Anybody who knows me will tell you I am all for investing in new build properties. Not only do they allow you to take full advantage of the available tax offsets and benefits the government has put in place for new builds, they also come with the potential added advantages of creating instant equity, commanding higher rent and needing little maintenance. Unfortunately, tax offsets don’t last forever, and neither do fixtures and fittings. But when is the best time for you to invest back in your investment property, and what are some of the added benefits you can receive?
When the Depreciation Runs Out
After your investment property has been built and your tenants move in, you have quite a bit of time for your fixtures and fittings to have an effective life. At some point though, your ability to claim depreciation against these assets will come to an end. This point is the most sensible time to invest back in your property, bump up your taxable offsets and replace some items. The items in your property all have different effective life spans, and the ATO has extensive information available that can show you the time in which an item in your investment property will reach a point that it is essentially no more than scrap.
As a good rule of thumb, every ten years is a time when you should consider replacing things like carpets, air conditioners, heating systems, ceiling fans, curtains, floorboards and dishwashers. Once you have replaced these items, you can start your depreciation clock again and claim the full allowable amount of that item. It also assists in optimising your ongoing rent.
When You Want to Increase the Rent
Increasing the rent in your investment property is something that all investors have at the back of their minds. This can be a tricky thing when you have tenants living in the property – increase the rent too much and you potentially lose the tenant and, depending on how long it takes to replace them, you may have negated the increase you introduced for that financial year. A good way to go about rental increases is to engage with the tenant and ask them what else they could use in the property or what needs replacing that would make them happy to pay more rent.
Could they use a new dishwasher, and would that result in an additional $10 of rent per week? Or would they like an air conditioner installed and a solar hot water system? The more that you engage with your tenant and ask them what would improve their livability situation in your property, the more likely it is they will accept a new rent amount, with the bonus of improving your property for future tenants.
While investing in new builds gives you a far better option when it comes to the long term cash flow affordability of property investment, looking forward and planning out when those properties will need some tender loving care, and making sure this is in alignment with your financial plan, will ensure you are truly maximising your investment now and in the future.