Astute investors are building their property portfolio by renting in their dream suburb and purchasing investment properties in affordable locations.
The ‘rentvesting’ strategy is a great way for the younger generation to get their foot on the property ladder. They get all the tax benefits of owning an investment property while generating a rental income to cover their mortgage.
Some deductible expenses of owning an investment property include property management fees, rates, interest, repairs and maintenance and property depreciation. Surprisingly, property depreciation is a key benefit that is quite often missed by all types of investors. Claiming property depreciation can dramatically improve an investor's cash flow and reduce their taxable income.
Case study scenario
‘Rentvestor’ Kelly decided to purchase a 10-year-old house last year for $595,000. The property is rented for $620 per week with a total income of $32,240 per annum. Expenses for the property, including interest, rates and management fees, came to a total of $44,300.
After calling a specialist quantity surveyor, Kelly found that she would be able to claim $13,800 in depreciation deductions in the first full financial year alone.
The following scenario shows Kelly’s cash flow with and without depreciation a depreciation claim.
By including depreciation, Kelly’s annual outlay for the property was reduced to $2,492 per annum, or $48 per week, a difference of $98 per week or $5,096 per year.
Regardless of the type of investor you are, it is important to crunch the numbers prior to making a purchase to gain a better perspective on the affordability of the property and your future cash flow position. Once a property is purchased, a specialist quantity surveyor can prepare a property depreciation schedule to ensure depreciation deductions are accurate and maximised.