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Like Yack, I’ve got a property with a tenant who pays below market rent. But it’s a property with consistent growth (Sydney). The tenant has been there for years and lets me know (via the PM) whenever there is a problem. It’s a -cf property, so the fact that with the current tenant it’s even more -cf is incidental.
Hi Orion,
These questions are probably better answered by an accountant (I’m sure Julia will leap in soon), but I’ll have a stab at them.
1. If you’ve been depreciating that dishwasher for 5 years, it will have a written down value. I presume if you sell it for more than this, you have made a profit. If you sell it for less than this, you have made a capital loss.
2. Items worth under $300 are written off immediately. These items will appear on a Tax Depreciation Schedule.
3. Accelerated Rates of Depreciation apply to properties purchased between a date in 1992 that escapes me right now (I’m out of the office) and Septmber 1999. Using these rates is optional.
4. Definitely a question for an accountant. If you buy something from the paper, I imagine it’s an idea to get the seller to write you an invoice with their address etc.
Scott
Can you add anything to the property to compensate for a rent rise, bearing in mind whatever you add will be claimable?
I had to get my PPOR valued recently and it came in $100K over what I (and a local agent) estimated its value at. My bank ordered the val.
The good thing about getting your PPOR valued is that you’re invariably there to meet the valuer.
I was terribly nice to the valuer (and he of course knew I was being terribly nice).
I provided him with a plan of the property to save him having to measure it up. He liked that.
I listed on paper all improvements I had made to the property since purchase and totalled the cost. He was happy to get that.
I provided information on recent relevant sales that I’d been collecting for a couple of months. he didn’t know about some of them.
I gave him on paper a list of selling features for the property.
I tidied the place up the weekend before and got rid of some rubbish and clutter.
Did any of this have any impact on the valuation? I have absolutely no idea. But at least I felt that I did everything I could.
Scott
Misty,
If it’s a new house, the paint would be part of the building cost i.e. depreciable at 2.5%.Wayne,
It’s tricky. Have a look at the first thread in the Accounting forum on paint. It’s the same issue and a couple of accountants responded.Madinvestor, this suggestion may not apply to you, but it will to some other readers.
There are some astute investors who have a great way of coping with those unexpected repair bills.
They calculate roughly how much their depreciation claim will return them in cash, and keep that amount in reserve (remember it’s a non cash deduction) so they can pour it back into the property when needed. Sort of like a sinking fund.
If you think of depreciation as compensation for wear and tear, it’s logical for it to be set aside for upkeep.
I don’t do this an I have absolutely no excuse – apart from laziness and disorganisation.
Scott
I think I’m the winner!
My Tasmanian PM charges 9.5%. (No charges for inspection reports, though).
And I would gladly pay her more than 9.5%.
I had another PM previously who charged 7%. And after 3 months they managed to get one tenant in my block of 6 flats.
I swicthed PMs. My current PM had the other 5 flats leased within a month. And they’re pretty ordinary flats.
She manages the property incredibly well and is worth the premium. And she knows it.
Scott
Thanks Julia.
I might add that I’m not about to start wrapping, but the question was asked by one of our clients and I promised to look into it.
In Trading Post you’ll also find whole, cheap kitchens. They’re usually ones that are in properties about to be renovated and often they’re reasonably new. The cupboards, benchtops and appliances are generally available. You invariably have to dismantle yourself. The aim is to look for a kitchen larger than the space you have to fill so that you can juggle the bits. Yes, it’s definitely a project that requires some skill (or a mate with some skills). The benchtops for example will no doubt have to be cut.
I did this once some years ago. For under $1,000 I got a complete kitchen including appliances and taps. It was a pain in the arse, but definitely worth the savings.
Scott
Try:
http://www.businessforsale.com.au
They also have a magazine – Business for Sale.
There are hundreds of businesses in there – everything you could possible imagine (and plenty you couldn’t). Lots would have properties attached.
Scott
No idea what the cost would be to replace underground tanks. Obviously much would depend on their size and position. I guess first thing to find out would be who owns them. I’m sure with that sort of thing there would have to be records kept of when they were installed, too. I wonder whether there would also had to have been regular inspections? I’d be surprised if the EPA (or somebody) didn’t require that.
There’s a QS I know in Melbourne who helps us out with some of our commercial depreciation work (we specialise in residential). He knows a fair bit about petrol stations and tanks. He would be worth talking to – Harry Hird 03 9598 9111. Harry might even have the name of a company that replaces tanks.
Scott
I think those tanks have an effective life of around 10 years. Some would last longer, some less.
And as Steve mentioned, if there is a problem with a tank it can cost a fortune to rectify.
That’s why nobody wants to own them. In many cases the tanks are paid for by the oil companies. I’m just speculating here, but I’d say the arrangement would similar to that in many pubs where the beer lines etc are paid for by the breweries. Or in some cafes where the coffee supplier provides the machine.
Scott
Depreciation is a bonus. I sort of like regional purchases to stack up without it, which is pretty illogical I guess. Having said that, obviously my metro properties have shocking yields and depreciation compounds the deductible loss, which is great when I’m paying so much tax.
Looking for properties beyond the net is critical given that so many people are searching on-line.
Out of curiosity, I just looked at Inverell on realestate.com. The Raine and Horne office is the only one up there advertising. It’s long drive from any capital city if anyone wants to go looking on the ground.
It seems there’s an airport for sale there, too. It’s years since any airline flew into Inverell.
The property I bought before my most recent purchase was in Inverell – 1.5 hours west of Armidale. I didn’t do much research, but Inverell has got a reasonable population and I gather some of the smaller surrounding towns are losing residents to Inverell – Tingha for example is a ghost town. I’m not sure exactly what the yield is on my place there, but it’s over 11% + there are some depreciation benefits.
There are half a dozen agents in town, but from memory only one advertises on realestate.com. I mention this because there was a post recently about how people need to search beyond the internet for properties.
ScottI have the same problem when asking them tricky questions about depreciation. This time of year in particular they must bring in lots of casuals to man the phones.
I probably phone them every second day to check up on the odd obscure thing – we get lots of clients trying very hard to push the envelope.
When I get an answer, I then call back and ask the same question of another person. And then I make a third call.
Rarely do I get 3 out of 3 saying the same thing. I’ve now got a person in there who I can e-mail. The best part about that is that I get an opinion in writing.
Scott
That article is interesting.
Proportionally, we find lots of problems in newer buildings are related to water penetration. If it ever rains again on the NSW coast, there will be lots of problems surface. There have been a huge number of building finished since the region last had a week of solid, driving rain. And they were finished in a rush with good tradesmen in short supply.
I reckon if anybody is looking at buying a new(ish) property and there is a day or two of heavy rain, they should make an inspection before anyone has the opportunity to mop up.
Render blowing off is another common problem. I saw a unit block last week that has only been finished for 3 years or so and there are some major problems with the exterior render. Fixing it will cost a fortune. Lots of units and houses of late have a rendered finish. I imagine the demand over the last 5 years for renderers has seen lots of inexperienced guys enter the market. There are lots of dodgy painters, too, but at least paint problems are often obvious earlier and they’re generally cheaper to fix.
Scott
Further to Yack’s comment, it’s only depreciation on the building that impacts upon the cost base for CGT calculations. Depreciation claimed on the Depreciable Assets (fixtures and fittings) doesn’t come into the equation. In the first 5 years or so, depreciation on the Depreciable Assets is often greater than that on the building itself.
Now, here’s something surprising. Apparently if a property was purchased post May 13, 1997, and it is eligible for depreciation on the building, the amount of depreciation that could have been claimed has to be deducted from the cost base upon sale for CGT calculations even if it hasn’t been claimed.
Obviously this is in accountant territory and I’m not an accountant. I was speaking to an acountant last week. He’d just come back from an NTAA training day – the NTAA train loads of accountants. They mentioned this and apparently most of the accountant audience was gobsmacked. It’s pretty obscure. Can any accountants out there confirm?
Scott
Hi Jo,
Claiming depreciation does not affect eligibility for the 50% CGT exemption. What was the article?
Scottfjficm,
I’m presuming his fee (which you quite rightly won’t pay) was at least pretty low.
And therein lies the dilemma for investors. Is it worth trying to save a couple of hundred tax free dollars on a Tax Depreciation Schedule and hoping that your accountant spots any errors (and doesn’t charge you fix them)? Don’t forget, if you pay for a Schedule and use it to complete your tax return, you accept liability for the accuracy of that Schedule – you are the client of the ATO, not your QS.
It’s this time of the year when most local QSs start doing tax work for a bit of pocket money. Tax work is a small part of the average QS job description.
Because it is so seasonal, many smaller guys don’t keep up with the ever changing rules. I bet lots aren’t aware of the last week’s changes. I’ve even seen some guys using rates that were changed in 1999.
Of course, there are also some local guys who do good Schedules.
I use local QSs. That’s how we cover so much of the country. But I use them for what they’re good at i.e. estimating construction costs and the value of assets. We then apply the most relevant ATO rates and rulings to their figures to generate the Schedule. Most of my guys love the fact that they don’t have to know the tax rules.
I’m happy to look at any Schedule and let people know whether it’s okay. If there are problems, you should be able to take it back to whoever prepared it and get them to fix it free of charge. Offering this service is good IR (Investor Relations – our term) for us.
Scott – 1300 660033
