Renovate-When to???



From: Glenn M

Hi guys,

The buy and renovate process is becoming increasingly more common out there with IPs at the moment.

However, my understanding is that if you buy a property and renovate before you start earning income from that property (before you get a tenant), the costs of renovating are NOT able to be claimed (i.e. either through the 2.5% allowance or depreciation). Instead they will form capital costs (only to be taken into account in the cost base of the Property).

Now, some of you may say, how about renovating after you have a tenant. But, you would obviously want the tenant to see the Property after renovations so as to negotiate a higher rental fee.

My question, how do people get around this problem? There must be ways of thinking outside the square?

Any help would be appreciated.

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Reply: 1
From: Adam Randall

A short or temporary rental would do the trick say a 4 week rental, then when they leave advertise the house at way over the market value, so no-one will rent it while you are renovating. Then once finished, bring the rent advertised to a reasonable level.
The tax department stipulates it must be rented or available for rent. (you can prove this with copies of your advertisement).
Or maybe just advertise right off the bat, making sure the neighbors have their stereo very load, and leaving odd car parts out the front yard whenever prospective tenants come to inspect . A dead fish under the floor boards may also stop persistent types from signing a lease agreement as well.
Happy renovating
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Reply: 1.1
From: Jacque Parker

Glenn, the information you have been given is incorrect. You can claim some renovation costs as depreciable items, under the heading "Plant and Equipment- Additions." You can't claim for everything new that you add (eg painting walls) however most costs can be counted. We have just done this on a unit and hired a quantity surveyor to work out our depreciation schedule. For around $400 it's money well spent and is worth it for all the costs that you would be unaware of. It took us two weeks from the date of settlement to renovate and it was hard yakka but worth it, as we added some big dollars to our property's new value. We will be holding it, however, and not selling. Good luck! Keep thinking outside the square. Remember, it's not a matter of asking if it can be done, but HOW!
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