Three recommended purchase costs.
- Quantity Surveyor’s Report
- Independent Building Inspection
1. Property depreciation relates to the fact that over time the property and its contents wear out. A QSR or depreciation report is imperative for the property investor. Prepared by a professional, qualified, Quantity Surveyor, the report presents estimates of the costs entailed in building a property.
It is a one-off cost for the life of the property.
The Australian Tax Office provides generous benefits in terms of non-cash deductions to property investors. Non-cash refers to the fact that the investor does not need to have spent the money to claim depreciation; it is simply an allowance made by the tax office.
Capital works (the cost of the building itself) can be claimed at 2.5% per annum for 40 years. (40 x 2.5% =100%)
If the property is new, the investor can claim the deduction for the next 40 years or if a resale property, for the remaining term up to 40 years.
The value of Plant & Equipment (fixtures and fittings) includes things like carpets and tiles, dishwashers and airconditioning units etc. The ATO defines and sets the ‘effective life’ of these inclusions in a home. The investor usually is permitted to claim a percentage of their value over a 5 to 10 year period.
Since recent changes to legislation,
the deductions for fixtures and fittings is now only
permitted for new property
The exception is a window of 6 months for a developer who tenants a property before its sale.
Depreciation is a significant and valuable claim that can make a big difference to the bottom line holding costs for a property investor.
Engaging a professional to prepare a QSR is a cost-effective and rewarding exercise that many investors neglect, costing them thousands in lost claims.
Courtesy of BMT the following figures illustrate the beneficial effect on holding costs of claiming the maximum non-cash benefit possible. Professional preparation of a depreciation report (Quantity Surveyor’s Report) is essential.
2. An independent building inspection is optional but recommended. For new property, builders have their own quality control procedures to ensure that the construction, fit-out and finishing, comply with their standards. A three month warranty period is the standard during which any defects can be identified, itemized and reported to the builder for rectification.
However, it’s advisable not to take the builder’s word that all is fine and have an independent, licensed builder inspect the property to pick up on any issues ahead of time and allow the builder the maximum time to rectify these before the handover of the property.
ASPIRE engages Handovers.com on our client’s behalf to complete a thorough examination of the properties.
They then liaise with the builder to have the identified issues attended to and ask the builder to confirm that they have done what they needed to do. Once they have, the inspector goes back to verify, and if any items remain outstanding, the report forms the basis of the three months standard warranty period.
A small sample of what an inspector will inspect:
These are items that even the most thorough investor is likely to miss or not even consider!
The tax-deductible fee for a professional report is again, money well spent.
3. Any investment carries some risk. The contingencies associated with property investment relate to loss associated with the physical asset and the rental income it is contracted to deliver.
Insurances are a fundamental risk mitigation approach.
Building insurance will indemnify the owner against loss or damage to the house, garden shed, fences and other structures on your property. The damage may be a result of ‘acts of god’ or natural disasters, or fire, burst pipes etc. and also it will include cover for legal liability if someone else is hurt while on your property.
Flood cover is specially treated. The insurer will distinguish between stormwater damage and rising floodwaters. Protection for flood damage may be denied if the property is in a designated flood zone or the premiums may reflect the degree of risk.
(Flood zoning is an important check to make before purchasing a property. )
If the property you are buying is part of a strata scheme (townhouses, apartments, etc.) the body corporate will insure the premises as a whole, and the building is protected under the umbrella policy. The only insurance you would then need to arrange would be Landlord Insurance and Contents.
Landlord insurance protects against malicious damage by tenants and the loss of rent through default of payment.
The contents you insure would only be the fixtures in the home, not the possessions of the tenant, that is their responsibility.