Renovator investments & Depreciation<< Back to Blog
IS IT WORTH BUYING A RENOVATOR AS AN INVESTMENT?
This is a broad question where you need to take into consideration many aspects such as depreciation, ROI return on investment, borrowings, etc.
There is good money to be made if you buy right and renovate within a budget that has an outcome of a fair sale price for the area.
It is important to take your time and research the area/market over a 3 month period to determine the lower and upper scale, average or medium sale prices for the area.
Following your research, you would want to invest in a property at the lower end (taking into consideration the number of bedrooms, bathrooms, garage space, outdoor area, etc.) and establish a realistic and achievable renovation budget that will improve the property, but not out price the market.
Renovating an old property could be a waste of money if the end result of the renovation (purchase price + budget - costs) is a sale price of $800k and the area sales are $500k-$700k, making a quick sale far harder to achieve.
Try to avoid properties requiring major structural changes and focus on cosmetic improvements if you are a first time renovator .
NEW DEPRECIATION RULES PASSED THROUGH PARLIAMENT.
Thousands of property investors will be impacted, with an average loss of around $4236 per year in depreciation related deductions over the first five years of ownership. However, there is no change to capital works rules. These deductions typically make up between 85 to 90% of an investors total claimable amount.
These changes were announced in the May 2017 budget and passed through parliament in November 2017.
The amendment to depreciation rules as detailed in the bill, mean that property investors can no longer claim depreciation for plant and equipment assets, such as air conditioning units, solar panels or carpet, in second-hand residential properties for properties purchased after the 9th May 2017.
Previously existing legislation will be grandfathered, which means investors who already made a purchase prior to this date can continue to claim depreciation deductions as per before.
For further clarification on tax depreciation of your rental property please seek advise from your accountant.