What’s better for investment success, buying an older property or a brand new one?
Which type of property is better for you?
The answer is, what is your personal investment strategy? Because every strategy is different. There are significant advantages to both!
For us, we’ve invested in brand new property and existing homes. With several of the existing homes we’ve completed renovations to manufacture growth and increase rents, which took an enormous amount of our personal time and additional investment. With each asset we have personally accumulated, we’ve always had the same view of holding the assets for the long term.
Our strategy has changed over the years, particularly now that we each have young families and a business to focus our energies on. So what’s your strategy?
Today we’re going to shine a light on one of the advantages of buying a brand new investment property – tax!
Are you paying too much tax each year?
Tax Deductions
Did you know that you can reduce how much tax you pay to the ATO each year by investing in new property? It’s true!
By selecting a brand new investment property, one of the added benefits (among a range of other advantages) is that you will pay less personal tax in the future. Your hard earned money will be invested in you, rather than donating it to the ATO.
In our experience, not many people realise how substantial claiming tax depreciation is. It is money in your back pocket and can be used to turbocharge your investing and future lifestyle goals.
By acquiring a brand new house, or terrace, townhouse or apartment, you can claim the depreciation of the building’s value and the items that are permanently fixed to the property, against your taxable income. Items you can claim include the deprecation on the dishwasher, oven, blinds and carpet.
Approximately 98% of the construction cost of a new house can be claimed for a maximum of 40 years, from the date of construction completion.
Claiming these deductions reduce how much you pay the Tax Man each year!
If your residential investment property was built after July 1985, you will be able to claim both Building Allowance and Plant and Equipment. If built before this date, you can only claim depreciation on Plant and Equipment.
Both new and old properties are eligible for plant and equipment deductions and capital works / building deductions, although new investment properties will generate a far greater return from the structural depreciation. Talk to your accountant for tax advice.
One of our most recent investment properties featured nearly $15,000 in tax deductions in the first year alone. Our client who acquired the property pays approximately $25,000 a year in income tax, and this new investment property has now been offset against that amount. Talk about a win win!
Another recent investment deal we just settled on featured a 6.5% rental yield and nearly $13,000 in tax deductions in the first year. Talk about positive cash flow!
We like to think it’s the government’s way of supporting Australians who give-it-a-go and invest in their own future.
How do you claim this?
Firstly, organise a Quantity Surveyor to complete a tax depreciation schedule on your investment property as soon as you settle on the property, or ASAP. We organise this for our clients at handover.
The next step is to contact your tax accountant and provide the depreciation report. Your accountant will advise your options on when and how to claim these items. Some of our clients claim it once a year when they complete their personal tax returns, while others process their claims more regularly to create additional cash flow. Talk to your accountant about what’s best for you.
It’s just a bonus!
So what’s better, a new property or an older one? For tax purposes, a brand new construction delivers far greater benefits.
However we’d always recommend a balanced portfolio that is based on a strategic plan that will guide you towards your retirement goals.
And we would never recommend investing in a particular property just because of the tax deductions. That is not a reason to invest, your focus should be on the type of asset your strategy needs to move you forward. Consider the long term capital growth the area can generate, plus the rental yield that the property can return. What’s the best asset type for that area, new or old? Tax depreciation is just a bonus. But certainly a nice bonus!
If you pay alot of tax each year and you’d rather find ways to invest that money into your future, contact us for a chat about property investment.
Do you have a Depreciation Schedule for your existing properties? Click here and we can arrange you one.
Are you happy with your current Tax Accountant? Click here and we can refer you to one.
Recent Comments