How to Use Depreciation to Make Your Rental Project Viable

How to Use Depreciation to Make Your Rental Project Viable

22 October 2018
 Categories: , Blog

If you've decided to buy some rental properties so you can diversify your investment portfolio, you may believe that you are onto a winner. However, some of your well-meaning friends may question your sanity as they cannot imagine how you can make any money at all from this type of venture. After all, they may say, the marketplace is very competitive, it's difficult to charge the proper amount of rent and you have to put all of your earnings back into the pot to take care of damage and repairs. Certainly, these items can stand out on any profit and loss account, but you've got to take into account depreciation as well and the significant tax advantages that may be available. While you worry about how to attract tenants, vet them properly and furnish each property, you should also have a word with your accountant to get a survey underway. What needs to be done here before you go too far?

Over to the Experts

While an accountant will be in charge of filling in your tax returns and trying to get the best deal possible for you at year-end, he or she will also commission another expert to do the survey work itself. The government wants to make sure that the depreciation schedule is very accurate and realises that this is an area that could be abused, so they only allow the assessment to be completed by a licensed quantity surveyor.

It's All in the Detail

When one of these experts is brought into the picture, they will go through all your properties with a fine-tooth comb and itemise every single fixture and fitting to be found. They will go into incredible detail as they complete this document and before they hand it over to your accountant for further action. You will then be able to generate what is known as a capital claims tax depreciation schedule, and this magical document may hold the key to your ultimate profitability.

Establishing the Record

The quantity surveyor is very experienced at their job and able to deal with the dozens of asset classes identified by the ATO. They will be able to use different depreciation methods, including diminishing value or prime cost, all of which lead to savings for you and can be spread over decades into the future.

Buy and Sell

Of course, you may decide to replace some of those fixtures and fittings from time to time, and you can use a master document to do so each year. So if you need to bring in a new fridge freezer, you can write off the old one and begin to depreciate the new one as soon as you do.

While you try to explain these property depreciation schedules to your well-meaning friends, ensure that you have the right team of experts on your side to do the actual work.