Calculating depreciation as part of yield

What @Greyghost is saying here is if your property is cf+ say 5k per year (income) and your depreciation loss) is also 5k per year, you don't end up paying tax on income as your loss offsets your income

 

Thanks

To be honest I'm struggling at the moment to keep motivated. At the risk of sounding like a whinger I have been off the forum lately because our people mover broke down and had to be towed, mechanic said there is over $6k in repairs (it's worth $3k max). We got lucky on a Tarago which we picked up for $14k and got a 6k trade on ours. Problem is it wiped out $14k of our savings so I'm trying to purchase well under the $600k now to avoid LMI (if a great deal comes along I'll bite the bullet and take out LMI).

Hopefully I'll pick something up by the end of the month because I'm definately running out of steam.

The Western Sydney meet up next week should get me moving again, fingers crossed I'm not held up at work.

 

I hear ya... its challening at times thats for sure...it will literally take your blood, sweat and tears as the years go by...but its worth it With regards to motivation... all im gonna say is Les Brown, Jim Rohn.

Any particular reason why your wanting to avoid LMI? When i was building my portfolio i loved LMI..allowed me to build faster, more aggressively. It was only later on when my base was established that we wanted to avoid LMI abit more.

 

Gotcha!! Yes, sorry, completely agree. I was looking at it from a different angle and needed a few more words to understand what he wrote which you have just provided. Anyway... depreciation = Good. Thanks

 

Another one of my loves are Building and Pest reports

 

See, I went the other way recently, I have bought an IP in Sydney last year, no LMI so 20% deposit, but refinanced 6 months later at 88%+LMI. With 10% growth in those 6 months plus refinancing at 88%, I've basically got my initial 20% deposit back and used to buy elsewhere. LMI is tax deductible over 5 years, so you do get a good chunk of it back. Interest payed on LMI is tax deductible over the life of the loan. Paying LMI could almost mean getting two IPs instead of one in your case...

 

Depreciation, more so capital works.
If you don't sell it is.
Otherwise it reduces your cost base so increases your gross capital gain.

 

@Greyghost agree mate.

My comment was intended to imply that Building and Pest reports can also decrease an investors capital put in, therefore increase return

 

We are cash poor and have low serviceability so any unnecessary fees I can avoid I will. In any event, anything I've seen with good yield is in the 300 to 500k range so it hasn't really become an issue yet.

 

What about my serviceabilty though? I am at my absolute max with a non APRA lender (probably not the correct terminology but you get what I mean )

EDIT: I should mention that I have been trying to draw equity and obtain preapproval since February 2015. It's been a long difficult road to this point where I have already exhausted all my options, Liberty was my last hope and they came through.

 

Right, if you are at the limit, that's a different story then probably

 

If I find something that will get me an extra 1% yield but I need LMI, I will gladly pay it because it will also slightly increase serviceability.

 

Back to the original question, any way to estimate the depreciation figure?

 

Depends on the property, reno's etc... but I'd use something like 7-8k for established older home and 10k for new. However, I'd suggest you call up one of the depreciation company and ask the experts direct.

 

Why not wait til wife reaches 1 yr mark and go to a bank that allows 1 years figures? Her first year profit might be low but certainly better than putting her down as a dependant. This is where you really need a broker who understands all the policies so knows where to slot you in.

 

She only started trading around August so still a while off the 1 year mark. Just to complicate things further we are moving later in the year and she will pack it up and start again from home in the new area but I will have to knock down an old shed and put up a new one for her to work from which will mean at least a few months of no trade.

1 IP a year is our goal so if she does well up until June 30 we can probably go down the low doc path in the 2016/17 FN without the shed build disrupting finance too much.

 

At BMT website you can do estimates by plugging in some basics into their online calculator. For example a 600k townhouse could have a depreciable figure of average 10k per year for first 7-10 years. I've seen actual reports and can very the calculations they use for a mid spec townhouse do work out in this range.

When I perform my cash flow calc, I usually include a figure for depreciation, as the number can be fairly significant. It depends on the, size, age, spec of the house and your taxable income figure. Lower taxable income, lower impact, and vice versa. As the years go by, the reduced tax return from less claimable depreciation should hopefully be offset by rent increases.

 

Even I only look at depreciation as a bit of icing on the cake. I wouldn't base a purchase decision on it - there are more important factors. Our online calculator is pretty accurate, but asks more than just a couple of questions. I can get one of the QSs to give better ballpark estimates from photos - a RE listing usually has plenty of info.
Scott

 

Thanks Scott,

Because serviceabilty is so tight I need to extract every last cent, for that reason if I'm looking at relatively similar properties I'll be more inclined to go for the newer if there is a decent depreciation benefit.

I'll get in touch if I find something newer and have an offer accepted. What do you charge for a depreciation schedule?

 

Yep, if all other things are equal, then depreciation difference might come into play. Our costs depend on location and age of the property. Give me a yell when you narrow things down a bit.