Insurance that doesn’t Pay

29/4/2021

I’m like a broken record when it comes to Insurance, specifically Landlord Insurance.

I have written about it here on my blog, my #tuesdaytips on Social Media are constantly covering this topic as does my Client Quarterly Newsletter (Clients only, soz).

So why am I here again, out of pure frustration really?

Realistically, Property Managers aren’t inundated with work related to processing Insurance claims. It’s a good thing that claims are few and far between but it just seems that with some insurers everything is a battle.

Since COVID and the placement of the moratorium on evictions, halting landlords from evicting COVID Impacted tenants we know that insurance claims for Rent Arrears sky rocketed. Following that Insurers stopped offering new policies & have since increased premiums… I think we all understood why and the business case behind these decisions.

“Just because you have Building Insurance or other policies with an insurer, does not mean that they will be the best fit for your landlord’s Insurance”

My gripe though is more of a general one and while it might not be news to many it’s a warning to some about insurers exploring every possible avenue in which to avoid approving and paying a claim.

So that my rant isn’t an extended one here are some examples that come to mind as to why insurers have tried not to pay out legitimate claims;

Claim 1:

Rent Arrears following the Death of a Tenant.

The Period was the time between discovery and the family getting possession of the property back to the landlords

Issue:

Insurance did not want to pay the claim because we had not followed steps to chase the arrears or terminate the tenant for Rent Arrears.

We knew the tenant was deceased and terminated the tenancy under Death of Sole Tenant as per the normal processes. Insurance was not factoring in the moratorium or the fact that sending arrears notices was not necessary or very empathetic to the family.

Result:

Post some dispute resolution proceedings the claim was paid.

 

Claim 2:

Tenant Damage.
Tenant had been preparing food on the benchtops, leaving cut marks across marble.

Issue:

Insurance coverage did not cover damage that was accidental, Malicious only.

Result:

Insurance did not cover for what they called “Bad housekeeping”

 

Claim 3:

Rent Arrears COVID Impacted Tenancy

COVID Impacted Tenancy, the landlord had provided rent relief as per the NSW Govt Instructions however some months into providing relief the rent fell further and further behind. It was mutually agreed that the tenancy should come to an end. Arrears were left owing and a payment plan was not able to be negotiated.

Issue:

The Insurance policy only allows coverage of 2 weeks rent if the Lease was a Periodic Agreement, also known as a Continuing agreement.

An extremely outdated policy term that this insurer has had in place for many years but is being changed 1 month after our claim has been made.

Our argument here is that the majority of tenancies are periodic agreements after the initial fixed term has expired and more importantly, landlords and tenants do not have to renew a fixed term agreement. It’s like saying to a tenant at the end of the lease, you need to move if you don’t lock in for another year.

Result:

Pending as it goes through the Dispute Resolution process but it isn’t looking good!

 

It’s important to note that none of these insurers are specialist landlords’ insurers and more likely the companies you would use to insure your car with. Landlords should always stick to insurers that understand Residential Tenancy laws, the legalities and the limitations!

While I won’t name & shame and I can’t specifically recommend insurers It’s important that you, as a Landlord read the long-winded and PDS and ask questions.

THE PDS & Why you need to read it!

The PDS explains what actions can void your policy, how to make a claim and most important outlines what is covered and what isn’t covered. I’ve read a couple lately and while they are long-winded they make for an interesting read. If you’re going to buy a policy from any insurer, find their PDS and read it first.

I would really look at all insurers and just because you have Building Insurance or other policies with an insurer, does not mean that they will be the best fit for your landlord’s Insurance.

A policy that sounds good and is a fair price is what we look for but what they’re like when you go to claim is most important and there is plenty of info and reviews online about that.

Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one service for his Property Investor clients.

For more information visit; https://themanagementagency.com.au/about/

Need To Know – Legislation Update

24/02/2021

I recently took over the management of a property and the lease was invalid for multiple reasons. For a start- the name listed for the landlord on the lease said “Contact Agent” and it only got worse from there. Landlords & Tenants need a lease that is valid, to begin with (obviously) and gives everyone some certainty surrounding their agreement.

2020 was a lot to take in, so to digest some of the legislation changes & recent updates so here I’ll briefly summarise what you all need-to-know!

NCAT Jurisdiction and why Leases were updated in Sept 2020

NCAT, short for NSW Civil & Administrative Tribunal, is the go-to Tribunal for disputes in Tenancy situations. NCAT can make enforceable orders on parties to resolve issues ranging from arrears to possession to damage claims.A little-known fact is that in some cases NCAT may refer the matter to Local or District courts if the landlord is not a resident of NSW. There’s quite a bit of reading on that matter here.Leases were just updated in Sept 2020 where landlords have to disclose their state or country of residence if it is not NSW. This may help NCAT filter through and decide on what matters they can and can’t hear even though they may have to be the first port of call.

The lease Agreement must have this specific info

Leases must now have tenants’ email addresses listed in order for tenants to give consent to receiving any notices or correspondence via email. Leases must also list 1 form of contact for a landlord, either a phone number or email address.

ID Requirements for Landlords

Before leasing or taking on the management of a Property, Property Managers must fulfil an ID Check for landlords to confirm their identity and their ownership of the Property. This has been in place where enlisting an agent to sell a property for some time but is new to Property Management

Information Statements for Landlords & Tenants

There is a new Information Statement each for Landlords and Tenants. Tenants have to be provided a copy on or before signing their lease. For Landlords, they’re required to read and acknowledge having read the statement before a lease is signed, an important step.

Material Fact Disclosure

Material Fact has been around for some time now but the facts that need to be disclosed do get reworked and reworded. For instance, Landlords and therefore agents, need to disclose to tenants if they are aware of any major rectification or works scheduled in a Strata Complex that would impact tenants during their lease. Essentially, a material fact is about sharing the information that you know whilst also protecting landlords if you’re not in the know.

Extension of the Moratorium on Evictions- extended & in place to 26 March 2021

Aside from a stop on COVID-19 Impacted tenant terminations, the moratorium also keeps in place extended notice periods to 90 Days’ notice for other forms of Terminations notices, such as for the End of Fixed Term & Breaches of Agreement.

The Management Agency wishes you all the best for 2021, I know it’s flying by already and we’re working away in what is already turning out to be a busy rental market with a lot of leasing activity already well underway which is already an improvement on 2020.

Thank you for your support, following, and reading!

Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

For what it’s worth?

14/1/2021

Happy 2021! January has been a busy one already and I really didn’t think I’d get to post here until next month but I thought it might be good to dispel a small myth about Property Management only businesses.

This only just came to mind while writing about this for issue no. 7 of my Client Quarterly newsletter (TMA Clients Only Sorry), reminding my clients to ask if they need up to date & free market appraisals of their properties.

So here goes, a quick blogs’ a good blog!

How does a landlord stay up to date with their property value with no Sales Agents on my team?

This hasn’t really come up as an issue or a concern of potential clients so this is more of an FYI for any of my readers or those curious to know.

Well, it’s simple really, I work with several Sales Agents in Surry Hills, Redfern, Darlinghurst that cover the areas that I work across who are always willing and at the ready to provide any of my clients with an up-to-date market opinion of their property. This usually involves a quick physical inspection of the property and for something broader a quick online appraisal can be carried out; it all depends on my client’s needs.

What my clients do like, sorry salespeople, is that unless they approve of being contacted directly then all of their information remains private & confidential.

So, there you have it, a very practical way of ensuring my clients have access to knowledge across their investment and at the same time have that provided to them with minimal effort on their part.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

Renting with Pets

21/10/2020

I’ve previously written here about Animals in Rental Properties, but through the course of 2020, we’ve seen several highly covered Tribunal and court cases battling for pet owners to have the right to keep pets in apartments.

Recently we’ve seen COVID-19 effectively increase the number of tenants seeking approval to keep pets in rental properties and whilst there are fewer obstacles getting pets approved in some properties, the issues surrounding approval becomes complicated where the property is part of a Strata Plan, a community of apartments or townhouses.

In some high-profile cases in Sydney, we see appeal after appeal where ultimately, it’s up to the building’s individual Strata Committee to approve or decline applications for pets.

In New South Wales, the default is no longer to ban pets, but instead allow pets after you obtain written approval from the Strata Committee, which can’t be unreasonably refused. This was a New South Wales legislative change which forms part of the Strata Schemes Management Regulations 2016.

However, this doesn’t consider a strata property’s individual by-laws. Even though legislation provides for the occupier of a strata apartment to have a pet, that doesn’t mean you have the strata committee’s approval. Strata Committees get to choose which by-laws it wants to incorporate into their strata scheme. Saying this, the recent unanimous ruling by three sitting judges from the NSW Court of Appeal, on a four-and-a-half-year battle between Jo Cooper (pet owner) and the Horizon building in Darlinghurst, now means that no blanket ban on pets will be permitted in any building anywhere in the state of NSW. You can read the article here, written by Sue Williams, Domain Reporter.

Prior to bringing a pet into a strata property, you’ll need to send a written request to the Strata Committee seeking permission. This applies even if your building is pet-friendly, and some strata managing agents may have a dedicated application form for this process.

Every Strata Committee will require different information but some of the information requested could be;

  • A description of your pet i.e. the pets breed, size and age
  • Details of your pet’s disposition, such as temperament and its activity needs
  • Proof of registration, microchipping, de-sexing, and all necessary vaccinations
  • References from former landlords, agent, or neighbours that mention your pet’s behaviour, particularly if you have previously kept a pet in a strata managed complex
  • Records of any formal pet training

In the application process, I feel that what’s considered strongly will be;

  • The by-laws for the particular building
  • The type, size, and number of pets
  • The size of the property vs. the size and the number of pets
  • If the pet will suitably fit in with the Strata Plan
  • Your personal routine i.e. if you work from home or take your pet to work

Whilst applications can’t be unreasonably denied, I think it’s fair to say that a large active dog won’t be approved for a small apartment unless, for instance, its owner takes the dog to work with them all day, every day.

If you reside in a rental property, you need to be aware that the landlord of the property is allowed to exercise their discretion on whether or not a pet is permitted by tenants in their apartment. In order to seek approval from the Strata Committee, the tenant’s pet application should be first submitted to the landlord (or Property Manager if managed by an Agency) for approval and then once approved by the landlord or agent, they will submit the pet application to the Strata Committee for you, so essentially this two-step process has to happen before a pet can be kept at the property.

“It is important to note that under the Hearing and Assistance Dogs Act 2009, any person who relies on a guide, hearing or assistance dog (and who has the right to be on a lot included in a community titles scheme, or on the common property) has the right to be accompanied their service dog, regardless of a strata committee’s by-laws on pets.” PICA Group.

So, it is worth looking into further.

For Tenants – find out what the owner’s position is on pets first, find out if there are other pets in the complex and therefore the by-laws are more likely to allow pets.

For Owners – it may be worth looking into getting a tenant approved to keep a pet, as I’ve written before most pet owners are responsible ones and can become long term tenants. For the most part, in my experience, renting to tenants with pets is a trouble-free experience.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

Repairs, Maintenance & Fair Wear & Tear

16 September 2020

Taking care & looking after a rental property is a shared responsibility between tenants, landlords, and the Property Manager if managed by a Real Estate Agency.

The landlord is responsible for ensuring that the property is fit to live in and that repairs and maintenance are completed so that the property is in a reasonable state of repair. The tenant is responsible for keeping the property reasonably clean and undamaged and leave it in the same condition it was in when they moved in (fair wear and tear excepted). If the property is managed through a Real Estate Agency, then the Property Manager will act on behalf of the Landlord and will ensure that the property is fit to live in and is the go-to person, for the tenant to report any repairs or maintenance issues that arise during the tenancy.

What happens when maintenance and repairs are needed?

A tenant should contact their Property Manager or Landlord (if not managed by an Agency) as soon as possible and report the maintenance and/or repairs that are needed.

The Property Manager will need to identify how the maintenance and/or repair came to light. Was it due to damage caused by the tenant or just wear and tear?

If it was damaged caused by the tenant, then the tenant will be responsible for the reasonable cost of repairing, restoration and/or replacement to rectify the damage, however, if it is wear and tear, then the landlord will bear the costs.

What is ‘fair wear & tear’?

Fair wear and tear, is a term for damage that either naturally or inevitably occurs as a result of normal use and/or ageing. Another way to look at it is, fair wear and tear is damage that occurs even when an item is used competently and with care and proper maintenance. This covers property fixtures and items that deteriorate over time due to daily use and/or ageing.

Some of these are:

  • Worn kitchen benchtops
  • Worn handles or hinges
  • Scuffed flooring on the carpet on high traffic foot areas

On the other hand, it is not, wear and tear when the damage to the property is due to an accident, negligence, or even malicious.

Some of these are:

  • Burns on kitchen benchtops
  • Holes in the walls
  • Stains or burn marks on the carpet

As an example, carpet has an expected lifespan of 10 years, and therefore wear and tear consistent with its lifespan is expected, so daily walking on the carpet will result in wear and tear.

However, excessive staining, like from a spilled glass of red wine would not be considered ‘fair wear and tear’.

Somethings aren’t always as clear cut, so your Property Manager will need to apply some common sense and ask the right questions in order to make an informed decision on whether or not the damage is ‘fair wear and tear’.

Saying that fair wear and tear is not always something that requires repair, but simply needs to be taken into account based on the age and economical life of a fixture or fitting. Fair wear and tear always has to be a consideration, for example, at a final inspection at the end of a tenancy.

‘Fair wear and tear’ forms part of a Lease Agreement

The NSW, Residential Tenancy Agreement (Lease Agreement) and the NSW, Tenant Information Statement both reference the term ‘fair wear and tear’. Fair wear and tear is the responsibility of the landlord, and tenants are not responsible for paying for ‘fair wear and tear’, however, tenants need to be aware that it is there obligation to leave the residential premises as nearly as possible in the same condition, fair wear and tear excepted, as at the commencement of the tenancy.

There is though, excessive wear and tear, which takes into account, how long tenants have resided in the property or how long it’s been since things like repainting or flooring have taken place.

Excessive wear and tear, is wear from use that isn’t normal and that can come from a lack of overall care taken or just too many people residing in a property, above what has been agreed, as noted on your Lease Agreement.

Tenants need to be mindful that the cost of repairs, or the restoration of, the premises or goods leased with the premises if it is a result of damage caused by the tenant, other than ‘fair wear and tear’, may be deducted from the bond.

Landlords, what you need is a Property Manager that knows the difference and can step in accordingly, and tenants, you need a Property Manager that’s willing to take the time to Inspect the property and explain what’s what.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

COVID-19 & The Sydney Rental Market

18 August 2020

Far out! The media reports are so depressing these last few months…

There have been endless articles and news stories covering the impact that COVID-19 is having and the Sydney rental market in general. Articles covering the drastic drops in rents, record vacancy rates, and how the tables have turned with tenants having the upper hand are a daily news feature.

If you know anything about The Management Agency then you know it’s me, Antonio, from start to finish and that means I’m the one taking enquiries and showing properties and therefore I see what’s happening on the front line.

We are undeniably experiencing higher than normal vacancy rates, rents decreasing and a general negative sentiment when it comes to the Rental market and particularly in the Inner-City Areas that The Management Agency works within.

However! What I see, is continued movement of available rental properties. Properties are still being leased and there are many reasons why tenants are moving around from Property to Property.

The Management Agency continues to monitor the local Rental Market & it’s activity and advises its landlords on the best courses of action in the current market.

So, what’s up?

Let’s get all that negativity out of the way;

Yes, it’s taking longer for Properties to get leased

There’s a huge supply but the level of demand is still typical of the winter months. Why? Because prospective tenants are shopping around, they have choice and most don’t need to move or necessarily want to move but they will to find a better deal. They all get leased, eventually!

Rents are certainly not increasing

They’re either at a standstill or decreasing to meet the current market. If the property (or Properties in some cases) are advertising lower rents to minimise vacancy then that’s pushing everyone else down. Meet the market or sit vacant and wait it out – neither are ideal options but these aren’t exactly ideal times.

Short Term Rentals are saturating the market

Whilst this has slowed down, most of these properties are offered as furnished rentals, creating an influx of furnished properties. The demand for furnished properties has never been typically high, even prior to COVID-19 and therefore some landlords have unfurnished their holiday rentals simply to get their properties leased. Some will stay in the long term Residential Rental Market post-COVID-19, but I believe many will return to short term rentals once the demand for it returns. The influx of these properties has added to the supply levels and therefore impacting overall Vacancy Rates and Rents.

On the plus Side;

There’s demand for specific properties

I’m finding that specific properties are moving a lot faster than others. These are the larger terraces or the smaller terraces and smaller apartments, due to generally being rarer finds so there’s a demand for these niche properties as they are meeting a specific need in the current climate.

For example, a 5-bedroom terrace can lease in a matter of days as it’s economically making sense for prospective tenants to combine households and pool their expenses into one home. Makes sense, right?

As for downsizers, with so many tenants working from home, a couple sharing in a larger property can make their own home by downsizing and achieving their goal of getting out of shared tenancies and at the same time finding good value and a quieter more comfortable home to work from.

As I meet prospective tenants, I’m hearing first hand of people’s circumstances, circumstances that simply make it an opportune time for them to be looking to make a move.

Price them right and they’re leased within a couple of weeks. Any property that’s well cared for, updated and most importantly, competitively priced has been snapped up either at or very close to the asking rent.

Prospective Tenants are on the Hunt

So many people that come through my Open House Inspections are simply looking to move to save money. They’re in no rush to move, they don’t need to move but will if they find the right property and the best possible value.

Considering that we all spend so much more time at home these days, and in the inner city most people are working from home, tenants simply want to be happier at home. Prospective tenants are looking for more space, workspace, and somewhere simply more pleasant to be than where they are now. The way I see it, many are currently in properties that aren’t meeting all of their needs and that’s what they’re on the hunt for.

Current Tenants are doing the right thing

Current tenants who are happy with where they live are staying put and those that haven’t been COVID-19 Impacted are fulfilling their obligations. The tenants who are impacted and are demonstrating this to us, are entering into negotiations with some good and fair outcomes being achieved. These outcomes are ensuring that we can keep tenants in their homes as well as give our landlords some income certainty. At the same time, these agreements ensure we all come out of COVID-19 unscathed, once it is finally, well and truly under control.

Properties are still selling

More than 12 months into trying to sell my property, it sold well into COVID-19. Who wouldn’t want an escape to the Southern Highlands right about now.

We’re seeing the inner-city market still moving with some notable sales results being achieved. By all accounts, a lot more stock is needed as many vendors are holding off until sentiment improves and potential vendors are more confident in achieving a positive outcome.

Rents will increase… eventually

Rents always do increase at some point! Obviously, we don’t know when it could be sooner rather than later. I’m sure we’ll all be watching this space and I’m sure the media will be reporting as much when the time comes. My clients can be assured that I always closely monitor the rental market and will be kept in the know.

Your Property Manager, Me, is on the front line.

Well, this only applies if I’m already your Property Manager. Having a poor negotiator or a Property Manager not doing their due diligence in these times is costly. That aside, I’m the one showing properties, leasing properties, and listening to feedback. I know what’s happening and this way my owners know what’s happening as well. Direct from the frontline. That’s positive!

So What’s next?

If only I had a crystal ball. I can’t say I know for sure but there are some signs of Rental Stock gradually reducing as rentals come into line with the market and then come off the market altogether.

What we really need is for our Students to get back to school, all of us to get back work and get holidaying groups back into holiday accommodation – as soon as it’s safe to do of course.

At any point in time, the market has its ups and downs and we always align to its cycle regardless, we just need some movement back into the workforce and back into the inner-city suburbs.

Until then, we have to keep on keeping on and move with the market. Support our current tenants to the best of our abilities, and try to keep our heads up.

For now, I’m done with the word “unprecedented” and sticking to “perseverance” because that’s what’s needed.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, a local Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

Rental Properties. What you can & can’t claim

It’s not uncommon for landlords to be confused about what they can and can’t claim for their rental properties. What often seems to make perfect sense in the real world does not always make sense for the Australian Tax Office (ATO).  

The Team at Simeoni Accountants have highlighted some key common problem areas in their blog below;

In general, deductions can only be claimed if they were incurred in the period that you rented the property or during the period the property was genuinely available for rent. This means a tenant needs to be in the property or you are actively looking for a tenant. If, for example, you keep the property vacant while you are renovating it, then you might not be able to claim the expenses during the renovation period if it was not rented or available for rent during this time (there are some exceptions to this general rule). There needs to be a relationship between the money you make and the deductions you claim.

Here are a few common problem areas:

Interest on bank loans

Only the interest on repayments for investment property loans, and bank charges, are deductible – not the actual loan itself. Also, if a loan facility is used for multiple purposes then only some of the interest expenses might be deductible. For example, if some of the loan is used to acquire or renovate a rental property but further funds are drawn down to pay for a holiday then this is a mixed purpose loan and an apportionment needs to be undertaken.

Repairs or maintenance?

Deductions claimed for repairs and maintenance is an area that the ATO is looking very closely at so it’s important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can often be claimed immediately, the deduction for capital works is generally spread over a number of years.

 

Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves restoring a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:

  • Replacement of an entire asset (for example, a complete fence, a new hot water system, oven, etc.)
  • Improvements and extensions where you are going beyond the work that is required to restore the property back to its former state

Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible, even if you didn’t find out about the problem until later.

The sharing economy

The deductions you can claim for ‘sharing’ a room or an entire house are similar to rental properties. You can claim tax deductions for expenses such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, insurance, etc. But, these deductions need to be in proportion to how much and how long you rent your home out. For example, if you rent your home for two months of the financial year, then you can only claim up to 1/6th of expenses such as interest on your home loan as a deduction. This would need to be further reduced if you only rented out a specific portion of the home.

Friends, family and holiday homes

If you have a rental property in a known holiday location, the ATO is likely to be looking closely at what you are claiming. If you rent out your holiday home, you can only claim expenses for the property based on the time the property was rented out or genuinely available for rent and only if the property was not actually being used for private purposes at that time.

If you, friends or relatives use the property for free or at a reduced rent, it is unlikely to be genuinely available for rent and as a result, this may reduce the deductions available. It’s a tricky balance particularly when you are only allowing friends or relatives to use the property in the down time when renting it out is unlikely.

A property is more likely to be considered unavailable if it is not advertised widely, is located somewhere unappealing or difficult to access, and the rental conditions – price, no children clause, references for short terms stays, etc., – make it unappealing and uncompetitive.

Blog via; Simeoni – Small Business Accountants.

Contact the team at Simeoni or your trusted accountant if you need any further advice.

Antonio

A beginner’s guide to depreciation

Property depreciation is a complex topic for Property investors and a topic that’s best covered by going straight to the Specialists, being BMT  Tax Depreciation. So here’s their beginner’s guide to Depreciation. What it is, how it works and how investors can use it to take full advantage of the deductions that they’re entitled to. Of course, shared with their express permission.

Depreciation is the natural wear and tear that occurs to a building and the assets within it over time.

Property investors are entitled to several taxation benefits however many fail to take full advantage of the depreciation deductions available to them.

While most investors are aware of claims for expenses such as interest on their loans, council rates, property management fees and repairs and maintenance costs, depreciation is a hidden factor often not considered.

To help you better understand property depreciation, here are the answers to some of the most frequently asked questions.

What is property depreciation?

As a building gets older, its structure and the assets contained within it wear out – they depreciate. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this depreciation as a tax deduction.

What can you claim?
Depreciation deductions are split into two distinct categories:

  • Division 43 capital works allowance
  • Division 40 plant and equipment depreciation

The capital works allowance relates to claims for the wear and tear that occurs to the structure of the property and any fixed items. Capital works includes items like the roof, walls, doors, kitchen cupboards, bathroom tubs and toilet bowls.

Generally, any residential building where construction commenced after the 15th of September 1987 will entitle its owner to capital works deductions. These deductions can be claimed at a rate of 2.5 per cent per year for up to forty years.

Owners of buildings constructed prior to 1987 should still find out what deductions are available, as often these buildings have undergone some form of renovation which can result in capital works deductions.

Plant and equipment depreciation can be claimed for the easily removable fixtures and fittings found within the property. There are more than 6,000 different depreciable assets recognised by the ATO, including items like carpet, blinds, air conditioners, hot water systems, smoke alarms and ceiling fans. Each plant and equipment asset is assigned an individual effective life and depreciation rate.

Under current legislation, owners of second-hand residential properties who exchanged contracts after 7:30pm on 9th May 2017 cannot claim deductions for previously used plant or equipment assets. Investors who purchase brand-new residential and substantially renovated properties, commercial real estate or add new plant and equipment assets to a second-hand residential property can still claim substantial depreciation deductions.

How will claiming depreciation help an investor?

As the owner of a residential investment property, claiming depreciation deductions can make a big difference to your cash flow.

During FY 2018/19, BMT Tax Depreciation found residential clients an average first year claim of almost $9,000.

A BMT Tax Depreciation Schedule covers all deductions available over the lifetime of a property to ensure you maximise your cash flow and is 100 per cent tax deductible.

What is involved in completing a tax depreciation schedule?

BMT Tax Depreciation start by collecting the basic information needed to prepare the schedule. This includes simple details like the name you would like to appear on your depreciation schedule, the property address, purchase information and your property manager and accountant details.

Then, a property inspection is conducted. To make this as easy as possible, BMT can contact your property manager or tenant directly to arrange access to the property. A property inspector will count, measure and photograph all depreciable assets such as the flooring, light fittings, tapware and other items. All the depreciable assets found within your property will be recorded during the inspection and reported back to your local office.

From there, the depreciation and specialist tax team will review the information gathered and prepare your tax depreciation schedule. BMT can even forward your schedule to your accountant directly, saving you time.

Property investors who would like a quote on the deductions available in an income-producing property can Request a Quote online or contact one of the expert staff at BMT on 1300 728 726.

Article provided to The Management Agency by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit 
www.bmtqs.com.au for an Australia-wide service.

I hope you’ve found this post helpful and that it’s cleared up some of the questions you may have had about Depreciation.


Antonio Mesiti is the Principal & Property Manager at The Management Agency, A local and Property Management specialist offering a one on one and end to end service for his Property Investor clients. For more information visit; https://themanagementagency.com.au/about/

Landlords, Tenants, Property Managers & COVID-19

What else could my Blog be about right now.

I was going to post about depreciation & had a few other topics I wanted to put out but as you all know; life is on pause right about now.

These weeks have been tough.

Property Managers everywhere are struggling to get through the mass of information and ideas on how to manage this crisis.

I realise, first and foremost that this is a Health Crisis and I’m yet to come across anyone that doesn’t agree with the Stage 3 lockdowns and overall need to #stayhome.

But what about the tenants that are staying at home but are worried that they can’t pay for their home. Yes, they’re struggling and I hear their stress and sympathise with them. Let’s also not forget that landlords have also lost work and like everyone, the bills keep coming in.

We need to find some happy mediums, even if these aren’t necessarily happy outcomes, but outcomes that everyone can live with.

So, I’m giving some tips to all on how we can ALL get through this. It may be obvious and it may be common sense but here goes;

Tenants

  • Look into what assistance is available; there are ample links and fact sheets available. Get them from trusted sources i.e. Government websites
  • Rest easy, there is a moratorium on evictions but, it’s been made clear, that doesn’t mean rent won’t accrue a debt if you don’t pay and also don’t approach your Property Manager or Landlord. If you can’t pay the full rent, pay what you can to keep any balances of rent owing low. Reach out for help!
  • Property Managers are trying to help where we can to negotiate good outcomes, we’re still waiting on further advice and information from the Government though. It is coming!
  • Speak to your Landlord or Property Manager, let us know your situation so that we can get back to you as soon as we know more

Landlords

  • If you don’t have landlord’s insurance by now, it may be too late with most providers having already cut off new policies
  • Speak to your agent and let them know your financial position, so that we have the complete picture
  • Our recommendations, as Property Managers, are just that. You will have the final say in any negotiations but you need to be open to them and compromise where possible
  • If your Property is for Lease or Vacant, it is time to align to the current rental market ASAP. Tenants are still out there looking. People are downsizing, economising and looking for the perfect Isolation pad.

 

And finally, to my fellow Property Managers. We’re having a tough time, seriously. Long hours, countless calls / emails and counselling sessions.

All the while we are taking a slight battering by the media and I’ve also been hearing of many pay cuts, cuts to working hours and layoffs in our industry.

 

Property Managers

  • Listen & be compassionate to all
  • Follow trusted sources and keep up to date & informed. Things are changing rapidly, almost hourly
  • Don’t be hasty and make rushed decisions; National Cabinet updates are coming
  • Follow your regular procedures until we know more
  • If you haven’t heard, don’t give anyone Financial Advice
  • Take serious precautions when you do have to go to properties, i.e. Physical distancing, masks, sanitizer & gloves
  • Adjust, adapt & Innovate as the way we do Property Management will be changed forever
  • Now is the time to go out of your way to help our landlords, tenants and tradespeople – Go the extra mile. How we perform during difficult times can cement and build long term relationships

Shoutout

A Huge Thank you needs to go out to the REINSW, REIA, Tom Panos, Jemmeson Fischer, Leanne Pilkington and the team at Novak Properties for the regular informative updates and webinars you are running constantly. You’ll all be remembered for your efforts during this time.

I greatly appreciate you all taking the time to generously share knowledge, your insights and practical advice simply to just help others and ensure we are all doing the right thing.

Keep your head up everyone, we’ll get through this.

Antonio

NSW Rental Reforms & Renewing Leases

5/3/2020

As a Property Manager, we spend a lot of time negotiating Lease Renewals as tenants’ leases come up to expire. My opinion is that it is ideal for both owners and tenants to have the security of having a lease in place.

With the recent NSW changes to Residential Tenancy Laws, I’m already seeing landlords reconsidering this and opting to have their tenants remaining on continuing agreements.

This is largely because of the changes relating to the costs incurred by tenants when they need to Break their Lease.

These changes are likely to see increased instances of vacancy periods and therefore loss of rent where the current lease arrangements provided landlords with much more security. For a landlord, being told that their property is vacant with little “compensation” being the Break fee, leaves them open to unpredictable and unforeseen vacancy periods.

“The question now, is it worth renewing a Lease, when they’re so easy for a tenant to break?”

Whilst a fixed-term lease provides tenants and landlords a period of security, with new legislation coming in on 23/3/2020, it’ll be easier for these leases to be broken by tenants so we might see more and more tenants leaving before the Lease expires simply because it’s more affordable to do so.

 

Close to a Lease expiring your options are to either;

  • Not renew a Lease and have continuing agreement where tenants provide you with 3 weeks’ notice to vacate at any point

Or

  • Renew a Lease where tenants can break the agreement by paying a set break fee as outlined below

New mandatory set break fees for fixed-term agreements

Mandatory set fees when a tenant breaks a fixed-term agreement early will apply to all new fixed-term agreements that are 3 years or less. This applies to agreements that are entered into from 23 March 2020 onwards.

The break fees are:

  • 4 weeks rent if less than 25% of the lease had expired
  • 3 weeks rent if 25% or more but less than 50% of the lease had expired
  • 2 weeks rent if 50% or more but less than 75% of the lease had expired
  • 1 week’s rent if 75% or more of the lease had expired.

Using the example of a 12-month tenancy agreement, a tenant would only be required to provide two weeks’ rent to their landlord (that is, an amount equal to two week’s rent) to end their agreement early, if seven months (or 58%) of the agreement had expired.


I’ll be speaking to my clients on a case by case basis as Leases come up for renewal throughout 2020 but already, I am hearing “What’s the point of a Lease”.

The consensus is that at least getting 3 weeks’ notice on a continuing agreement gives you more lead time to advertise and show the property to secure new tenants, it’s all about minimising vacancy here.

As a Property Manager, it’s my job to maximise my landlords investments, and where leases are renewed at a cost to landlords it might not be the best investment to all clients when you consider a lease can be broken in the last 3 months and all the owner will receive is 1 weeks rent as the set break fee.

While there are many other changes to legislation coming in, which I’ve covered in my posts, I feel this change will have the greatest impact on both landlords and tenants.

Landlords face uncertainty in terms of the higher probability of lost income and Tenants face not having the offer or opportunity to renew their lease and get some long-term security in their homes.

My opinion is that there are no real winners here, unfortunately.

While it may sound advantageous to tenants being able to more affordably break their lease and move, long term investors may simply be turned off investing and may simply not offer the tenants that want to secure longer leases, the option.

As an investor, will I be renewing my tenant’s leases? Probably not, unless I’ve got tenants that really demand it and where I feel they’ll give me the courtesy of some notice of their vacating rather than none.

“What’s crucial here, is keeping good working relationships with tenants. Relationships where tenants will communicate any changes in circumstances to their Property Manager. So that we will get the heads up and some notice, even though the tenant doesn’t technically have to provide it.”

As Property Managers, it’ll be in our, and our client’s best interests that we keep our eyes and ears open and are attentive to our tenant’s movements and their circumstances.

Antonio @ The Management Agency