The goal of an investment property is to make money. The good news is, there are more ways to profit than just collecting rent. In this article we’ll look at some of the deductions you can claim on your tax return and other money-maximising tips.
Renovations & allowable deductions
If you’re looking to maximise the cash flow on your investment property, upgrading your property can not only save you money on repairs and maintenance, it can also save you money at tax time. How? By giving you valuable deductions to claim on your tax return before and after you renovate.
Renovations can provide big tax breaks for property investors. For starters, you can claim depreciation on the useful life of Plant and Equipment items (removable items such as appliances, carpets, and blinds), as well as 40 years’ worth of deductions on any construction costs, at a rate of 2.5% per annum.
With many home appliances and fixtures having effective life spans of 10 years or more, the savings can be substantial. For example, by investing $15,000 in a new kitchen and appliances, you can enjoy approximately $5,000 in deductions over the first five years alone.
Make sure to think about deductions before you renovate so you don’t miss out on any valuable ‘scrapping’ deductions on items you throw away. Unlike other deductions, which are claimed over several years, scrapping allows you to claim an instant deduction on the entire residual value of items you throw away, when you throw them away – an amount that can really add up on your tax return.
If you don’t know the value of the items you’re scrapping, don’t worry – a quantity surveyor can help.
By asking a few basic questions, a quantity surveyor can help estimate the value of your renovations. In my experience 70% to 80% of property investors fail to maximise their deductions every year, and so it pays to get expert advice on what you can claim – it may be more than you think.
Finding & keeping the right tenants
Speaking of renovations, a spruced-up property is likely to be more appealing to quality tenants, and could help you receive a better rental return in some cases thanks to greater competition for your property. The right tenant can make your job as a landlord that bit easier; happy tenants are less likely to complain and often stay in a property longer, saving you the time and hassle of having to re-advertise.
It also pays to keep the right tenants. While you want to maximise your rental income, trying to get an extra $25 or $50 a week won’t pay off in the long run if it leads to high turnover and vacancy.
Hiring an agent to manage your property
As many investors have discovered, it can take a lot to manage a property. Although professional property management fees can range between 5% and 10% of your rental income, many find that the cost is worth it. For example, if the rent on your property is $350 per week and the management fee is 5.5%, that’s less than $20 per week to have a trained professional handle everything for you.
If time is money, then making the most of your investment property is not just about maximising rent, but also being smart about the amount of time, energy, and effort you put into your property.
If you have questions about renovations or your investment property, be sure to consult with our knowledgeable property managers at Dowling Mayfield on 0249600499