One of the key selling points used in relation to new property – for example, house and land packages, or off the plan properties – is the 'benefits' of depreciation.
To fuel profits, the big developers and property marketers really amp up the false benefits of depreciation. Buyers are presented with spreadsheets showing how much tax they will 'save' and aren't told about the cascading impacts including:
The three components are influenced by supply and demand, therefore the aim should be to buy into areas that show obvious signs of good demand (for both rentals as well as property sales), and areas that have some limit to the supply of properties.
Comparing this to a new property, an investor purchasing an established property would be in a much better position financially as they would have achieved approximately $70,000 in capital growth (equity) within two years. In many cases, new property has negative equity by year two.
On this point, new property will typically have zero potential – ie – houses built on small blocks, or apartments with no ability to make changes.
For example – a property purchased for $500,000 (using the enclosed tables) will have increased in value by approximately $200,000 by year five. These funds can be used to build a secondary dwelling resulting in two properties at $700,000 each – effectively adding another $500,000 of equity and doubling the rental returns.
Debra Beck-Mewing is the Founder and CEO of The Property Frontline. She has more than 20 years' experience in property investing, Australia-wide and has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business. As a passionate advocate for increasing transparency in the property and wealth industries, Debra is a popular speaker on these topics. She is also an author, podcast host, Editor in Chief of Property Portfolio Magazine and participates on numerous committees including the Property Owners' Association.
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Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.