Trend Sees Homeowners becoming Investors

Trend Sees Homeowners becoming Investors

Posted on August 28, 2017 by Mirren Property Investment

More recently, there has been a trend of home owners becoming investor, using their own primary place of residence as an investment property. A recent article from our preferred suppliers, BMT Tax Depreciation, shows that 22% of all schedules submitted were for primary places of residences.

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A recent analysis suggests 22 per cent of tax depreciation schedules prepared by BMT are for a primary place of residence which has turned into an investment property. We discuss why this is becoming a popular trend and the factors owners need to be aware of if they are considering renting out their home.

Home ownersA recent analysis of schedules prepared by BMT Tax Depreciation highlighted that 22 per cent of schedules were for primary places of residence (homes) which the owners turned into rental properties.

This demonstrates a popular trend occurring in the residential market, in which a significant number of home owners are recognising the additional value of renting out their home rather than selling.

There are many reasons for this trend. Some home owners may need to temporarily relocate, with a plan of returning to their home. There could also be external economic factors or events which create a temporary peak in rental demand, causing homeowners to take advantage of the higher rental yield.

The most common reason is usually due to the prospect of long term capital growth along with the opportunity to use equity to finance the next home and avoid selling costs.

Across some of our major cities, the majority of people who adopted this strategy would have achieved substantial capital growth in recent years.

This particularly relates to those acquiring their next primary place of residence, having carried more than one property through a housing boom. Of course this can work in reverse should there be a correction in housing prices.

No matter what reason a home owner has when deciding to rent out their home, it’s important they’re aware how this will transform their tax situation.

The Australian Taxation Office requires owners of investment properties to report any income they earn. They also allow owners of income producing properties to claim the expenses associated with the property.

Some of the deductible expenses for an income producing property include interest on a loan, council rates, property management fees and insurance premiums.

By renting out their home, owners will also become eligible to claim depreciation deductions for the structural components of the building as well as the plant and equipment assets contained in the property, subject to qualifying dates.

Regardless of whether a property is income producing or not, the structure and fixtures experience wear and tear over time and depreciate. However, it is only when the property starts to produce income that the owner can start to claim this wear and tear as a deductible loss.

A depreciation schedule will commence from when the property was initially purchased. If a depreciation schedule is provided by a specialist, it should show a partial financial year calculation for the period it was income producing.

A specialist Quantity Surveyor will also structure a depreciation schedule to maximise deductions during the time that a property is income producing and minimise deductions when the property was a primary place of residence. An example of this is establishing a low-value pool for relevant assets at the right time.

Low-value pooling is a method where low-cost assets with an opening value of less than $1,000 and low-value assets with a written down depreciable value of less than $1,000, can be depreciated at an accelerated rate. If a property was formerly a home, it is best to hold off any low-value pooling until the property starts to produce income.

If you need some assistance in buying a home or searching for an investment property check our range of free resources , or give our office a call on (02) 8814 5275 or 0402 361 396 and simply complete our enquiry form and we will contact you.

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