What to Consider When Investing in Student Accommodation

By Bradley Beer on 23 Apr 2014
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For 223,200 students, 2014 is their first year of university, taking the total of university students around the country to over 1 million.

This means demand for accommodation has become quite competitive between students and families looking for well situated properties.

Student accommodations are increasing in demand as Australia becomes the third most popular international student destination behind the United States and the United Kingdom.

Student accommodation is an asset class with potential, but caution is advised when considering investing in student accommodation.

Points to Consider When Investing in Student Accommodation

1. Higher management fees
2. Screening for the right tenants

Many student rental property investors are often unaware that they are eligible to receive significant taxation benefits.

Research has shown that nearly 80 per cent of all property investors fail to take advantage of property depreciation, and therefore miss out on thousands of dollars in available deductions.

“Student accommodations are increasing in demand [in Australia]…”

BMT complete tens of thousands of depreciation schedules for accountants each year. On average, those schedules find between $5,000 and $10,000 as a first full year deduction for residential property owners.

This is no small amount, so for investors wondering what is property depreciation and how can they go about making a claim, I’ll explain.

Claiming Depreciation on Student Rental Properties

Depreciation is a non-cash deduction the Australian Taxation Office (ATO) allows the owner/s of an investment property to claim due to the wear and tear of a building structure and its fixtures and fittings over time.

It is described as a non-cash deduction because the investor does not need to spend any money to be eligible to claim it.

The following scenario provides one example of an investor’s cash-flow with and without depreciation.

This investor owned a property purchased at $420,000, with a rental income of $490 per week and a total income of $25,480 per annum. They had expenses for the property such as interest, rates and management fees totaling $32,000.

“Many student rental property investors are often unaware that they are eligible to receive significant taxation benefits.”

By claiming property depreciation the owner was able to turn their negative cash-flow position into a positive one.

Without depreciation they were paying out $79 per week. By taking advantage of taxation legislation and making a depreciation claim, the investor was able to turn their loss to an income of $3 per week. In total, this investor saved $4,255 in just one year.

I recommend that you contact a Quantity Surveyor to compile a tax depreciation schedule. The Quantity Surveyor will perform a site inspection and take photos of all plant and equipment to ensure no depreciable asset is missed.

They will also use their knowledge of current ATO legislation to select the best methods to calculate depreciation to maximise the claim available for the owner.

About the Author

Bradley Beer (B. Con. Mgt, AAIQS, MRICS) is the Managing Director of BMT Tax Depreciation. A depreciation expert with over sixteen years experience in property depreciation and the construction industry, Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide. Please contact 1300 728 726 or visit www.bmtqs.com.au

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