Our team at BeProperty understand that an investment property can be the largest investment commitment people may make in their lifetime. That is why here at BeProperty we want to make sure that all investors consider some of the characteristics and implications of buying an investment property and ensure that they know how it may benefit or affect their individual situation:
Depreciation
One of the biggest benefits in buying property is the depreciation that is claimable for an investor to help them increase their investment deductions and potentially their taxation returns. Not all properties eligible to claim depreciation, however most new properties can claim full depreciation and often offer larger depreciation benefits.
Rates, Water, Insurance & Body Corporate
Any property is subject to rates and water charges. Water charges are split between water access charges and water usage charges. If your investment property is individually metered with regards to water, then you may be able to claim the water usage costs directly from the tenant. However normally rates and water access charges are costs borne by the property owner.
Body Corporate is an additional cost for properties that have shared facilities and/or common usages areas. Nearly all units and townhomes will have a bodycorporate charge and some house developments may be part of a gated community and may also be subject to a bodycorporate charge. Bodycorporate does not automatically mean that a property will cost more or perform worse and properties without bodycorporate as the bodycorporate fees may also cover the costs of the building insurance, maintenance and upkeep of common areas and the payment of a full time bodycorporate manager, which does help ensuring the maintenance and upkeep of your investment.
Insurance is required as a form of policy or security over the property to ensure that your property is protected from any damages arising from misuse, wilful damage by the tenant or accidental damage to the property. The insurance is normally broken up into three parts, the first being building insurance (which may not be required if you have a bodycorporate that pays for the building insurance), contents insurance to protect your internal fixtures and fittings, and landlords protection insurance to protect against loss of income and damages caused by the tenant. Often landlords insurance and contents are taken in addition to any building insurance provided for by the bodycorporate.
Rental Management
In Australia, most investment properties have the option of being managed by an external rental manager. This creates an additional cost for the property, but also provides peace of mind with having an external manager source a tenant, collect rent, settle and resolve disputes, inspect the property, and ensure all paperwork is legal and up to date. For most, it is an essential cost in helping to provide peace of mind that their property investment is tenanted and looked after.
CGT Tax and Accounting
If you own a property and are intent on claiming depreciation, then it is important to obtain some advice from a professional accountant to see the implications of Capital Gains Tax (CGT) if you choose to sell your property in the future.
Cashflow
When taking the above into account, it is important that you understand the cashflow timing and implications of your investment property. The below cover some of the cashflow considerations you may have:
How is my income paid and in what frequency?
What expenses come out and in what frequency?
What, if any, tax benefits are available and when are these paid/realised?
Which months may be negative with regards to cashflow and by how much?