These two fundamental principles underpin sound property investment.
Blogger: Paul Bennion, managing director, DEPPRO
Buying a property in the right location is a well understood principle, but the issue of timing is less appreciated by property investors.
Research shows that investors who generally hold their properties over a shorter period of time make less money than those who hold properties over the long term.
This truism is underlined by the latest CoreLogic Pain & Gain report for the June quarter 2015.
It shows that while 30.8 per cent of properties sold for twice what the owner paid for them, 9.1 per cent of homes were sold for less than their purchase price.
The report revealed that homes that were sold at a loss were owned for an average of 5.3 years, while homes making a profit were kept for an average of 9.9 years.
Too many people take a short-term approach to the property market believing they can make money over just a few short years, when the reality is that investors needs to take a 10-year approach to ensure they benefit the most from the benefits of property investment.
That is why property investment is for stayers and not players.
A good example is the booming Sydney property market. Sydney property values last peaked in March 2004 and are 19.5 per cent higher than that previous peak as of the June quarter 2015.
It is also worth noting that it took until March 2014 – or 10 years – to eclipse the previous peak.
That means that property investors who bought at the peak of the Sydney market in 2004 and held onto their properties until now have made a significant amount of money, whereas those who sold in the intervening period most likely lost money.
Property investors can ensure that they can hold onto their investment properties over the long term and reap the full benefits of the property market by boosting their cash flow through tax depreciation.
The tax benefits associated with tax depreciation can be very significant, with DEPPRO clients achieving tax benefits obtained through depreciation equivalent to 60 per cent of the total purchase price of the property. In some cases, these tax benefits can total $300,000 based on a purchase price of $500,000.
Many investors in Australia totally underestimate the number of items that can be depreciated for tax purposes and this comprehensive list can even include garden gnomes and cubby houses; and if they own an apartment, then common areas such as car parking and recreational facilities.
To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an onsite inspection of the property and then compile a depreciation report based on this inspection.
Property investors should therefore check that the company undertaking their tax depreciation schedule is a member of the The Australian Institute of Quantity Surveyors (AIQS).
Employing a company that is a member of AIQS, such as DEPPRO, gives protection to consumers that their tax depreciation report is completed in a professional manner.