Invest in this Type of Location to Outperform the Averages | What Property Investors Need to Know About Depreciation
Oct 22, 2018
If you want your property investments to outperform the averages, then you need to find locations that outperform the averages.
This means you need to understand how to know how to identifying areas that are gentrifying.
Gentrification is what happens when a poorer suburb is gradually taken over by more affluent residents. This in turn results an increase in rents and property values.
In today’s show, I’ll explain how to find this type of location.
I’m also going to tell you a story taught to me years ago by one of my mentors – the story of a Fijian fisherman. And, as you might have guessed, it has nothing to do with fishing
Finally, I will have a chat about depreciation with Mike Mortlock. Depreciation is an allowance for the wear and tear of your investment property.
Recent changes have been made in how much depreciation you can claim and what properties you can claim it on, and it’s important to understand how this may affect your investment properties.
Areas that are gentrifying have:
- Some of the steps you can take to find a suburb that is improving is to go for a drive and a walk.
- You’ll “know it when you see it” because you’ll find evidence that people with money are moving in. They will be spending large amounts of money renovating or extending their homes.
- There will be white (the new black) SUV’s parked in the driveways rather than old Ford Falcons and Holden utes.
- The nature of the shops is changing. The gyms are offering Pilates; the cafés sell cold press coffee, and the deli’s serve goat’s cheese pizza.
- As a property investor, if you can pick an area going through gentrification, one that’s shifting from dreary to in demand, you can benefit from its accelerated growth.
- And the good news is that you don’t have to get your timing perfect — the gentrification process lasts a number of decades.
- Things to look for:
- Growing incomes
- Top-end cafes or restaurants and higher-end stores
- Proximity to the city or the water
- A ripple effect caused by being adjoined to a more expensive neighborhood
- Amenities like access to a good public school or public transportation
- Character features, like older houses that are ready to renovate
- Investment from the local government in infrastructure or beautification programs
What property investors need to know about depreciation:
- In May 2017, the government changed what could be claimed as depreciation.
- There are two types of depreciation – depreciation of the building itself, and depreciations of the items inside the property.
- The changes affected properties purchased after May of 2017.
- Depreciation deductions have been almost halved for people affected by the changes.
- If you buy a new property and rent it out, you won’t be affected. However, if you buy an investment property and move in before renting it out, it will be considered previously used.
- Properties built after September 1987 will still have depreciation deductions on the building structure.
- Improvements on homes built in the 60s and 70s will also qualify for depreciation deductions.
- If you renovate the property and install new assets yourself, you can claim depreciation deductions on those.
Links and Resources:
Michael Yardney's Property Renovations and Development Workshop
Mike Mortlock – MCG Quantity Surveyors
Some of our favourite quotes from the show:
“Over the last couple of decades, the process of gentrifications saw these ugly duckling suburbs transform into graceful swans.”
“Just because a suburb is cheap and there are cheap properties there doesn’t mean it’s destined to become the next growth area.”
“Don’t chase happiness, recognize it. If you don’t enjoy the journey, you won’t enjoy the destination.”
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