All Topics / Help Needed! / Depreciation

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  • Profile photo of bundydogbundydog
    Join Date: 2007
    Post Count: 7
    Hi all,
    I am having trouble getting my head around the depreciation of house and other assets of an investment property. I haven't yet purchased my first IP but have done about a year of research on suburbs all over Australia and I am very close to taking the plunge having narrowed it down to 3 suburbs.
    My problem is that the areas I can afford all have houses that are built well before 1987 and alot are ex housing trust or similar. My other problem is that I can only afford about $20 a week out of my pocket to comfortably support the purchase, and I'm not sure what % return I need to do this including all the depreciation that I am allowed on a property of this vintage. The areas I'm looking at all get around if not over 5% – 6% return excluding all the fees involved.
    Don't know what to do next. Is there a way of guess-timating the depreciation so I get a closer figure?


    Profile photo of okkamooieokkamooie
    Join Date: 2007
    Post Count: 39

    Hi Bundydog

    Depreciation is made up of 2 components, Furnature, fittings and Equipment (ovens, cook tops, rangehoods,carpet, hot water systems, window coverings, dishwashers, air conditioners etc) and special building writeoff.  Given the age of the houses you are intereste in the you would have no access to the special building write off, but you could depreciate the Furnature, fittings and equipment,  how much you can access for these depends on the age and initial cost, and only a quanity surveyor can estimate inital cost and useful life left.

    If you are after a broad guestimate then I would use 10% per year of the estimated cost of the item (this is assuming that they appear to be reasonablly new condition.  If they appear to be really old then you will not get any depreciation for them.  I use this approach to determine a depreciation guestimate


    Profile photo of Tysonboss1Tysonboss1
    Join Date: 2007
    Post Count: 306

    I don't think you have enough cash flow to support an investment that only returns 5-6% if you can only spare $20 per week.

    You have to leave room for an interest rate increase and possiable vacancy,

    However,….. Having said that,… have you looked into Interest only loans as a possibilty of freeing up cash flow, 

    I am not sure about your current position but you can also look at options for cutting back your personal spending to free up more cash for investments,….. you'll be surprised how much can be saved by making a few small changes to the way you spend your money,

    I went through a period where I was focused on saving money,… some of the small Changes I made that add up to a whole lot when put together were,

    I gave up drinking,….. Gave up take away,…. replaced most main meals with cheaper alternatives such as 2min noodles, baked beans etc,….. If there was a cheaper alternative brand for some thing such as "home brand" I bought it,….. I turned my on demand gas hot water sytem off at night and while I was at work and cut my shower time down which took my gas bill to $63 from $240….. I rode my bike to work,….. If I had to treat myself to a movie or a pizza it was on a tuesday night,…

    This kind of thing sounds extreme but the results are amazing and I am still receiving the benefit because all the money I saved went of my homeloan so every dollar I saved also saved me 25Years of interest that I would have been charged if that dollar was spent and not put on my loan,…

    Profile photo of L.A AussieL.A Aussie
    Join Date: 2006
    Post Count: 1,488

    I just did a 30 sec search on r/

    Here's one I saw in Dandenong, Victoria. It is going to be a growth suburb in the next few years due to price (affordability), proximity to CBD and transport, amenities.

    Don't know how old it is, but based on appearance it would be in the age range you need, and you may get it for close to
    $200k. Don't know the rent return either, but if you call the agent and say you are interested and can you show me others based on your criteria, I'm sure one will turn up.

    Profile photo of bundydogbundydog
    Join Date: 2007
    Post Count: 7

    Thanks for the responses,
    Sounds like I need to tighten the reigns. I know we spend way too much, our credit cards bills are around $4000 a month, but that includes all insurances, (house and cars), repairs to cars, rego, petrol, food etc… but still way too high for a family with 2 kids.
    I am going to change loan from P&I with ING to a professional line of credit with Comm Bank to try to reduce spending. It has fees of $300 a year but in long run over several properties it should work out.
    I earn about $63000 a year but with OT I get up to around $100k. My Mortgage is $600 a week on PPOR so on my (wifes)spending habits I would be going backwards.
    I play lotto every week and it costs $20 so that's were that figure came from if I quit playing.
    If I reduce spending I would be willing to put extra money in to service loan.
    I have about $200k equity in my home that I am looking to use for deposit but I want to start off slow, say a house worth about $200k.
    Thanks for the link LA Aussie, I'll check it out.
    Cheers all, Mick

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