The Block (TV Show) - huge depreciation

This article claims the units in the Gatwick building will have depreciable items of $2.6-3.1m each - a total of over $14m for the 5 units.

The Block 2018: Underdog team that could win The Block - realestate.com.au

I haven't been watching the show is this really the kind of money they spend on each unit? I just can't fathom where those $ have gone?

 

A lot of it is structural. They are basically taking each unit back to a shell then rebuilding from there. Then the contestants have a crack at it and mess a lot of things up. After the contestants leave, actual trades come through and rectify bad workmanship. It's expensive!

Also, each apartment is fully furnished, not with cheap stuff either

 

McDonalds & other fast food.

 

Kerrie & Spence won a huge amount of prestige kitchen appliances AND he does a lot of work himself, so less trades to pay & more $$ to spend on expensive fittings.

 

The available depreciation is a headline rather than immediate or cash type benefit eg

1. A buyer may use the premises for private use and later rent it. NO Div 40 would be available on the lux fittings, AC, lift, kitchen appliances, heaters etc. Thats a lot of lost Div 40 benefits if the property is owner occupied and tax exempt for even a few weeks.
2. The $2.2m may contain approx $1.5m of Div 43 building works which at best would provide a annual deduction of $38k...for 40 years.
3. Overtime the benefit is further eroded by the taxpayers marginal tax rate so the $2.5M for example may reflect as enhanced deduction over 40 years PLUS
4. Increased CGT would apply to the deductions claimed and only some taxpayers may still get a 50% CGT benefit.

The overall impacts would be far less than expected eg $300K over decades.

The annual maintenance for the properties should not be underestimated. A renter with Gaggenau applicances wont want a replacement Aldi cooktop Replacing the cooktop and rangehood may cost $20K

 

I think it was 2013, the townhouses in South Melbourne. A client bought one of the properties. The valuation gave me no end of problems.

It was probably the biggest contract ever seen (most pages). It's not uncommon for an OTP contract to have a lot of pages in the section32, but this one had page after page of inclusions (they come with the furniture), the usually disclosures, then a couple of trees worth of privacy and non disclosure clauses. I haven't seen anything like it before or since.

I did a bit of an exercise, looking up the purchase price by the production company, the depreciation reports in the contract, the sale price and the prize money paid to the contestants. I can't remember what the figures were, but it's fairly safe to say the no money was made on the real estate - not by a long shot. I imagine that Bunnings pays very handsomely for all that advertising.

One thing I do recall is the figure the valuer put on the included furniture - $10k.

 

I thought the show was a 10 week advertorial spruiking the wares of Bunnings, Beaumonts, Freedom, a few agents/buyers agents, Domain etc.

 

I really don't know who advertises these days. That deal traumatised me out of ever watching again...

 

Looking at Kerrie & Spence's unit, it ended up being sold for $2.85M
Looking at the whole picture, taking into account the purchase price of $10M for the Gatwick building itself, that would be approx. $1.6M for their unit alone, if you split this cost between the 6 units.
Now going by the amount of depreciation that was said could be claimed at $3.1M overall, can we assume that this is what the tax depreciation expert, was provided or estimated as the costs for that particular unit?
Then with these figures the development cost of of that unit is $4.7M, doesn't really make financial sense. But appears to be a real bargain for the person who bought it for $2.85M.
The budget for the contestants to renovate was $220,000, this was mainly to pay for the trades. So to be conservative (to account for the monet from room wins etc.) lets say the materials cost 5 times the budget and then allow another $250,000 for their share of the common areas. We probably have a renovation cost of around $1.5M.
So looking at these fugure does this $3.1M include for the purchase of the orginal building, which is too old to depreciate? Or was the block really that expensive to renovate?
Thoughts?

 

Ignore what they gave the contestants. Thats a TV thing. Keiths guys probably cost $1.5m per apartment. That reflected in the simplified reserve system.. Cost is a guarded secret. Probably subsidised by TV ads, show fees and much more. Every logo comes with a cost.

The block is a tarted up TV show - End game is not to get burned on the build and to flog the TV show like a dead horse. eg How many games did they sell ?? At $89 a pop. Thats a expensive raffle ticket.

And dont forget the hidden ground fllor apartments never explained. And the hidden basement area. This was recently disclosed as a two unit deal as part of the $10m purchase. The exterior shots are of 8 units...5 teams + one as a prize + 1 each to the 2 former owners. $10m divided by 6 is very different to $10m divided by 8. This is $416K variance per unit.

The GST cost per unit is significant too.

 

Umm....didn't the original owners buy one? I didn't know there were 8 units, & we didn't see anything about the basement, which I presume is parking.