Investing in Rental Property

Click here to calculate Your Rental Yield 

You can make money by:

  • Buying right - ie. look long and hard before buying and don't buy purely on emotion.  Refer to buying property at wholesale prices.

  • Add value to a home by landscaping, painting, etc.

  • When looking at a profit, sell and buy again - watch out for the IRD re trading rules.

  • Structure innovative repayment arrangements that will give you better cash flow.

Depreciation rates - IRD Changes the rules
Prior to the May 2005 budget depreciation rates were 4% (on buildings 15% on chattels) they are now 3% for buildings acquired after 19/5/05.

Using a chattel valuer it is possible to break down the building depreciation into sub components like carpets, curtains, light fittings, whiteware, water heaters etc and depreciate these at a higher rate.  This is allowed, however "the IRD draws the line (June 2006 media release) at property owners attempting to list as separate assets the likes of internal walls, doors, electrical wiring and plumbing as well as furniture and fittings that are permanently attached and are regarded as being part of the building.  These include items such as kitchen cupboards, bathroom vanities and built in wardrobes."

"Property owners who have been splitting these components out from the cost of the building will have overstated their depreciation claim in the past, but we won't be asking them to adjust previous years' income. However they will be required to add the value of the various 'components' they have been depreciating individually into the cost of the building, and combine the depreciation claimed for those individual assets."

This will then identify the asset to be depreciated, the cost of that asset and the depreciation claimed to date. The building should then be used to claim depreciation at the correct rate.

Other Property Types

There are other types of property than just residential rental property. These other property types include:
  • agricultural property;
  • health care property;
  • commercial property;
  • industrial property;
  • Retail property.

Many of these property types will give far better yields and potential capital gain than what could be obtained from residential rental property. In addition, the tenants often pay the bulk of the costs. Residential rental property is also very time intensive whereas commercial, retail and industrial has less time spent on it for the dollar value invested.

When looking at buying many of these property types, you need to purchase buildings that meet the following criteria:

  • have long term leases ie: six years or more;

  • blue chip tenants preferably nationwide or international companies or government departments;

  • buildings are located in growth locations ie: the main centres and not small provincial towns;

  • low maintenance buildings ie: relatively new or have recently been refurbished particularly relating to air conditioning and roofs;

  • can be multi purpose buildings so that if the existing tenant leaves, it is easy to find another tenant without doing major structural alterations to the building;

  • is well managed ie: has a professional manager who is experienced in adding value to this sort of building;

  • has strong yields ie: 8% or better.

Tax Structure to Hold Your Rental Properties
Please refer to:
   Why form an LAQC?
   Family Trusts

Background Reading
Check out the our Money Articles:
  - Rental Property
  - Queensland Rental Properties
  - Apartments
  - Tenant Problems

For a different perspective on rental properties we recommend reading  "The Truth About Residential Property Investing", Duncan Balmer 2004 available from our Bookstore

Unless you can expect strong capital growth you should not consider rental properties a reasonable investment, unless the rental yield is above 8% before tax.


Click to Calculate Rental Yield     
Checklist for Buying and Selling Property

Check out some other forms of leveraged investment:
        Futures & Hedge Funds