Investing In An Apartment?

Accounting for depreciation could save you $71 per week

Before walking away from purchasing a first or next investment property, make sure to crunch the numbers correctly. That next bargain may actually be affordable if property depreciation is claimed.

Astute investors will usually consider the potential rental return of the property, the property’s location in proximity to local services and facilities, local employment drivers and historical growth of properties within the area.

They should also work out the tax deductible costs and other deductions involved in owning the property such as property management fees, rates, interest, repairs, maintenance and property depreciation.

These deductions add to the investor’s net cash return and every deductible dollar comes back to the owner at their marginal tax rate.

More often than not, investors fail to consider the financial benefit of claiming depreciation prior to making their purchase. The following example shows how one property investor identified an additional yearly cash flow of $3,692 from property depreciation.

The property investor was considering purchasing a two-bedroom unit priced at $528,000. They did some preliminary research and asked their Property Manager for a rental appraisal of the property, which resulted in an expected rental income of $470 per week, or $24,440 per year.

The investor was also able to work out an estimate of the costs involved in owning the property. Expenses including interest rates, property management fees, rates, repairs and maintenance costs came to a total of $37,935 per annum.

The following table provides a summary of these costs and the investor’s annual position, depending on whether or not depreciation is claimed. 

Without claiming depreciation, the property investor would experience a loss of $164 per week during the first year of owning the property. By claiming depreciation, the weekly cost is reduced to $93, saving them $71 per week or $3,692 in the first year of ownership.

An investor who crunches their numbers prior to making a purchase will gain a better perspective on the affordability of the property and their future cash flow position. Once they purchase the property, a specialist Quantity Surveyor can be engaged to prepare a property depreciation schedule to ensure depreciation deductions are accurate and maximised.

BMT offer a Tax Depreciation Calculator that is available online or as a mobile app for iPhone or Android. Investors need to know only a few details about a prospective property in order to calculate a quick estimate.