Depreciation, do I understand it correctly?

Hi there,

I am looking at buying my first investment house in Oz and have been looking at things like this.

http://www.domain.com.au/ore/Public...+Enquiries+Open+(postclick)&prevServer=Emails

Now, I asked the seller the age for depreciation and he tells me that the house is about 25 years old he thinks. Thats not the bit I want to know. I want to know if the schedule estimate below is correct in that I would get about $7200 back per year as a minimum?

http://www.bmtqs.com.au/tax-depreci...cCqj8ICFUcHvAodsjYACQ#result-section-bookmark
 
I wouldnt rely on an online estimate to make an investing decision

spend some small money to get a specific answer to your circumstances

ta
rolf
 
Get the pro to do estimate, they are different for every houses.

On a different note, if the depreciation amount alone will make or break your calculation, you might want to consider whether it's the right investment
 
Thanks all. I have a spreadsheet which I am fairly confident in which takes into account everything I can think of but with the depreciation schedule it looks like it makes it very cash flow +ve which makes me doubt myself since I am new to this. It looks about neutrally geared without the schedule.

I have one investment property in the UK which is doing very well but I bought that as a PPOR and moved out to come here, that said I did buy that with renting it out in mind so it has some very desirable features, location, parking etc, proximity to station for train to London.
 
Hi,

From what I understand;
The amount set out in any depreciation schedule is not a dollar for dollar return in your pocket, it is an amount that will reduce your taxable income, so the return that you get will also depend on your tax bracket.

As mentioned by others, you should only rely on a depreciation schedule done specifically for that property. Also i think it's best to treat the tax benefits as a bonus, if the numbers don't work without the tax breaks is it really the right investment?
 
Hi there,

I am looking at buying my first investment house in Oz and have been looking at things like this.

http://www.domain.com.au/ore/Public...+Enquiries+Open+(postclick)&prevServer=Emails

Now, I asked the seller the age for depreciation and he tells me that the house is about 25 years old he thinks. Thats not the bit I want to know. I want to know if the schedule estimate below is correct in that I would get about $7200 back per year as a minimum?

http://www.bmtqs.com.au/tax-depreci...cCqj8ICFUcHvAodsjYACQ#result-section-bookmark

I would be surprised if it was $7200, I'd expect it to be much less. That would be a fairly cheaply constructed $100k house back in the day. However it does seem to have had some modernisation like the kitchen renovation which will mean that a proper estimation needs to be done.
 
$7,200 per year on a 1990 house? That must be an amazing house.
Send me some photos and tell me a bit about the house and I will give you a rough estimate.
Scott
 
That would be a fairly cheaply constructed $100k house back in the day. However it does seem to have had some modernisation like the kitchen renovation which will mean that a proper estimation needs to be done.

Working with those numbers, let's say there is $120K in Cap Works - building stuff. At 2.5%pa that's $3,000 per year in depreciation.

It has floating floor and newish appliances, so let's say there is $2,000 in the first full year in depreciation on the Assets.

That is $5,000 in the first full year. The yearly amount will drop from there.

If you end up buying a place of similar age and size but without any renos, you would reduce the yearly amount by, say, $1,000 i.e. start at $4,000 in Year 1 and head down from there.

These are of course just really rough estimates. Every house will be different.
 
$7,200 per year on a 1990 house? That must be an amazing house.

$7200 in the first year on a 1990 house? Achievable, or close to it.

In those photos alone, I can see:

Dishwasher
Oven
Cooktop
Range hood
Air conditioning
Carpet
Blinds
Ceiling fans
Garbage bins
Light fittings
Floating timber floor

It is also safe to assume that there is:

Smoke alarms
Exhaust fans in bathroom
Door closers
Hot water system

If you use low value pooling and immediate write-off to their best effect then $2000 claim for plant items is extremely conservative. While the deductions will vary from property to property, that estimate of $7200 is not unrealistic for one of our reports.

It is worth repeating (as someone mentioned above) that a.) deductions do not equal cash return and b.) depreciation deductions will not remain at a constant level, or at least certainly not in the first 5-10 years. And yes, it is wise to think about factors other than depreciation when making your decision!
 
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