Tag: investment property

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Expert Tips RENO ADDICT

The nine experts you need before investing in property

By Bradley Beer

While property investing is one of Australia’s favourite pastimes, it doesn’t mean it’s always an easy ride. There are ups and down and certainly rewards to reap, but you do have to put in some groundwork and planning to become a successful investor.

While this can seem overwhelming at times – especially for first time investors – the good news is that you don’t have to go it alone. There are professionals whose very job it is to help you along the way. In fact, it is recommended you have a property investment team of sorts – each player with a different role to help you towards  investing success.

As the team captain you get to pick the players, but there are the nine experts you should consider including on your team:

Image: Business2Community
  1. Accountant and/or Financial Advisor

A common goal of property investing is financial reward, but you need to use your money wisely. An accountant will help you manage your money and advise on any tax changes you should know about, as well as help you claim everything you’re entitled to. A financial advisor is slightly different and looks at your financial situation more holistically. They can help you determine your financial goals and set a realistic plan to achieve them. Ideally, your accountant and financial advisor may be one in the same, but both of these services are incredibly useful.

  1. Real Estate Agent or Buyer’s Agent

When you’re searching for your first or next investment property, it’s good to have a real estate agent or buyer’s agent you can trust. Their commission should be transparent, they should have a thorough knowledge of the local market, have a deep understanding of your requirements and be proactive in helping you find your ideal investment.

  1. Property Manager

While some investors may be tempted to self-manage their property, there are a lot of risks involved in this approach if you don’t have the knowledge or time to manage this effectively. A good property manager will help you secure quality tenants, be on top of any damage, will save you time, tell you of any requirements and will help take some of the emotion away from the process. As their fees are tax deductible this shouldn’t be looked at as an unnecessary expense.

  1. Mortgage Broker

In the past year, mortgage brokers have been gaining market share in Australia.  The 2017 Property Investment Professionals of Australia (PIPA) investor confidence survey revealed that 83 per cent of respondents are hoping to finance their next loan via a mortgage broker, up from 71 per cent last year. If you’re looking to purchase a new investment property, it may be worth speaking with a mortgage broker to help you find the best product to suit your situation and your finances.

  1. Conveyancer

There’s a lot of complicated paperwork involved in purchasing a property including the contract of sale, mortgage documents and other paperwork related to the transaction. It’s best to enlist the help of a qualified and reputable conveyancer to do this legal legwork for you. They’ll help decipher any complicated terms and conditions and translate the legal jargon. While you’re not legally obliged to hire a conveyancer, it should help you reach settlement sooner and with a lot less stress.

  1. Quantity Surveyor

Ensure you get a quantity surveyor that specialises in property depreciation to prepare your tax depreciation schedule. A specialist quantity surveyor is worth having on your team as they will ensure you’re claiming everything you are legally entitled to. A specialist will also keep on top of any tax changes so you don’t get on the wrong side of the Australian Taxation Office (ATO). The ATO recognises quantity surveyors as one of only a few professions which possess the required construction costing skills to calculate the cost of items for the purposes of depreciation.

  1. Building Inspector

It’s essential that you get a building and pest inspection carried out before you buy a property. The last thing you want is to buy a property only to later find it’s actually riddled with termites or structurally unsound. A trusted building inspector will help you determine if you have a quality property on your hands and can save you from forking out thousands on surprise repairs and maintenance after the time of purchase.

  1. A mentor

It’s great to have someone who is an experienced investor who you can turn to for advice and learn from their real life experiences. Investing in property has its ups and downs so it’s nice to have an investor friend on your side to help, even if it’s just to chat about your situation and investing plans.

  1. Yourself

While you don’t need to be an expert to invest in property, it’s important to arm yourself with some basic knowledge of the market to keep on track of how your investment is performing. It will also give you more confidence when dealing with other professionals to ensure you’re not being taken for a ride. There are many resources out there you could use to improve your investing knowledge from books, blogs, magazines and online resources to information nights and investing courses.

–Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. 
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service

Buy property with friends and increase your tax deductions

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Expert Tips Outdoor & Exteriors RENO ADDICT

Renovate a rental property on a budget: a case study

The makeover of this investment rental property by Rachael Turner of Front Porch Properties is anything but basic. We absolutely love all the clever tricks, flatpack hacks and floorplan tweaks she has used to create a unique and high end look without overcapitalising. It definitely pays to have a good carpenter on your speed dial, that’s for sure!

AFTER
BEFORE

You can watch Rachael’s video below, but here we’ve highlighted what we love best about what she did in this project.

Street appeal:

Rachel added gorgeous Hamptons-esque timber balustrading to the veranda and stencilled the deck to make it look so much like tiles we can’t believe it isn’t! The original door was simply painted blue to give it a pop of colour.

First impressions:

The pokey living/dining/kitchen area was opened up and became open plan. A new IKEA kitchen is given the bespoke look with some custom panelling along the back and a custom bench top. Clever! An affordable  charcoal-painted barn door looks fantastic but is also practical.

That stencilled concrete deck has blown our minds! And the original door is transformed with a lick of blue paint!

Bedrooms and bathrooms:

The spare bedroom becomes the new master bedroom with the addition of an ensuite, making it a two-bedroom home. IKEA wardrobes have been ‘built-in’ for a more expensive look on a budget. One wall of feature blue tiles and a marble-topped vanity in the en suite take it from basic to luxe without spending too much. In the main bathroom, the doorway was moved across so a better layout could be created. The original master became the second bedroom. Money was saved by keeping the original built-ins but adding trim and new handles and painting them, as well as adding a bit of custom carpentry in the way of a window seat in the bay window.

A basic IKEA laundry and a store cupboard with shelves behind the kitchen make great use of the remaining space which was previously a “weird and creepy” shower!

And find out how she stencilled that concrete deck here:

Rachael’s great IKEA hack kitchen.

See Jen’s flatpack kitchen.

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Expert Tips RENO ADDICT

3 things often overlooked at a property inspection

3 things often overlooked at a property inspection

Obviously I don’t need to overstate the importance of a thorough property inspection when you are looking to purchase a property – it goes without saying right? But while most people are focused on how many bedrooms and bathrooms a property has, what condition the kitchen is in, or how big the spaces are generally (all important things, obviously!), there are three major things that are often overlooked, and they’re all outside. And while internal concerns are important, it’s the exterior that is often forgotten when people are inspecting property.

3 things often overlooked at a property inspectionImage source: Domain

3 things often overlooked at a property inspection

1. Overall appearance – Firstly, when inspecting a property, you need to consider its street appeal. Have a look at the appearance from the outside and ask yourself a couple of questions. Does it have any appeal? Do you even like it? Will it appeal to others who will either rent or buy it from you once you have carried out the renovation? It sounds obvious but street appeal is key when purchasing a property for investment purposes.

3 things often overlooked at a property inspectionImage source: The School Of Renovating

2. Surrounding properties – The house you are looking to purchase may itself be fabulous, but that’s almost irrelevant if it’s surrounded by less-than- ideal homes or neighbours. Neighbours, in particular, are something you cannot change – you have no control over the appearance of their property, what animals they own or how many cars they choose to park in their yard. You also have no control over how noisy or inappropriate they may be. I tend to go with my gut on this one – if you look at the surrounding properties and you cringe, prospective buyers, valuers and renters will do exactly the same.

3 things often overlooked at a property inspectionImage source: Donna Homes Blog

3. Access – An often overlooked renovation aspect, but one that has the potential to wreak havoc on your budget is the property’s access. Access will determine how far away trades will need to park their cars and where the skip bin can be located. If it’s an apartment you need to consider on which storey it is located as travelling up flights of stairs or even elevator access can be problematic. Ultimately, access will greatly affect your renovation budget and thus your profit at the end.

3 things often overlooked at a property inspection

Naomi Findlay is one of our resident experts, principal of Silk Home and founder of the International Institute of Home Staging. Find out more about Naomi.

Read Naomi’s other articles.

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Expert Tips Real Renos RENO ADDICT

How to plan a 30-day flip with Three Birds Renovations

By Lana Taylor (one-third of Three Birds Renovations)

You’ve all heard the cliché that “you don’t plan to fail, you fail to plan”. Well, in the world of property flipping that couldn’t be more accurate. And the most crucial thing to realise is that most of this planning has to take place before the house is even yours – in the settlement period (which usually takes about six weeks).

So for all you budding flippers out there, get your notepad and pencil out as I interview our Operations Guru-slash-Standover-Woman, Erin Cayless, to share the 10 steps to success when planning a 30-day flip. And even if you’re not flipping a house, just renovating your own home, you might pick up some tips on how to make your reno as fast and painless as possible. There’s nothing worse than a home reno that drags on ’til the cows come home — all that dust!!

river bennett photography 078

Lana: HOW IMPORTANT IS THE PLANNING STAGE OF A RENO?

Erin: In my opinion it is the most important part of a reno. Without thorough and detailed planning, the reno will fall apart and run over budget. This is especially important if you are running the reno yourself to maximise your profit rather than paying a builder to do it.

Lana: WHAT ARE THE STEPS TO PLANNING A 30-DAY FLIP?

Erin: I think there are 10 main steps:

Step 1. Before buying the house, contact a local certifier to get the 149 certificate checked. This will confirm that the renos you want to do at that property, can be done e.g – a 149 will tell you if you are in a flood zone which could mean you need to get a DA (Development Application) and that could take months. That would be a showstopper for us as we are only interested in doing renos that are either Exempt or Complying Development as a CDC can get passed through council much more quickly.

Step 2. Assuming you get past step 1 and have purchased the house ie – exchanged contracts, you need to spend time at the property to work out exactly what changes you want to make. This will include drawing up a new floor plan. We hand-draw our plans using a pencil, ruler and rubber (it’s easier and more enjoyable than you think). Remember, you don’t actually own the property yet, as it hasn’t settled, so you need to negotiate “access visits” with the agent. On one of our projects, the house was already vacant and the owners were happy for us to spend as much time in the house as we wanted. This is the ideal scenario as it gives you maximum time for planning. If the house is still occupied, you should still get at least 2 access visits and if that’s the case, try and stretch them out to be several hours in duration.

Step 3. If your reno plans extend beyond replacing just fixtures and finishes you may need to engage a structural engineer. If so, meet them onsite to discuss your hand-drawn plans and see if they are possible. The engineer will tell you how much significant structural work will be required to meet your reno vision.

Step 4. Meet a builder on site to run through your plans. Share with him any feedback your engineer may have given you. Give the builder a written scope of work (which you may have adjusted during his visit) and ask him to come back with a quote. You should repeat this step with a few builders to get comparative costs. Once you’ve received all the quotes from your builders, check to see if they are within your budget. Discuss with each builder if necessary – especially if you need to bring costs down. Appoint a builder.

Step 5. Engage a draftsman to draw up official plans for the certifier and ask your engineer to return to the site so he can prepare final drawings. Give the draftsman’s and engineer’s plans to the certifier for the CDC (Complying Development Certificate) application. The sooner you get the plans to your certifier the better. This also allows the certifier time to give you feedback on your plans if they think they need adjusting in order to get them through council.

A Three Birds reno BEFORE
A Three Birds reno BEFORE

House 2 after

Step 6. Choose a proposed start date for your reno. You can’t start your reno the day after settlement because you need to wait for council to issue the CDC, and that process can’t commence until they you are confirmed as the new owner. Get your solicitor to send a letter to your certifier confirming you as the new owners. How long the council will take to issue your CDC depends on the council and can take between 2-21 days. Ask your certifier to give their best estimate on how long approval will take based on the complexity of your plans and their experience with that council. Use that as your start date.

Step 7. Sit down with your builder and develop a week-by-week, day-by-day reno schedule with him. His work schedule will determine when other trades need to be onsite so it’s important to sort this out first before locking in other trades like plumbers and electricians.

Step 8. Co-ordinate all other trades (eg – tiler, plumber, electrician, landscaper, glazier, painter) to meet you on site and quote. Give them a written scope of work including the dates they are required on site (which you should have worked out with your builder prior). Get a few different companies to quote for the same scope of work so you can compare costs, then appoint your Tradies. This should ideally happen 2-3 weeks out from settlement.

Step 9. Determine what fixtures and fittings you want and can afford. You need to know this so you can order in advance and have them ready onsite when the Trades need them. Some things have long lead-times (eg window shutters) so you need to place orders in the pre-settlement planning phase.

Step 10. You’ve settled on the property and the house is yours. Get the letter from your solicitor (see step 8) and await your CDC. You may need to adjust your reno schedule based on exactly when the CDC comes through.

Lana: IS THERE ANYTHING YOU’VE EVER FORGOTTEN TO DO?

Erin: Ordering the porta-loo and working out where to put the man-hole — gets me at every house.

Read all Three Birds’ posts | Send Three Birds  question | Find out more about Three Birds

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Before & Afters Design DIY Real Renos RENO ADDICT

Real reno: the tired rental in need of a massive facelift

Before: bathroom

Having bought her three-bedroom brick home in Eimeo, Queensland as an investment property, Debbie Goodwin had been renting it out for some 15 years. So when the idea to sell came to mind, it was time to get the hard hat on and the tool belt out, because it was in serious need of a revamp!

Before: bathroom
Before: bathroom
After: bathroom
After: bathroom

“It had good bones but it had to have a massive facelift on the interior. So we completely gutted the whole inside of the house and put in a brand new kitchen, bathroom, laundry, toilet, painted the whole interior, put in new blinds, fans and aircon, timber boards in all the living spaces and tiles in all the wet areas.”

Before: Living
Before: Living
After: living
After: living
lounge 1
After: living

Costing $50,000, it took approximately 10 months, with Debbie and her husband doing a lot of the reno themselves, after work and on the weekend. “The biggest challenge was definitely the time factor as we have three small boys and a business that operates seven days a week.”

Before: kitchen
Before: kitchen
After: kitchen
After: kitchen
After: kitchen
After: kitchen

With the new kitchen, living and bathroom making the biggest difference to the home, as a seasoned renovator, Debbie made some smart moves, knowing when to spend big and when to rein it in. “The freestanding bath was the best bargain product that will really add value to the home. As was repainting, especially in the living room, as it is now so fresh and inviting. Definitely worth the money.”

Before: main bedroom
Before: main bedroom
After: main bedroom
After: main bedroom

As well as budgeting, another of Debbie key’s considerations is choosing the right people for the job, thinking it’s best to get the experts in first time round and save the time and money of re-do jobs “My advice for would-be renovators is to source good tradies. Be organised and always be prepared for unexpected costs to crop up.”

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Outdoor & Exteriors RENO ADDICT Shopping

Outside there’s $3,491 more in deductions to be claimed

As summer brings warmer weather to our backyards, it is a great time for property investors to think about the outdoor areas of their investment properties.

Outdoor areas in investment properties contain a number of structures and assets which are worth thousands of dollars for their owners. These items also experience wear and tear over time. The Australian Taxation Office (ATO) allows owners of income producing properties to claim this wear and tear as a depreciation deduction when completing their annual income tax assessment with an accountant.

Before an investor can claim depreciation, it is recommended they consult with a specialist quantity surveyor to arrange a tax depreciation schedule for the property. A tax depreciation schedule will outline all of the deductions available for the structure of the property as well as the plant and equipment assets contained both inside and outside of the property.

The deductions a specialist quantity surveyor outlines on a depreciation schedule are split into two types. Structural items will be classified as capital works deductions, while assets which can be easily removed from the property can be claimed as plant and equipment depreciation.

Items classified as capital works will depreciate at a rate of 2.5 per cent each year over forty years. Plant and equipment assets, on the other hand, each have an individual effective life as set by the ATO.

The following graphic shows some of the depreciable plant and equipment assets and structural items found within the yard of an investment property as well as the first year depreciation deductions an investor could claim for these items.

bmt

Examples of outdoor structures which depreciate, as shown in the graphic, include the in-ground swimming pool, pool fencing, shade sails, pavers and window awnings. Other common structural assets found in the yard which depreciate include concrete slabs, clothes lines and sleepers.

Depreciable plant and equipment assets found in the yard of the pictured property included solar garden lights, outdoor furniture, garden watering systems, swimming pool filters and chlorinators. Other common examples of depreciable plant and equipment assets which might be found in the yard include garbage bins, garden sheds and freestanding barbeques.

As the assets outside a property experience wear and tear, it also makes sense to check in regularly with your property manager to see if there are any necessary repairs and maintenance required. If there are, it is also best to check with your specialist quantity surveyor before completing any work to the property.

While work completed to repair damage (such as mending part of a fence) or to prevent deterioration to a property (for example oiling a deck) is able to be claimed as an immediate deduction in the year of the expense, any work which improves the condition or value of an object beyond it’s original state at the time of purchase will be considered a capital improvement. Capital improvements completed will also be classified as either capital works deductions or depreciated as plant and equipment using the asset’s individual effective lives.

If an investor already has a depreciation schedule and plans to complete improvements to the yard, a specialist quantity surveyor can provide information on any remaining deductions for items planned for removal. Removing items could entitle an investor to claim additional deductions using a process known as ‘scrapping.’ Using this process, any remaining depreciable value can be claimed as a deduction in the financial year the item is removed.

When any new structural additions or plant and equipment assets are added to an investment property, it is recommended to ask your specialist quantity surveyor to provide an updated depreciation schedule outlining the deductions for any new items.

Maximising depreciation deductions for items outside a property and carefully considering whether any improvements can be made can add thousands of dollars to an investor’s pocket. It also can add additional value to the property and appeal to tenants, helping to increase your rental return.

Quantity surveyors can provide a free estimate of the depreciation deductions available in any investment property. To request an estimate and obtain their advice, click here.

— Bradley is the chief executive officer of BMT Tax Depreciation. Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. 

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RENO ADDICT

When is a repair on a rental property an improvement as far as the ATO is concerned?

The Australian Taxation Office (ATO) has issued a number of warnings recently indicating that rental property owners should be careful when claiming deductions.

Common errors highlighted by the ATO include claiming rental deductions for properties not genuinely available for rent, incorrectly claiming deductions for properties only available for rent for part of the year, claiming costs as repairs when they should be depreciated as a capital improvement and claiming capital works incorrectly as plant and equipment.

DSC_4949 Brad Beer Profile

Navigating the rules relating to rental property deductions can be quite complex for owners, particularly when it comes to depreciation. It’s important that owners have a basic understanding of depreciation legislation and the terminology used to categorise the deductions which can be claimed within a property. This includes recognising the difference between repairs, maintenance and capital improvements.

To assist investors to avoid a tax headache and claim deductions correctly this financial year, here are some of the key depreciation terms and tips on how to avoid incorrect claims.

Capital works deductions versus plant and equipment depreciation

Deductions for capital works comprise of the structural elements of a building, including fixed and irremovable assets. Examples include the roof, walls, built in cupboards, clothes lines, windows, doors and even the driveway. Dependent on the property’s age, investors can generally claim capital works deductions at a rate of 2.5% per year.

If a residential property was constructed prior to 15 September 1987, there are restrictions which apply. However, investors who own older properties may still be entitled to capital works deductions for any renovations, including those completed by the previous owner.

Plant and equipment items on the other hand depreciate at a much faster rate. Examples include carpets, hot water systems, air-conditioning units, security systems, blinds and curtains. Determining the deductions for these items is not dependent on their age, rather their condition and quality. To calculate depreciation for plant and equipment, the effective life of each individual asset set by the ATO should be used.

It’s not uncommon for investors to self-assess depreciation deductions for plant and equipment items. However, by doing so they are putting themselves at risk of the following mistakes:

  • They can categorise plant and equipment assets as capital works deductions or vice versa. This mistake can result in plant and equipment assets being claimed at only 2.5% per year, rather than at their higher effective life rate. It can also lead to capital works items being claimed at higher rates than they should be, placing the investor at an increased risk of an ATO review of their claim and potentially resulting in them having to pay cash back.
  • They could incorrectly determine a plant and equipment asset’s effective life based on its condition. For example, they may believe a carpet only has a remaining effective life of two years. However, carpets are deemed as having an effective life of ten years in residential properties. Incorrectly determining an assets effective life could result in missed claims.

Repairs and maintenance versus capital improvements

Investors will face a scenario where work is required to ensure upkeep or repair damage done to their property. The work completed can inadvertently improve an item’s value beyond the original condition of an asset.

The ATO provides clear definitions to help investors to determine the difference between what is considered a repair, regular maintenance and what is defined as a capital improvement. A repair involves any work completed to fix damage or deterioration of a property. Examples include replacing part of a fence broken during a storm. Maintenance is considered work which will prevent damage or deterioration, for example having the carpet cleaned or oiling a deck.

The costs for repairs and maintenance can be claimed as a 100 per cent deduction in the same year of the expense. However, if an investor was to remove and replace the entire fence, carpet or build a new deck, this will fall into the category of capital improvements.

Capital improvements, or work which improves an asset beyond its original condition, must be depreciated and claimed as a capital works deduction or as depreciation.

How to avoid the risks

Investors can avoid many of the risks of claiming deductions incorrectly for their property by seeking the advice of a specialist quantity surveyor. They will complete a site inspection of the property to identify all of the plant and equipment assets found, take measurements and conduct research to find the correct capital works deductions available and outline deductions for plant and equipment assets based on their individual effective life. A tax depreciation schedule will outline these deductions for the property owner’s Accountant to process their claim.

A depreciation schedule provided by a specialist quantity surveyor will help to ensure the correct and maximum deductions are claimed and minimise risk for both an investor and their accountant.

–Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Chief Executive Officer of BMT Tax Depreciation. Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry.

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Expert Tips RENO ADDICT

Renovating with friends: what to consider first

Our resident expert Naomi Findlay has renovated more than 20 properties, several as joint ventures with friends. Here, she shares her tips on what to get clear before you buy property with someone else.

Buying a renovator with a mate or a few mates can be a great way to get into the market and to experience property renovating whilst splitting the risks.

However, as with all things in life, it is worth putting some planning and consideration into the finer details. Working with mates can be great but the last thing you want is for things to head south and friendships to be strained over a joint venture.

Image: Expert Beacon
Image: Expert Beacon

When entering into a joint venture (JV) with friends (or anyone really) it is essential that everyone completes due diligence individually. Your solicitors and accountants are an essential part of this team to work out and document the details for both parties to agree before starting the project. However, before you even get this far, there are some things that you and your best pal should work through. The big topics to make sure you think about and discuss are division of risk, work and profit.

Here is a good place to start:

1. Who will be legally buying the property? If you are doing it together, will it be as partners, a company or another entity such as a trust? Remember that whatever you decide at this point will have financial implications for you and your “regular income”, from the perspective of distributing profit or offsetting loss.

2. Who will fund the project? If you are buying the property as individuals, who will be obtaining the finance? Who will be supplying the deposit and providing the ongoing funds required for not only the renovation but the holding costs of the project during the renovation and sale period?

3. Division of work. When the romance of renovation is dangling in front of you, it is very easy to overlook exactly who is going to do what. Even the quickest renovations can still take five to six weeks. I don’t just mean the glamorous hero jobs like demolishing, sheeting, painting and styling; I mean the big picture… runs to the tip, sifting through paperwork and paying trades, pulling staples from floors (hour on hour), crawling under the house to clean out the previous owner’s rubbish, mowing the lawns for a month or so whilst the property is on the market. The list goes on and on!

To work through this, you need to look at your current workloads, skill levels, and time available to work on the project. Remember that you can be creative here; create a system that works for you both. Rather than looking at everything 50/50, think laterally to find a fit that works. For example, person one might finance the venture and hence hold the risk, whilst the other takes on the workload of the property whilst dividing the profit equally.

Regardless of how you structure the JV, it is always a good idea to forward project and catastrophise worst case scenarios and have an exit plan for each. Thriving JV projects with friends are all about planning, communication and documentation. If you start by having an open conversation about these points, you are well on your way to a successful JV where you and your mates can reap the rewards.

See one of Naomi’s renos for yourself.