This goldmine for property investors is often missed
Renovating a rental property can be a goldmine for real estate investors, but owners must be aware that not all renovations are financially equal.
New carpets and curtains deliver a bigger bang for your buck than items such as tiles, downlights or window shutters, and it's all because of the rates of depreciation investors can claim.
BMT Tax Depreciation CEO Bradley Beer said investors often failed to consider the tax deductions for different renovation strategies.
"It's not just money spent on things you add - it's also things you scrap," he said.
For example, if you install a new stove but there's residual value left in the old stove, you can deduct that value too. "Call the quantity surveyor before you rip it apart and make sure you take advantage of it," Mr Beer said.
Analysis by BMT has found big differences in the deductions available on renovations:
• Carpets can be depreciated at 25 per cent a year, so a $4000 job delivers a $1000 tax deduction in the first year.
• Tiles have a rate of depreciation of 2.5 per cent a year, so $4000 of tiles delivers a deduction of just $100 in year one.
• A $6000 split system airconditioner can be depreciated at 20 per cent annually - $1200 in the first year - but $6000 of ducted heating is just 10 per cent or $600.
• Downlights and shutters are depreciated at 2.5 per cent a year.
Mr Beer said apart from depreciation deductions, renovating investors could also get an increase in rent, making it a good return on their investment.
Being cheap was not usually the best strategy, he said.
"Remember you are not building your own house so don't get attached with what you are putting in there, but you are renovating someone's house and want to make it attractive for them."
Real estate author, investor and university lecturer Peter Koulizos said property investors often forgot to claim depreciation benefits.
But it was critical now, he said, "especially since laws in relation to depreciation changed a couple of years ago".
"You can't claim as much depreciation as you used to, so when you get the opportunity, just do it."
Mr Koulizos said investors should understand what they could claim and keep all receipts.
"If you haven't claimed depreciation in the past, it's not all lost as you can go back two years to utilise unclaimed depreciation," he said.