The overlooked tax strategy helping property managers win more business

In today’s market, property managers need to consistently go the extra mile to create value for investors, using their knowledge and expertise to boost their cash flows.

On a recent episode of The Property Management Excellence (PMX) Podcast, BMT Tax Depreciation CEO, Bradley Beer, told host Alex Whitlock that many investors entered the market with a lack of understanding of the realities of owning a property and the costs involved.

“The knowledge base is quite low much of the time because they’re not experts at all about the tax components, or the rest of that or the maintenance – they just see the cost,” he said.

However, he said that by helping investors claim tax deductions for gradual wear and tear, property managers could position themselves as knowledgeable and trusted experts, thereby winning more referrals.

According to Beer, depreciation allowed investors to claim a portion of a property’s construction cost and the value of its fixtures and fittings as a tax deduction.

He said his company had undertaken close to a million depreciation schedules, and the average depreciation deduction in the first year was around $12,000, adding a substantial amount to investors’ cash flows.

Beer said that a property manager who could advise owners on the matter and explain the advantages would be well-positioned to win more business.

“The property manager can look really, really smart when it comes to the tax return and go, ‘I know about this thing that makes a substantial amount of difference to the cash flow of a property’.”

While property managers didn’t have to be experts on the matter, Beer said that simply making investors aware of the possibility of creating more wealth could make a big difference to their reputation.

“They could say, ‘I know it’s often a substantial amount of money, but I’m not the expert. I don’t know how to do it all. Why don’t we speak to the experts and see if we can get some money for you?’”

“What they need to know is that it makes a big difference and there’s an expert there that can tell you whether or not they’re going to get you some money.”

Beer said investors had nothing to lose from trying to claim the costs, noting his company’s fee for the service was tax-deductible and would be returned if the investor was unsuccessful.

“If we think there’s enough in the property, when we’ve had a look at the photos and information, we’ll say let’s go ahead and do it, we’ll quote them to do that,” he said.

“If we get to the end and there’s not enough, even if we’ve done most of the job, we cancel it, we walk away, we give them their money back.”

Beer also said property managers should be aware that newer properties often have the highest depreciation deductions, due to construction costs constantly increasing each year.

He also said investors can claim costs for “Plant and Equipment”, referring to carpets, hot water services, stoves and blinds, and anything else that didn’t last too long, but the assets had to be new.

“New properties get all that stuff, as well as the structure of the building, and it all costs more, so that’s why you get the most out of a new property.”

For a secondhand property built after 1987, he said investors could make a claim on the structure, which would still mean substantial deductions.

“If it’s built before 1987, then you won’t get a claim on the structure of the building - you may not get it on Plant and Equipment, but if it’s been renovated, then they can fall into deductions,” he said.

Beer noted that for those who came after 1987, the investor could only claim depreciation each year until the property was 40 years old.

If an investor bought a property that had previously been depreciated, he said they could still claim depreciation for the time that it had left.

“If it’s built in 2000, so it’s 26 years old, you’ve got 14 years left. If it’s built in 1990, you’re nearly out. You’ve only got a few more years left on that.”

Listen to the full episode here.