can save a little bit of money on Sydney Water expenses every year.
Reece Sammons, our Head of Property Management breaks things down in this video!
We all know that the water is included with the rent. However you may not know that detached houses and some apartments in more modern buildings have separate water metres. In this case, you can actually pass on the water usage charges to your tenant. Obviously the fixed charges remain the same, and landlords have to pay this component themselves. But they can claim these expenses back on their tax at the end of financial year.
But before you can actually pass costs along to the tenant there a couple of mandatory things you have to have in place.
A Functioning Water Meter
You have to have a function in water metre that keeps track of the tenants water usage. You have to make sure that your property has all leaks repaired so that there’s no water being wasted.
Water Saving Devices
You have to have special set water saving devices fitted to all your taps inside the property, which restrict the flow of water to under 9 litres per minute when the water is turned on. there’s a lot more than I can say about this but so obviously not going to go into further detail today if you have any further questions please give me a call I’m always here to help.
Really your whole property management service should be designed to protect you from avoidable costs and maximise your return.
One of the most common questions we get asked by our clients is what to look for in a good quality investment property?
We obviously spend quite a bit of time focusing on this in our academy and break this down in a lot of detail, as so many property investors get this wrong.
Rent is very important as we discuss in the academy for two main reasons: first of all it can be a great passive income stream. Secondly, it is a great tool to help you hold onto investment properties long-term so that you can realise gains through capital growth. In other words, afford all the expenses associated with a property while the value goes up, making you wealthier.
In this article we’re going to talk primarily about getting a good rental return – what ticks all of the boxes for a tenant? Obviously to get the highest rent, we have to appeal to the most tenants. So we have to put a marketing hat on, look at things from a tenant’s perspective and think about what they are going to want in a property.
Features that achieve a higher rent, and appeal to tenants make a quality investment property.
One of the most common mistakes investors make is buying a shoebox because they think that it will ‘just be rented out’. The problem is that like most other people, tenants don’t like to live all cramped up! In Sydney, we see a lot of people who are used to living in a house downsize and move into apartments. They’re used to space, so apartments with good size bedrooms and living areas will be more attractive.
Don’t forget however, this is very area specific. Many inner city suburbs in Sydney will generally have smaller dwelling sizes, designed this way to accommodate for the bigger demand to live in those areas. Think about areas like newtown, redfern, rozelle, camperdown and randwick, areas with a high percentage of student population for instance. Studio apartments and sharehouses make good sense here but these would not be as practical in more suburban or Western Sydney areas.
Close to infrastructure
This is my issue with investment properties that are in fringe Sydney suburbs too far away from major urban centres and infrastructure. In some cases, these investors are better off owning properties in other markets if they cannot afford a proper investment grade property in Sydney.
If renting and not owning your own home, you’re normally less likely to make lifestyle sacrifices. Think about a young person moving out of home, a young couple or an elderly couple.
Young people may be less able to afford to buy, but they would elect to rent in a more premium area in an apartment or sharehouse than the more suburban area where their family home is.
A young couple has normally the combined savings of two people, their common behaviours are to rent in an area to try it before buying or rent in an area they can’t afford to buy in.
The same can be said of an elderly person if they want to rent. Why would they do this rather than buy? Affordability, and perhaps needing to be within walking distance of the shops and transport if unable to drive?
So a property that appeals to these types of renters will create a lot of demand, and drive a good rental return. Good infrastructure includes being close to lifestyle amenities like gyms, cafes and pools, schools, train stations, ferry wharfs, shopping centres and business parks.
A good tool to use is walkscore but infrastructure is pretty easy to observe.
Internal modern Features
Things like air conditioners, dishwashers and storage cages are becoming more mandatory for renters rather than extra luxuries. Just because a property doesn’t have these doesn’t mean it won’t make a great investment property, as you can normally put these in! They will also add to the purchase value of your property.
Again, think about yourself. If there are lots of new dwellings in the area that have modern features, what will that do to the demand of a property without these features?
Another example is kitchen size. A small kitchen might be adequate for a renter who lives alone and is on the go, but would potentially alienate a family from living in the dwelling.
Why it’s important to consider these features? What if the market is hot?
I see your point.
Like the market for selling and buying property, the rental market fluctuates. It is very seasonal year on year, and can be very erratic over the long-term. Several years ago in Sydney, tenants would compete and bid in $50 per week increments to get into properties. Now the market is a lot slower.
In a slower market, vacancies get larger as there are more properties sitting on the market and less tenants to soak them up. Tenants get more picky under these circumstances as they have options.
The properties that suffer are older properties that present poorly, where rents drop. These are not quality investment properties; whereas some properties we rent out that are newer and within 100 metres of a shopping centre still hold the same rents over a number of years.
You want to find a property that will rent well in a slow market, so that you ‘plan for a rainy day’ which is one of the tenets of our Sydney Listings Investment Philosophy. If a property has these features it will tend to make for a better investment property anyway.
Do you need to have Landlord’s insurance? This is an important question to ask and an important conversation to have.
It’s not necessarily feasible for landlords in certain circumstances especially if they own a lot of properties. This is because continually paying lots of premiums will be more expensive than any out of pocket costs that can just come out of the excess rent.
But if you’re a landlord who owns a small number of properties it is generally quite important for you to have landlord’s insurance in place.
The first defence against any issues in the property caused by the tenants is of course the tenant’s Bond, but once the Bond is exhausted then that’s when landlord insurance kicks in.
It covers you as a landlord for anything that goes wrong above the tenant’s Bond.
What is covered?
- Loss of rent
- Property damage from storms
- Damages from certain types of illegal activity
It is worth noting that landlord insurance will generally cover you for everything that home insurance covers and more, as it is specific to landlord needs.
How much does it cost?
Of course landlord insurance ranges depending on the individual circumstances, but we have seen cases starting from as little as $350 to $380 per year. For most rental properties, a policy in this sort of range is an inexpensive solution to the range of potentially very expensive problems that can happen in a rental property.
But what about my property manager? Don’t they protect my property and find me a good tenant?
Arguably the best ‘landlord’s insurance’ is a property manager in many respects. At Sydney Listings, we take this perspective of our service particularly under our Contemporary Property Management model.
We take effort to screen tenants before securing them in our landlord’s properties. This is by conducting reference checks and gathering a wealth of supporting documents on an application. We also place an emphasis on pre, post and mid tenancy education of our tenants. Check out some of our videos here for instance to learn more.
Conducting routine inspections is also vital to this process. But for anyone who knows people, knows that they are unpredictable. People change – in my experience I’ve seen tenants never be late in rent for years. Then suddenly everything changes and they fall behind following a change in circumstances!
I’ve seen perfect tenants turn and suddenly let things go at the end of a tenancy and present properties horribly when moving out.
It’s a little thing called the human condition I’m afraid! Accountability goes away. Then people fall back to their own standards, rather than yours. We try everything we possible can to instil our high standards on to tenants for our landlord’s benefit. But it is impossible to do this completely, people remain too unpredictable.
In my opinion the goal of Property Management is to reduce stress, reduce risk, and cover our fees so that we’re not really getting paid. We rather ‘take a commission’ from the money we save our landlords. If we’re not doing that, then what is the point of having a property manager? You’re better of doing it yourself!
You may be someone who can’t withstand up to 2 months without receiving rent. Or settle a bill of more than $10,000 following storm damage. Then be aware that there are some things that a Property Manager or Contemporary Property Manager cannot protect you against!
It is a good idea to understand how we’ve designed Contemporary Property Management to be a semi-landlord insurance policy by downloading this fact sheet.
Who to use for landlord insurance?
Our official landlord insurance partner at time of writing is PI Plus who have a pretty strong commitment to protecting our landlords. But we are equally happy to discuss some other options who we don’t share a commercial relationship with.
Terri Scheer for example position themselves as one of the forerunning brands in landlord insurance. If you have your own insurance broker, speak to them about what policies they can recommend as they will likely be the most aware of your individual needs.