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Depreciation 101

6. How will the quantity surveyor assess the property for depreciation purposes?
The Australian Institute of Quantity Surveyors (AIQS) Code of Practice stipulates that site inspections are necessary to satisfy ATO requirements.
A trained quantity surveyor will ensure all depreciable items are noted down and photographed. This guarantees that you won’t miss out on any deductions. The documentation can then be used as evidence in the event of an audit. They will also liaise directly with the tenant or property manager in order to cause minimal disruption to the tenant.
The best time to get a quantity surveyor to inspect your property is immediately after settlement before the tenant has moved in.
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Depreciation 101

5. Who should prepare your depreciation schedule?
If your residential property was built after 1985 your accountant is not allowed to estimate the construction costs. Tax Ruling 97/25 issue by the Australian Taxation Office (ATO) has identified quantity surveyors as properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown. Real estate agents, property managers and valuers are not allowed to make this estimate.
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Depreciation 101

4. Is my property too old to claim property depreciation?
The simple answer is no. If your residential property was built after July 1985 you will be able to claim both building allowance and plant and equipment. If construction on your property commenced prior to this date, you can only claim depreciation on plant and equipment (ie carpet, blinds, oven, etc). But it will still be worthwhile to do so.
Commercial and industrial properties are subject to varying cut-off dates.
Chart 1 below shows the relevant timelines for differing types of property construction.
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Depreciation 101

3. When do I need the depreciation schedule and how often should I have it prepared?
You should get the depreciation schedule prepared straight after settlement, if possible. That way the quantity surveyor will see your property in the true state of what you have purchased. And if the tenant hasn’t moved in yet, that’s a bonus, as it will avoid disruption.
The good news is – you only need to have the depreciation schedule prepared ONCE – not every year as some people think.
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Depreciation 101

2. How do you make a claim for depreciation allowance?
In order to make a claim for depreciation you need a report that breaks down the property into different categories. This report is called a depreciation schedule.
The amount the depreciation schedule says you can claim effectively reduces your taxable income.
In a depreciation schedule a quantity surveyor will separate the plant items (oven, dishwasher, etc) from the structural elements such as bricks and concrete.
Why? Because different elements have different rates of depreciation, which are generally based upon how long the item will last.
For instance, if an oven costing $1,000 has a 10-year life – you can claim $100 against your taxable income for 10 years using the Prime Cost Method of depreciation.
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Depreciation 101

1. What is property depreciation?
Just like you claim wear and tear on a car purchased for income-producing purposes, you can also claim the depreciation of your investment property against your taxable income. There are two types of allowances available: depreciation on plant and equipment, and depreciation on building allowance. Plant and equipment refers to items within the building such as ovens, dishwashers, carpet, blinds, etc. Building allowance refers to construction costs of the building itself, such as concrete and brickwork. Both these costs can be offset against your assessable income.
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Negotiate Like A Pro!

7. How to negotiate counter offers

Try to find out how many other offers have been made in writing or verbally. Ask the agent how many contract requests, building reports and repeat inspections they have had in order to gauge the level of interest and competition. Finding out how many buyers have inspected the property
can also help you anticipate the
interest level.

Negotiate counter offers by giving something more back to the vendor, improving your terms to offer the vendor a win-win situation. Improving the terms of your counter offers shows the vendor that you have played your part in the negotiation.

You can successfully handle counter offers by making your offer seem like it is your final walk-away offer. In the current strong market in most capital cities, you will most likely be up against offers from other buyers, so dont waste too much time. Try to make the first offer and set the negotiation up so that you have the last right of reply with the agent.

Keep in mind that not every deal is worth trying to save. Just as important as knowing how to negotiate is knowing when to walk away. This is because there will always be another property out there for you somewhere.

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Negotiate Like A Pro!

6. What to do if the deal falls apart

If the deal has not been closed, sometimes doing nothing is the best strategy. Sitting back and waiting can cause the vendor to become nervous and more negotiable if they think that you have walked away.

Time can be a great negotiating tool so be patient and wait for the agent to chase you. But this depends on how important the property is to you. If it is an investment property, be prepared to walk away. Wait for the agent to chase you.
If it is an emotional home purchase and the property meets the majority of your criteria, waiting may not be the best strategy as you may miss out on your dream home. Consider also that time out can be beneficial when emotion
is involved.

Let the agent know you are still interested and to come back to you before selling, as you are thinking about things.

If you really want to buy the property, tips to keep the deal together include:
• Find out what the vendors ideal settlement is
• Offer a larger cash deposit (10-20%)
• Make your offer unconditional and not subject to finance or building reports. But bear in mind that this is a risky move, as you could end up spending a lot of money if youve bought a lemon
• Try to offer a release of the vendors deposit ASAP
• Negotiate the price and always end your offer in uneven numbers, not on round numbers to demonstrate that you have pushed yourself to your limit (eg, $751,250 not $750,000)

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Negotiate Like A Pro!

5. Prepare to close the deal

While you should always have an upper price limit in mind before commencing negotiations, you can close a deal by manoeuvring the terms of your offer. This includes trying to move on price, settlement terms, deposit and conditions.
Try to offer settlement terms and deposits that will be most suitable to the vendor as well as making offers as unconditional as you can to create a win-win situation.

To increase your chances of closing the deal:

• Organise finance approvals, building reports and contract approvals first
• Have another property as a potential back up so that you can use it as leverage in your negotiations
• Find out if there are other offers on the table and what terms they are on
• Leverage your offer by presenting lower comparable sales to the vendor that will support your case
• Always show that you mean business by presenting your offer in writing
on a contract with a 10% deposit cheque attached

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Negotiate Like A Pro!

4. What to do at the negotiating table

Experienced negotiators know that establishing an offer is a fine balance: go too low and the vendor will get their back up, closing the door on your negotiating position. If you have done your research on comparable sales and asked the relevant background questions, you will be in a better position to make the ideal offer.  In the current market, sellers are generally in the drivers seat. Auction clearance rates have averaged more than 80% in Melbourne over the past three months. With more buyers than properties, aim to pitch your first offer at a level of 10% below the estimated market value of the property. Test the water before diving in by pitching a lower offer, to see how desperate the vendor is. Always start lower so that you have room to negotiate upwards – and so that the vendor feels they are getting some sort of win, too.

Your first offer should not be your last, as you may be able to buy the property at an even lower purchase price. Negotiating is a bit like playing a game of cards. Dont play your best cards too early – leave something up your sleeve.
Savings of up to 10% below the propertys market value can provide you with instant equity that you can leverage to buy further investments or fund your own lifestyle requirements.