Investors Ask: Depreciation benefits
Q. I’m looking at buying an investment property and am yet to decide whether to buy new or old. I know new properties have more depreciable items; however, with an older property I am able to buy under market value. What are the depreciation benefits with older units?
A: This is one of the age-old property investor questions: new versus old, along with apartment versus stand alone house. Despite many accountants and property advisors recommending stepping away from older properties, adding some to your investment portfolio still has many benefits.
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Properties constructed before 1985 contain no original capital depreciation. I use the word ‘original’ as properties of this age tend to have been renovated or require renovations. They also tend to include items that are depreciable.
Even if these works were undertaken prior to your purchase, a qualified quantity surveyor should pick them up during their inspection of the property and include the costs within their Tax Depreciation Schedule. In fact, it’s now quite common to see inner city renovations exceed the cost of some new build properties, especially where the aim is to maintain the integrity of the original building.
In addition, older properties still have what the ATO classifies as ‘Plant And Articles’, such as hot water systems, blinds, etc, all of which depreciate from the time the property became an investment for yourself and based upon their condition at that time.
We are also tending to see better quality fittings and fixtures introduced into renovated properties than those contained within new stock builders’ homes as people try to reintroduce the ‘wow factor’ to an older property. Again, these will contain a larger amount of depreciation.
Although important, however, depreciation should form only one part of your consideration when buying an investment property. You must also factor in your overall requirements. Buying an older property and renovating it is likely to give you increased and immediate capital growth, whereas a new property may give you greater depreciation over a longer period.
Tracey Lunniss, chartered quantity surveyor and associate director, TSL Pty Ltd
Do you have an investment question you would like answered? Send yours to [email protected]
