Depreciation makes owning property easier.
A quality depreciation schedule can mean the difference between being able to purchase that ideal investment property or being forced to walk away.
The secret to astute property investment is not merely considering the potential rental return of a property, but also taking into account the various tax deductible costs and other deductions involved in owning the property.
These include property management fees, rates, interest, repairs, maintenance and property depreciation.
These deductions each come back to the owner at their marginal tax rate and add to the investor’s net cash return.
Research has shown that the vast majority of property investors who plan on renting their investment fail to consider property depreciation prior to purchase.
The following example illustrates why depreciation should always be considered when assessing a property.
A property investor was considering purchasing a ten year old house priced at $560,000.
After conducting preliminary research with their Property Manager, the property was appraised with an expected rental income of $530 per week or $27,560 per year.
By including expenses such as interest rates, property management fees, rates, repairs and maintenance costs the investor was able to work out a cost estimate of $36,060 per annum.
They contacted BMT Tax Depreciation for a free assessment of the property who found that they would be able to claim approximately $13,500 in depreciation deductions after the first full year.
Rather than experiencing a weekly loss of $103, by claiming depreciation the weekly cost is reduced to $7, saving the investor $96 a week or $4,992 after the first year of ownership.
By crunching the numbers prior to purchase an investor can gain a better perspective on the affordability of the property and their future cash flow position.
After purchase, a property depreciation schedule should be prepared by a specialist Quantity Surveyor to ensure depreciation deductions are accurate and maximised.
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