The Importance Of Depreciation On Property

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The importance of depreciation on property. 

When considering investing in property, there are so many things to consider. One being rental income, another being expenses, location, the type of property, but there’s actually one component that many investors are leaving behind. And, I mean, a lot of investors. So when we talk about depreciation, firstly what does that mean? Well, depreciation is the loss in value over time of an asset due to wear and tear. And houses or the building of the house, not the land actually depreciates over time. Whereas the land is what we look for, for appreciation. 

So when you purchase a property, you’re pretty much saying that the depreciation means the value of a part of my property being the building is coming down as time goes on, but I’m hoping for the land to increase in value as time goes on. Now why is it so important to consider depreciation? Before going into that, you should actually consider this strategy. When people look to buy property, sometimes they go with depreciation first and that actually is a mistake. We should be going with the property, the strategy, the location first, with depreciation has a plus. 

An example that people get wowed by depreciation is new build property. If all the other factors are right, then it might be okay, but when you’re going into new build property just because of depreciation, you’re just buying something that is coming down each year, and that too may not be guaranteed if certain tax things change. But going back to the part of what is depreciation and why is it so important, is the amount of investors that are out there, not even using this benefit that’s available to them. I recently did a poll on our InvestorKit account. And when we did this poll, we asked some of our audience and people out there to say, “Do you use depreciation or quantity surveyor, which is the person who provides you with the depreciation report on all your investment properties or see if it’s all illegible at all?”

Now, it was alarming. 58% said yes and 42% said no. So almost half said, “I haven’t even checked if my property’s illegible or I haven’t even checked to see if I should claim on it based on me knowing that it’s illegible, I haven’t even gone around to it.” There’s some people who know it’s illegible and they didn’t even get to do it. 

You actually could be leaving some significant money behind in both cashflow or from tax savings. And why that’s important to note is just by engaging a depreciation expert or a quantity surveyor to look through your investment portfolio or your property, you’ll be able to find out A, through one report, how much can you claim, and B, how long you can claim it for. 

It’s a one off report or can be multiple occasions when you actually buy multiple properties or when you actually do renovations to one property. You can look to claim that report again if something’s come up off a substantial change, but in general this report will actually help you from saving tax potentially, once you check that in with your accountant and quantity surveyor.

Now, that’s why depreciation should really be considered, so you’re not leaving that money on the table that you’re actually eligible to claim. From that perspective, just by making these simple changes and reaching out to the right people, you could be making significant shifts in your cashflow and property portfolio position. That’s it from us here at InvestorKit, the experts in wealth creation, helping you take action.