Monday, 4 July 2011

Why a pre-renovation report is important

Considering a renovation?


Why a pre-renovation report is important

When purchasing an older investment property, many investors decide to renovate after settlement. Investors can often claim thousands of dollars in deductions when renovations are done.

Get more when you Renovate

Has the time come to renovate an investment property? Make sure you do everything to maximise the cash flow potential of your next renovation project. Thinking about the types of new fittings and fixtures before you install them may generate you thousands of dollars in depreciation deductions.

Many investors purchase properties that require improvement. They usually do this with the sole purpose of renovating to create equity and generate extra rent. Once you have decided to renovate your investment property, it is important to ensure you obtain the best long term value from the money you are outlaying.

Renovations can be expensive, so it makes financial sense to obtain the maximum depreciation benefit where possible. When it comes to deciding which new item to install in a property, some consideration should be applied to the depreciation potential of the alternative item/s.

Maximising depreciation on new items

1. Floor Coverings
Which new floor covering should you install to increase your depreciation potential - carpet, floating timber floorboards or tiles? The depreciation available on these items differs due to their different effective lives.

The following example is based on spending $2,000 on floor coverings:
tax depreciation on renovating floors

2. Light Fittings
Considering ornamental light fittings or down lights?

The following example is based on spending $2,000 on lighting:
tax depreciation on renovating lights

3. Air Conditioning
Deciding between an air conditioning unit and ducted air conditioning?

The following example is based on spending $5,000 on cooling:
tax depreciation on renovating aircon

(Amounts based on Diminishing Value Method using current legislation)

As shown in these examples, installing assets for their depreciation potential is certainly worthwhile. Depending on the size of the property and the extent of the renovations, the deductions obtained from the new items may improve your cash flow in the first years of ownership by thousands of dollars each year.

Effective lives explained....