Forums / Getting Technical / Finance / Depreciation is only available for NEW Home and Land Package?

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  • Profile photo of inusureinusure
    Participant
    @inusure
    Join Date: 2014
    Post Count: 6

    Hi Everyone,

    I’m planning to buy my first IP, and i was approached by some “Professional Financial Advisers” who suggested me that I should only buy New Home and Land Package( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property. Their explanation is that i can only claim depreciation of buildings and fittings and loan costs through this type of property?
    I am a bit confused, as i thought that we can claim tax depreciation on any types of properties? Then they explained that with old/already existed or built properties, we can claim tax depreciation for 5 years max( or 3 years? I cant remember exactly what did they tell me).

    Another thing is that, i’m trying to prepare like a spreadsheet/formula to calculate when i buy a property to see if it’s actually generate a positive cash flow or not. I i remember on the “from 0 to 130 properties in 3.5 years” book, there is one but somehow i cant find it. Can someone please help me with this too? I create 1 by myself but i’m worry that i maybe i’m missing some key expenses that may mess up the whole calculation.

    I know that i may sound silly, so please give me some advice if you can.
    Thank you very much
    Anthony

    • This topic was modified 4 years, 5 months ago by Profile photo of inusure inusure.
    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Inusure,
    Welcome to our useful little community. I am glad you made that post, as this is a great example of how many people can get themselves into trouble. You though have been smart and have asked “Is this right?”

    i was approached by some “Professional Financial Advisers” who suggested me that I should only buy New Home and Land Package( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.

    They are obviously trying to sell you something, and it will likely be over-priced. To my mind, any business who will bend the truth to get you to buy from them is not to be trusted. The comment about “can only get positive cashflow by purchasing this type” is hugely incorrect!

    Their explanation is that i can only claim depreciation of buildings and fittings and loan costs through this type of property?

    Incorrect !! But a new build WOULD have MORE depreciation available to the investor than an older home (of similar style) would.

    I am a bit confused, as i thought that we can claim tax depreciation on any types of properties?

    You are CORRECT.

    Then they explained that with old/already existed or built properties, we can claim tax depreciation for 5 years max( or 3 years? I cant remember exactly what did they tell me).
    I would call that “selective correctness” !! They are speaking the truth – sort of !! They are not completely incorrect, nor completely correct. Capital costs can be claimed for many more years, depending on the build date. Borrowing costs can all be claimed within 5 years. With Depreciation, your choice of Prime Cost or Diminishing Value WILL affect how soon you will stop claiming depreciation. There is SO much to it all – they are sometimes right, and sometimes misleading. Be careful.

    What they DON’T tell you is that a second-hand property may well be able to be bought in that area for a lot lower cost, thus making it cashflow positive (or near to it) WITHOUT any Depreciation needed (but still available to you anyway, and can further increase the positive cashflow).

    Where you REALLY need to check though, is whether any OTHER NEW property in that area is able to be purchased for a lot less. If that IS the case, RUN A MILE.

    Always ask yourself – is this person who is offering me advice going to gain as they direct me to purchasing a specific property?
    The more they “turn you away from other options” the more your feet should be itching to RUN !!! Good on you for asking,

    Benny

    Profile photo of inusureinusure
    Participant
    @inusure
    Join Date: 2014
    Post Count: 6

    @benny: Thank you very much for your advice. I have 1 property in my mind already and have taken into account of all of the costs that i could think of:
    Council Fee, Water fee, Agency cost and up front costs such as mortgage and stamp duty, and i know that I’m still missing something.
    Is there any advisers that in Melbourne so i can ask or go with, because sooner or later, i will do to get my mortgage for this IP.

    Thank you all again,
    Anthony

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi again, Anthony,

    For ongoing costs, they come under 5 main categories :-
    Mortgage Interest
    Rates, water
    Maintenance
    Insurance
    Administrative – RE costs (if not self-managing) and accountancy.

    Purchasing costs are a whole ‘nother ballgame. Costs come out of the woodwork during that time (Stamp Duties, Borrowing Costs, Solicitor fees, Registering title, etc, etc.

    Most allow 3% of purchase price to cover most of these. Some of these can be added to the mortgage and paid as extra on your Interest (e.g. LMI) and some can’t. This area is complex, and a chat with a knowledgeable Broker and/or Financial Planner is well worth doing, if you are new to this.

    Most MB’s (Brokers) on here would be well equipped to guide your early steps thru the lending, and to explain much of the stuff you need to know re $$ and financing. Most also have their own portfolio of IPs so are very knowledgeable in “all things IP-centric.”

    Re them being in Melbourne, I suspect there are some MB’s on here that would be – but, as is mentioned many times, a MB can conduct business across States with the technology available today.

    Of course, YOU may want to sit down eyeball to eyeball with a Broker – and that’s fair enough too. Look around at some of the signatures and you will soon notice all of the Brokers, their locations, and their knowledge will be on display too….

    Benny

    Profile photo of inusureinusure
    Participant
    @inusure
    Join Date: 2014
    Post Count: 6

    once again, cant thank you more.
    I really appreciate these advice and guidelines.

    I have a MB/Financial Adviser, but he was the one said that “i can only get positive cash flow by purchasing this type of property” and suggested me to buy some properties in Melbourne. I received his investment proposal and then check the address of the property on realeaste, found out that the price was 20k-30k extras, and i asked him why, the answer was: the admin forgot to take this property down on realeaste, but you wont be able to get it at that price anymore @[email protected]!

    Was confused, so confused.
    Will look around the forum and find an Adviser in Melbourne, thank you, Benny.

    • This reply was modified 4 years, 5 months ago by Profile photo of inusure inusure.
    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi there,

    Question> What is the time, Anthony?

    Answer> TIME FOR ANOTHER BROKER/ADVISER !!

    Good luck with your hunt. Hopefully, some of our MB’s will direct your steps in reply…. Many of them know each other, and would also know “who is in Melbourne”.

    Benny

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    ( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.

    Which they coincidentally happen to be selling.

    Beware.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Ah Yes that extra $20-$30K we forgot to mention was our commission on this wonderful property suggestion we made.

    What a load of rubbish.

    We bought a property for a forum member as Buyers Agents earlier in the week and the property was constructed in 2011.

    Given that construction costs have barely changed in the last 4 years the amount of Depreciation the client could claim between a property build in 2015 and 2011 is marginal.

    Start looking for another adviser.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of inusureinusure
    Participant
    @inusure
    Join Date: 2014
    Post Count: 6

    Thanks, Terryw and Richard.
    I’m looking for new advisor in Melbourne now, can any1 give me a recommendation or pm me, please?

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    My partner Jacqui (JacM) from the forum is Melbourne based.

    Feel free to email her or look up her number [email protected]

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    To be clear, even older style properties can have some depreciation worth, depending on level of renovations and how recently they were done. A full re-wire of a property, even through it does not serve to make the property “visibly prettier”, has worth on a depreciation schedule. New kitchen and appliances, there’s some depreciation. Some new tiles and/or carpet, there’s some more. And so on. Don’t let people tell you nonsense. You can ring a depreciator, show them some photos and ask for an estimation of year 1 depreciation.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    ( the one that is building/soon to be finished), and they told me that i can only get positive cash flow by purchasing this type of property.

    Which they coincidentally happen to be selling.

    Beware.

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    Correct, when they’re suggesting property for you, you can be assured they will be receiving a commission for it that is added in the price. The effect that will most likely have is your valuation may tank.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
    Email Me | Phone Me

    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of inusureinusure
    Participant
    @inusure
    Join Date: 2014
    Post Count: 6

    Thanks guys, and I will contact Jacqui this week to arrange an appointment.

    Profile photo of James MavJames Mav
    Participant
    @jamesmav
    Join Date: 2014
    Post Count: 7

    Hi Anthony,

    Your broker is telling you a “half truth.”

    Whilst new properties generally have higher levels of depreciation, older properties usually still have some depreciation left.

    Buildings themselves depreciate at 2.5% p.a, and all the assets themselves depreciate at their “effective life” ie hot water heaters over 10 years etc.

    This can help tax wise but what you are missing out on is the capital growth (ie by renovating the property it should (if done correctly) increase in value by more than the expenditure), also the rennovations themselves are depreciatable (as they are now new assets).

    The other thing to be aware of is that off the plans usually offer very large commission to whoever sells them, which may be a large part of the reason your broker is pushing you towards an off the plan.

    Hope this helps.

    __________________________________________________________
    James Mav | Accountancy Matters | Accountant
    http://www.accountancymatters.com.au

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