As an investment property buyer’s agent and long-term property investor myself, I have always had a strong focus on the fundamentals that influence both capital growth and rental demand.
The top five fundamentals are:
- Supply vs demand, including future rezoning and development;
- Population growth over the long term;
- Income vs debt ratios with a focus on sub-30 per cent ratios;
- Ensuring the property purchase is viable irrespective of tax breaks/negative gearing/depreciation; and
- Buying at the right point in the cycle and focusing on the long term.
Recently, the federal government dropped a bombshell on the quantity surveying industry, saying that if a residential property was built prior to 1987, depreciation can no longer be claimed. If the property was built after 1987, only the construction costs can be claimed.
What does this mean to an investor’s bottom line? Below is a quick snapshot:
|Year built||Pre-budget 2017 average claim||Post-budget 2017 average claim|
|1990’s||$7,000 - $8,000||$2,000 - $3,000|
|2000’s||$9,000 - $10,000||$4,000 - $5,000|
|2010’s||$15,000||$6,000 - $8,000|
The fundamentals for price growth and rental growth over time should be the overwhelming factors which a property investor considers when buying a property.
If you have been running the numbers on your property, and including depreciation benefits, your numbers just got a heck of a lot tighter. This is seen especially in the new and off-the-plan space where developers and sales people typically spruik the financial viability of these properties factoring in all the plant equipment depreciation which can no longer be claimed.
My advice, which has always been the case, is when selecting the right property for your next investment, never include the depreciation or negative gearing benefits in your cash flow modelling.
Treat each of these aspects as an end of financial year bonus. If you get some cash back, great. If you don’t, you know your property is fundamentally sound based on the five investment fundamentals I’ve mentioned above.
Now, go and make it happen.