Choosing whether to hold or sell investment property

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Holding property

Accountant — What items can I depreciate in order to boost my tax benefits?

• There are many items in and around a property that can be depreciated and added on to your expenses to reduce the income tax you pay. Your accountant should advise you to have a depreciation schedule done by a quantity surveyor.

• Ideally a depreciation schedule should have been done when you bought the property.However, you can organise for a depreciation schedule to be done on your property at any time.

• You need to be clear about what you can claim in order to assess your property’s performance overall.

Property manager — What are your fees and what are the conditions of the property management agreement?

• Property managers usually charge a general upfront property management fee and then additional fees, such as a new lease fee, renewal of lease fee, payment of utilities fee and inspection fee.

• When selecting a property manager to look after your property, don’t just focus on the upfront property management fee, as all the other fees can actually add up to more than the upfront fee! (A standard upfront fee can range from 6.6% to 8.8% of the gross rent but all the other management fees can total thousands of dollars a year)

• Read the property management agreement carefully and pay particular attention to the termination clause. This clause details how much notice you need to give them if you want to change property manager or possibly manage it yourself. Sixty days notice is an industry norm, but if you can negotiate and terminate it earlier, it can work to your advantage.

Selling property

 Real estate salesperson or agent — What is my property worth?

• Before you select an agent to sell your property, you should invite three local agents to the property and ask them for an appraisal: this is their opinion of the worth of the home. Three different agents will probably give you three different prices. You think you should sign up the agent who provides you with the highest appraisal? Wrong!

• Something you might not know... Unfortunately a few rogue agents use a practice known as buying the listing. They know that if they provide you with a relatively high price, you will select them as your selling agent, and if and when the property is sold, they will collect the commission.

• The reality is that an overpriced property stays on the market for a much longer period of time and often sells for below its market value as prospective purchasers think that there must be something wrong with the property for it to be for sale for so long. 

• Do your own due diligence so that you have an idea what your property is worth by finding out what comparable properties have sold for so that you are not ‘sucked in’ by an artificially high appraisal.

• Don’t be attracted to the agent just because they offer the lowest sales commissions. A recommendation from a friend or colleague who has used an agent in your area is one of the best indications of which agent you should choose to sell your property.

Accountant — What is my capital gains tax (CGT) liability and am I eligible for the CGT discount?

• An accountant experienced with property should accurately calculate your CGT liability based on what you paid for the property, the costs of improvements and the sale price.

• They should also be familiar with the CGT discount and know if you are eligible for it, based on the ownership structure and the length of time you have held the property.