Rent is not the only income from an investment property.
Obviously it is the most common and mostly the greatest return however there are more which are often unknown and unutilised. This blog will cover some avenues you can take to provide additional returns from your property and maximise your investment which may not be known to landlords.
The first avenue to discuss is tax deductions. What are they and how can they help with returns? A tax deduction is a reduction of income that is able to be taxed, quite simple really. When applying this to an investment property this means any expenses deducted from the rental income. The Australian Taxation Office outlines deductible expenses and I think you may be surprised at the entitlement benefits. There are two different types of deductions that can be made, ATO describes them as those available immediately and those available over a period of time. Examples of immediate expenses are advertising costs, repairs and maintenance, insurances, property agent fees. A full list is available from the link below. This shows there are several expenses available to be claimed which, when initially considered may influence a landlord’s decision whether to choose a certain agent, whether to conduct repairs, or whether to take out certain insurance policies. I would believe that, had landlords been educated on the deductions available, they may have opted for different options, possible different agent to represent them.
Now let’s look at the options available over several years. These can all vary slightly so need a bit more of an explanation. The first deduction is borrowing expenses. Now obviously this doesn’t mean the mortgage, wouldn’t that be good. It means any costs required to establish the mortgage. This covers loan establishment fees, title search fees, cost of mortgage documents, broker fees and even stamp duty. In some instances where a lender requires a valuation and mortgage insurance to be taken out then these can also be deducted. In instances where these expenses are more than $100, which is most likely, then the deductions will be spread over 5 years. The second deduction to look at is depreciation of assets. This covers depreciation on the assets inside the property such as carpets, furniture and appliances, and also on the building itself however there are different levels of depreciation depending on whether the building was constructed before or after 17 th July 1985. Unfortunately this is as much as I can explain without confusing myself and without risk of providing false information. Below is a link to the ATO website however it would be best recommended to discuss with a Tax Depreciation specialist. The final deduction over a longer period is capital works expenditure. This basically means any construction works to the property. This could be an extension, internal alterations, or any structural improvements to the internal or external. The capital works deductions can’t exceed the construction expenditure and no deduction is available until construction is complete. It must be noted that you are only able to claim a deduction for capital works costs on residential properties built after 17 th July 1985.
Tax deductions are a viable tool to use and they provide valuable income if used efficiently at the right time. Another tool which can be used at any time is restricting of your loan. This might not be an obvious one as you cannot magically deduct the amount of loan you have left to repay however what can be done is ensuring you are receiving the best possible interest rate. This could reduce the repayment amounts and could also result in the term of the loan being reduced by a few years. This would give you greater flexibility on utilising the capital in the property.
A final point would be to look at your Superannuation, or possibly superannuation’s. It is not uncommon to have several funds throughout your working life, particularly if an employer had a particular agreement with one provider. Where possible look at consolidating your super which would save on any administrative fees and also ensure you have the maximum amount of capital working.
These are only a few of possible avenues to aid in your investment. Please be aware that I am not financially educated, I’m just good at operating google and various other search engines. For up to date financial advice and excellent assistance please contact Custom financial Solutions who work in partnership with Rentwest Solutions.
Expenses deductable over several year over several years
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