Do we need a tax depreciation schedule for our investment property?

In short, yes, it is a great idea!  Read on to find out why.

Depreciation is an accounting term that describes wear and tear of an asset which occurs over the time that you own it. Typically, a building and all that it contains depreciates in value over time, while the land upon which the building sits, appreciates.  The government allows investors to claim depreciation on some property assets and the building itself.  The Australian Taxation Office has a schedule of effective lives of the various parts of the build, the building structure and the fixtures and fittings within the building. 

Investors may claim things such as blinds, a dishwasher, carpets, buildings that are less than 40 years old, air conditioning units, stoves, hot water systems, kitchens, bathrooms, lights - basically anything that is within the unit and is rented with the unit - including furnishings - may be claimed. 

I refer my investor clients to skilled and professional quantity surveyors who can attend the investment property and complete and prepare a tax depreciation schedule for your use.  An experienced quantity surveyor has extensive knowledge of construction and the allowable deductions that accord with the ATO's requirements.  In doing so, you are able to legally minimise your tax.  

Getting the best out of your buyer’s agent

Let's face it, a buyer's agent is not an inexpensive service and you want to get the best value for the money you are spending.  I wanted to share with you a few tips so that you can get the best out of your buyer's agent and be delighted with the service you receive.

Buyers' agents are a relatively new concept in Australia, with the first buyers' agents setting up in around 1997 and then a major influx from 2010.  Many people are using a buyer's agent for the very first time, and they want to know how to get the best out of their agent.  A buyer’s agent is even more effective in helping you with your property purchase if you know what to expect from them and how best to work with them. 

Understand what you need and let your buyer's agent know

Buyer’s agents work with a wide range of clients, such as home buyers, investors and commercial real estate purchasers.  Each client is unique and has their own needs, for example around budget, location, property type, time-frame for their purchase and so on.  A skilled and dedicated buyer's agent will work hard to ascertain each client's needs, and these should be documented and recorded, with the client and buyer's agent having a copy of these recorded wishes.

If you are uncertain about what you are after, your buyer's agent should provide you with information and time so that you can consider your options as they relate to your needs.  You can then decide your goals and the property types you want your agent to pursue for you.

Understand and work within your budget

Your buyer’s agent is an expert in sourcing and assessing real estate, and understanding and negotiating with real estate sales agents.  However, a buyer's agent cannot provide financial or legal advice to clients.  A buyer's agent can help you to understand the types of properties and locations that will suit your budget and your needs, however they cannot stretch your budget or force vendors to sell their properties for less than what they are willing to sell for.  The role of the buyer's agent is to help clients understand and work within their budget. 

Clients can ensure they know how much they can afford to spend, what monthly repayments they can manage and their appetite for risk / return.  Melissa Maimann Buyer's Agent works with skilled and committed financial planners, property lawyers and finance brokers to assist our clients with these decisions.

Become involved

At the end of the day, you are paying your agent to do the hard work for you.  That is searching, inspecting, reporting on properties, liaising with your finance broker, conveyancer and sales agents, and helping you to make sage decisions about your purchase.  A buyer’s agent presents you with a range of options, ensuring that you are comfortable with your decisions and keeping emotion out of the negotiation process.  Open and communicative clients are a great match for a buyer's agent's services.

Was your home loan declined?

There can be some confusion from buyers with pre-approvals and approvals of home loans, with many thinking that a pre-approved loan equates to a certain and guaranteed approved loan.  Unfortunately, this is not always the case.  A skilled a dedicated buyer's agent working hand-in-hand with your finance broker can help to ensure that you are not one of the unlucky few for whom a pre-approval does not become an approved loan.  Read on to find out some of the reasons why your loan might not be approved.

The bank's valuation does not match the purchase price

This can occur because the buyer has paid too much for their property.  Buying a property through a buyer's agent ensures that a buyer does not pay more for the property than what it is worth.  If the purchase price is significantly more than what the property is actually worth, the bank cannot provide all of the finance for the property.  Another situation that can occur is that the property has major structural or foundation problems, or other major repairs, that may mean that the property is unlivable for a period of time.

Debt

A material change in the buyer's financial situation - particularly an increase in debt, such as credit card debt, taking on other loans such as a car loan, personal loan or business loan - may all impact the amount that a bank is willing to lend to a buyer.  In particular, from time-to-time, a buyer's financial situation can change in the period that elapses between submitting the original finance application for pre-approval and then actually getting an approved loan.  The best way around this is to constantly keep your finance broker abreast of any changes in your financial situation, including and especially, situations where you have taken on additional debt.

Documentation is late or incomplete

Banks require certain documents to be completed accurately before they can process and approve a loan.  It is critical for a buyer that their loan documents and complete and submitted in time. 

Changes to your earned income

Your loan may be refused if your income changes significantly at any time during the application process.  Those who are most at risk are people who are in-between jobs (ie, employed when they applied for their loan, but in-between jobs when the loan approval process commences), people who are self-employed and casual employees.  

How I help my clients

At Melissa Maimann Buyer's Agent, I have a skilled and dedicated team of finance brokers whose expertise is honed and well-respected.  Working closely together, we ensure that our clients' loans are approved and that our clients are kept abreast of the developments with their pre-approval and approved loan.  We work to ensure that our clients are approved and that they settle and move into their home sooner.

Saving for your First Home

Yes, it is possible!  Home-ownership is not limited to high-income earners.  People use various strategies to buy their first home; among them are:

1. Saving for a one-bedroom unit as a starting place

2. Buying a home and renting out the second bedroom

3. Buying a home with a partner

4. Buying an investment property: a foot in the door, and renting a home to live in

A key element is to manage your finances well, and the best starting point is to record each and every expense you have in a month.  This will allow you to identify areas of spending where you can cut back, for example eating out less often, bringing lunch to work rather than buying it, paying off credit cards before they are due, and shopping for cheaper brands.

Once your finances are under control and you are in cash-flow surplus per month, you want to put that excess cash away to save for your deposit.  Birthdays and special occasions can be used as opportunities to have financial gifts - to put into saving for your deposit - rather than commercial items that will be used.  A deposit for a home may be as little as 5%.  As a starting point, it might be worth considering buying a smaller place in a great area, rather than holding out for a larger place in a great area.  The capital growth of a smaller home in a great area will out-weigh the interest earned on savings.

At Melissa Maimann Buyer's Agent, I help people from all walks of life purchase their first or next home.  Fees are very flexible and reasonable, and you only pay for the service/s that you require, controlling your spend while also ensuring that you benefit from skilled and professional advice. 

About Landlord Insurance

Many property investors understand the importance of insurance, but they don't understand how Landlord's insurance protects them as property investors.

Landlord insurance covers owners from the risks that are associated with tenanted investment properties.   A Landlord insurance policy for a unit would cover such things as a tenant who absconds and stops paying rent; costs associated with evicting a tenant, malicious, accidental or intentional damage to the property by the tenant, fires and theft.  All of these situations have the potential to leave your property a) untenanted for a period of time and b) may result in costs to you as the Landlord.  Landlord's insurance provides compensation to the Landlord for the costs that they incur to rectify the property, and also compensate the landlord for the loss of rent during that time.  Many policies will also cover legal fees that may incurred in evicting tenants and recouping lost rent.

Building insurance may also be necessary for houses to cover the building itself.  Insurances for investment properties are a tax deductible expense.  At Melissa Maimann Buyer's Agent, I am able to recommend insurance companies and explain the differences in the policies and what they cover so that my clients' investment properties are fully covered.

What is it like to have a buyer's agent?

I asked my clients to share their view on what it was like for them to work with me as their buyer's agent, compared with their previous experience of buying property alone.  Here's what they had to say:

We're a couple with a growing family. We bought our first place together - a two-bedroom unit - 4 years ago. Now that we're expecting our second child, we need a larger home. This has also meant moving to a different part of Sydney. We wanted to live in a good area, a safe area, but we weren't sure where would be good for us. We also didn't know the market very well, having been out of it for some time now.

We remember what we went through buying our unit - we both felt really frustrated and at times just really despondent. Now we have our toddler and a new baby on the way, we didn't want to go through all that hassle again.

We had lots of questions this time around, because we wanted a home we wouldn't need to move from for a while. We had questions like: How can we know that the area we're choosing is a good area for us as a family? What are the crime rates? What facilities are available for us, like health, education and also transport? We didn't want to have to deal with agents - that was a real struggle last time. What should we expect to pay in general for what we're after, and more specifically, for the property we decide we want to buy? We had loads of other questions; these are just a few.

We met with a couple of buyer's agents before we made our choice. It came down to the philosophy of our buyer's agent and their willingness to work with us on our plan and goal.

What we loved about having a buyer's agent this time around was having our Saturdays free for us and our family. We work hard during the week, and when the weekend comes, we just want to unwind and relax, not having to follow an inspection schedule, find parking, queue up for inspections and then rush on to the next one.

Once the properties were pre-qualified and inspected, we had a look too - but these were only a handful of properties that we knew - and our buyer's agent knew - would suit us well. And they did! After leaving a property, we would have a discussion about what we liked and didn’t like about the property, and more importantly, our plan for moving forward - you know, when you sell your home, your agent tells you about all the buyers and how they plan to negotiate with them to get the best deal - well, this is in reverse. Our agent talked with us about the selling agent, about the vendor, the property, the reports and contract and so on - and together, we devised our own plan of attack. We never felt alone.

Yes, there was a cost for this service. That said, the small fee pales in comparison to the time we saved, the hassle and heartache we saved, and the expert service we received. We paid a great price for our home - less than what the vendor was asking, and more importantly, we didn't buy a couple of other properties we had been interested in - and may have otherwise bought - and later regretted.

Buying a home at auction?

Buying a home at auction can be one of the most stressful ways to purchase a property.  Auctions are totally unpredictable: you never know how many people are going to be there; how many will register to bid; how many will actually bid; and how deep their pockets are.

Compounding the issue, most home buyers have very little experience with buying at auction, and nerves can run very high. It comes as no surprise that the majority of people who try to buy a home at auction miss out.

Faced with a dilemma: do we increase our budget or do we stop bidding - many people choose the former.  The results of this can be disastrous. 

Bidding at auction on behalf of a client is a very different experience.  Removing the anxiety, emotion and excitement, and focusing more on an agreed and explicit upper price limit and budget, a buyer's agent confidently and skillfully knows when and how to bid, how much to increase the bid by as to not over-pay, and perhaps, when to walk away.  If you keep missing out at auctions, consider using a buyer's agent such as Melissa Maimann Buyer's Agent.  Auction bidding services are well-priced, and a flat fee ensures that you know ahead of time what the fee will be - no surprises.