When Buying An IP, How Important Is The IP's Age RE: Depreciation Benefits To You?

[Watermelon Man]

Hello,

Just went to an Investment Seminar Monday night & then did a one-on-one interview with the presenter's assistant today. They recommend only building an IP on land (ie: House & Land package) as in the "Land Appreciates, Buildings Depreciate" mantra; therefore to also take advantage of the high depreciation benefits for those on a large income, etc.

I've bought 2 IPs this year - 2x 20-year-old units with depreciation schedules to boot.

What are other investors opinions on what they buy? Assuming the rental return was 5% gross per year, do you care how old the IP is? Or are you in the frame of mind as: Good return, high capital growth location, get some depreciations benefits/write-offs with a 10+ year-old IP, etc??

 

[toony]

I dont care about Deprn. To me its like buying a car.

As an example.
In Aspendale last week a beautiful house sold for $860k. Pool, many bedrooms, polished floorboards on a average block and about 20 mins walk to station and 10 minutes to beach etc.

However for the same price you could buy an average looking to old house beachside of the rail about 50-100m to the beach and be walking distance to station. Beachside baby.

Which one do you reckon would be worth more in 10 years time?

 

[Rixter]

I prefer purchasing new or near new property (up to 7 years old) over older style property for several reasons, the main ones being (in no particular order) -

1/ To maximize my Depreciation Non-Cash deductions.
2/ To minimize my maintenance & repair costs.
3/ More modern & Attractive to tenants - thereby minimizing potential vacancy rates.
4/ Ask a higher rent - thereby Maximizing yields

Without getting into the "which is better debate, houses or Units??", I prefer to purchase Townhouses & Villas with a 30% or greater land component thereby eliminating multi story units or high rise apartments, for several reasons.

The mains ones being (in no particular order) -

1/ Lower maintenance & upkeep for the tenant.
2/ Lower purchase or entry level into a higher capital growth suburb area
3/ Rapidly growing marketplace (starting both now & into the future) wanting these type properties. This is due the largest demographic group of people to be born (being the Baby boomers) starting to come into their retirement years. They will be wanting to downsize for the following main reasons - lifestyle & economic.
4/ Greater tax advantages & effectiveness thus maximizes cash flow.
5/ Able to hold more individual properties spread across your portfolio - thereby minimizing area over exposure risks by not holding all your eggs in only a few baskets, so to speak.

Hope this helps.

 

[alexlee]

They recommend only building an IP on land (ie: House & Land package) as in the "Land Appreciates, Buildings Depreciate" mantra; therefore to also take advantage of the high depreciation benefits for those on a large income, etc.

This statement seems to contradict itself. If land appreciates and buildings depreciate, why spend money building when all you're doing is buying stuff (bricks, fittings, etc) that depreciate? You're still going to have to pay for it, and depreciation only ever gets you the marginal back.

If land appreciates and buildings depreciate, you should instead be buying as much land component as you can, which usually means as old and worthless a house as possible.
Alex

 

[Dazz]

They recommend only building an IP on land

I think this is a sterling idea - building IP's upon water or up in the air will certainly push the price up.

 

[Aimjoy]

I think this is a sterling idea - building IP's upon water or up in the air will certainly push the price up.

Daz,

That Geoff has a lot to answer for on this forum

 

[depreciator]

Depreciation is a great way to help cash flow, but I don't think it should be a major factor in a purchase decision. Of course, anybody flogging new houses will tell you differently.
Scott

 

[BayView]

My view is that you should try to maximise every factor pertaining to an investment that you can; especially if you are not a mega-income earner.

Over the last 7 years of our investing life, we have received back around $50k of depreciation in our tax returns. That's money that most people simply hand over to Little Johnny or Lapdance Kev for nothing.

This has been re-invested back into our investments, improving our cashflow, our LVR, and our overall wealth.

Why wouldn't you do it if it there for the asking?

Ideally, something less than 10 years old is ideal as it has probably been bought and sold before, and is now priced correctly. Brand new is often price loaded to make the developer rich, so you can easily pay too much.

 

[Modal Harmony]

Rixter, thanks for the post; heartily concur with the advice!

Of course, the houses vs townhouses issue is a very personal choice (we have a combination of both).

 

[want2bewealthy]

When buying units, its important to realise that if you want to be in it for the long haul and never sell, you have to buy relatively new,

Heres an example for you, I went to purchase a unit in Maroochdore last week going pretty cheap for the area, right on the beach outside Alex surf club, awesome location, but when I spoke to the agent it had unfortunately sold,

fortunately for me, he told me that the place was soon to be condemned and it was in pretty bad shape [something he wouldnt have told the buyer]
not a real good investment wouldnt you say.

 

[want2bewealthy]

My view is that you should try to maximise every factor pertaining to an investment that you can; especially if you are not a mega-income earner.

Over the last 7 years of our investing life, we have received back around $50k of depreciation in our tax returns. That's money that most people simply hand over to Little Johnny or Lapdance Kev for nothing.

This has been re-invested back into our investments, improving our cashflow, our LVR, and our overall wealth.

Why wouldn't you do it if it there for the asking?

Ideally, something less than 10 years old is ideal as it has probably been bought and sold before, and is now priced correctly. Brand new is often price loaded to make the developer rich, so you can easily pay too much.

I agree,
I think sometimes its worth your while to buy a 40 year old house if its really cheap because theres good land content if the area is well sought after, but..
if you plan on going the full hog on buy and hold, then youre house will eventually be condemned and youll have to build again [if youre young like me that is ;]

I always prefer newer places for all the reasons you have listed above and more.

 

[alexlee]

When buying units, its important to realise that if you want to be in it for the long haul and never sell, you have to buy relatively new,

Heres an example for you, I went to purchase a unit in Maroochdore last week going pretty cheap for the area, right on the beach outside Alex surf club, awesome location, but when I spoke to the agent it had unfortunately sold,

There's old and there is deprepit. If it's a brick cavity block (the type often seen in 30-40 year old units) those things last forever.
Alex

 

[want2bewealthy]

There's old and there is deprepit. If it's a brick cavity block (the type often seen in 30-40 year old units) those things last forever.
Alex

This block looked to be rendered brick and there was only two photos I could see of the place, it didnt look too bad to me thats why my ears *****ed up and I called the agent, Im glad it worked out the way it did.