Depreciation is only available for NEW Home and Land Package?

Hi Inusure,
Welcome to our useful little community. I am glad you made that post, as this is a great example of how many people can get themselves into trouble. You though have been smart and have asked “Is this right?”

i was approached by some “Professional Financial Advisers” who suggested me that I should only buy New Home and Land Package( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.

They are obviously trying to sell you something, and it will likely be over-priced. To my mind, any business who will bend the truth to get you to buy from them is not to be trusted. The comment about “can only get positive cashflow by purchasing this type” is hugely incorrect!

Their explanation is that i can only claim depreciation of buildings and fittings and loan costs through this type of property?

Incorrect !! But a new build WOULD have MORE depreciation available to the investor than an older home (of similar style) would.

I am a bit confused, as i thought that we can claim tax depreciation on any types of properties?

You are CORRECT.

Then they explained that with old/already existed or built properties, we can claim tax depreciation for 5 years max( or 3 years? I cant remember exactly what did they tell me).
I would call that “selective correctness” !! They are speaking the truth – sort of !! They are not completely incorrect, nor completely correct. Capital costs can be claimed for many more years, depending on the build date. Borrowing costs can all be claimed within 5 years. With Depreciation, your choice of Prime Cost or Diminishing Value WILL affect how soon you will stop claiming depreciation. There is SO much to it all – they are sometimes right, and sometimes misleading. Be careful.

What they DON’T tell you is that a second-hand property may well be able to be bought in that area for a lot lower cost, thus making it cashflow positive (or near to it) WITHOUT any Depreciation needed (but still available to you anyway, and can further increase the positive cashflow).

Where you REALLY need to check though, is whether any OTHER NEW property in that area is able to be purchased for a lot less. If that IS the case, RUN A MILE.

Always ask yourself – is this person who is offering me advice going to gain as they direct me to purchasing a specific property?
The more they “turn you away from other options” the more your feet should be itching to RUN !!! Good on you for asking,

Benny

Hi again, Anthony,

For ongoing costs, they come under 5 main categories :-
Mortgage Interest
Rates, water
Maintenance
Insurance
Administrative – RE costs (if not self-managing) and accountancy.

Purchasing costs are a whole ‘nother ballgame. Costs come out of the woodwork during that time (Stamp Duties, Borrowing Costs, Solicitor fees, Registering title, etc, etc.

Most allow 3% of purchase price to cover most of these. Some of these can be added to the mortgage and paid as extra on your Interest (e.g. LMI) and some can’t. This area is complex, and a chat with a knowledgeable Broker and/or Financial Planner is well worth doing, if you are new to this.

Most MB’s (Brokers) on here would be well equipped to guide your early steps thru the lending, and to explain much of the stuff you need to know re $$ and financing. Most also have their own portfolio of IPs so are very knowledgeable in “all things IP-centric.”

Re them being in Melbourne, I suspect there are some MB’s on here that would be – but, as is mentioned many times, a MB can conduct business across States with the technology available today.

Of course, YOU may want to sit down eyeball to eyeball with a Broker – and that’s fair enough too. Look around at some of the signatures and you will soon notice all of the Brokers, their locations, and their knowledge will be on display too….

Benny

Hi there,

Question> What is the time, Anthony?

Answer> TIME FOR ANOTHER BROKER/ADVISER !!

Good luck with your hunt. Hopefully, some of our MB’s will direct your steps in reply…. Many of them know each other, and would also know “who is in Melbourne”.

Benny

Ah Yes that extra $20-$30K we forgot to mention was our commission on this wonderful property suggestion we made.

What a load of rubbish.

We bought a property for a forum member as Buyers Agents earlier in the week and the property was constructed in 2011.

Given that construction costs have barely changed in the last 4 years the amount of Depreciation the client could claim between a property build in 2015 and 2011 is marginal.

Start looking for another adviser.

Cheers

Yours in Finance

My partner Jacqui (JacM) from the forum is Melbourne based.

Feel free to email her or look up her number [email protected]

Cheers

Yours in Finance

Terryw wrote:

inusure wrote:

( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.

Which they coincidentally happen to be selling.

Beware.

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Correct, when they’re suggesting property for you, you can be assured they will be receiving a commission for it that is added in the price. The effect that will most likely have is your valuation may tank.

Cheers

Tom

Hi Anthony,

Your broker is telling you a “half truth.”

Whilst new properties generally have higher levels of depreciation, older properties usually still have some depreciation left.

Buildings themselves depreciate at 2.5% p.a, and all the assets themselves depreciate at their “effective life” ie hot water heaters over 10 years etc.

This can help tax wise but what you are missing out on is the capital growth (ie by renovating the property it should (if done correctly) increase in value by more than the expenditure), also the rennovations themselves are depreciatable (as they are now new assets).

The other thing to be aware of is that off the plans usually offer very large commission to whoever sells them, which may be a large part of the reason your broker is pushing you towards an off the plan.

Hope this helps.

__________________________________________________________
James Mav | Accountancy Matters | Accountant
http://www.accountancymatters.com.au