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Depreciation Benefits and Tax Advantages of Property Investing

Friday, 9 October 2015   

It is location, location, location or timing, timing, timing !
If you want to take some of the crystal ball out of ‘location’ then a sensible alternative is timing timing timing!

  • Timing of The Market.
  • Timing on Non Cash Tax Deductions.
  • Timing of Capital Gains.

Timing of The Market

As I highlighted, location is an important element, but unless you are blessed with pockets full of money, investing in the inner city, waterfront or the beach is limited to the wealthy investor.

Often your biggest rewards are from predicting or using the services of a trusted advisor that has put a lot of time and effort into evaluating the growth and activity in a location. More than likely these locations are in their infancy or youth. The time you plan to hold an investment will often play a large part in the capital and rental growth of the property. Make sure you have a strategy, and make sure you are positioning yourself as best possible to be able ride the bumps of any market!

Ideally, timing is buy low and sell high. This is a very successful notion when using real estate as your investment vehicle, but tends to take some time often 5 years plus to really see the fruition of your investment. Often many investors in real estate miss a market waiting for the drop or low, and some are very lucky on their timing.

Be appreciative of the investment cycles. Have a long term strategy and often, anytime is a good time to buy in a future growth location.

Timing of Non Cash Tax Deductions

If you couple your long term strategy with a tax strategy then the cash benefits can be huge! Often this comes in the form of depreciation and special building write off. The best way to explain is to let the numbers do the talking.

If you are a high income earner and you purchase an investment property that over a 5 year period has combined deductions of depreciation and special building write off,  of  $9,000 per annum. The total tax savings are a massive $22,000 over the 5 year period.
Put simply on a $400,000 mortgage at 5% interest rate, the non cash tax  benefits, subsidises you, 1 full year of interest.

Timing of Capital Gain

Much loved by many property investors and advisors, is you can make a massive gain on your property and use the equity and not pay tax until it is sold. Hard to argue with that strategy! 

Watch what happens if you manage the timing...

Lets say you have a property with a $300,000 capital gain and you are a high income earner planning to retire in 2 years on your Self Managed Super Fund (SMSF) tax free pension. The numbers tell the story – Sell now and the tax is $75,000 or sell when you are retired and the tax is $45,000, possibly couple this with a superannuation contribution strategy and the tax reduces by another $6,000.

If you are worried whether its a good time to buy in the market, spend a little time getting some advice, is this a good time for you and your financial position to be buying property?