Is an Air Conditioner for Rental Property a Good Investment – or Not?

We all know about those hot sticky nights when there is little or no breeze, and the humidity is stuck on 98%.  Sometimes there is no alternative other than to run the air conditioner all night.  The risk of waking up grumpy is just not an attractive option!

But what if you are renting a property, and there is no air conditioner?  Along the same lines, what if you own a rental property, and it’s not airconditioned?  What are your rights as a tenant of a Queensland rental property? Conversely, what are the expectations on a landlord to install an air conditioner in your rental property?

What do you think about putting air conditioner into a rental property?

As you may expect, it all comes down to the numbers.  Whether an air conditioner is a good investment comes down to a couple of things.   Its’ value can be assessed in terms of up front cost, as well as the time to pay back the investment.

Each year we can expect a couple of months of really hot weather, and some of just plain hot weather!  So there’s no doubt that a rental property with an air conditioner is going to be more attractive to prospective tenants.  In addition, we can consider those colder months of the year when heating is desirable.  We therefore can begin to build a case for a reverse cycle air conditioner that can be used all year round.

What is the pay back time for an air conditioner in a rental property?

A typical reverse cycle air conditioner costs around $3000 – $4000 to have installed.  This is quite a reasonable outlay for a split system, reverse cycle air conditioner.  Such a system can heat or cool the living areas of a small home, or an apartment.  Let’s say that for the moment you get an extra $20 to $30 per week rental income for your investment property, because it is more desirable with air conditioning installed.  This rental return means that you should be able to pay off the cost of installation within or around 3 years.  There are also some tax benefits on this investment that can also be considered in the pay back period.  Check with your property-savvy accountant for the facts on this.  They will pertain to your particular situation.

But there are other hidden benefits also!

There is little doubt that an air conditioner for rental property makes the property more desirable for tenants.  Property managers always find that there is extra demand for rental properties with air conditioning installed.  The real benefit here is that the property manager has a larger pool of prospective tenants to choose from.

More attractive rental property – better tenancy rates

Therefore the landlord gets the benefit of choosing from the best tenant applications.  This increases the chances of securing the best tenant for the property.  At the end of the day, finding the best tenant for the property is the key to a good investment property.  This is because a good match ensures the tenant is happier, and the property is leased and better looked after in the long run.

But what does all this mean in terms of rental return?

When discussing the cost of installing air conditioning in a rental property, there is a third factor at play in the pay back time.  The pay back time is dependent on securing long term tenants, and minimising the vacancy rates.  If you have ever experienced a lengthy term of vacancy in your rental property, you will know that it can become very costly in terms of your investment income.  So here is the potential benefit from installing an air conditioner for rental property.  When the landlord can increase rental by a small amount per week, but also ensure good long term tenancy rates, this can be far more beneficial in the long run.  There is no doubt that a landlord gains a better long term investment return by minimised vacancy rates, rather than by increasing the rent.

Does an air conditioner for rental property increase the capital value?

Unfortunately, this is probably not a good reason for justifying the outlay of money.  Obviously the installation of air conditioning in your rental property can be a serious investment in terms of capital.  Note though that the potential increase in capital of the property is, at best, only likely to be the same as the amount of money outlaid.  Over time, as the air conditioner ages and the value of the appliance decreases, there is potentially less likely to be any increase in property prices due to the installation of air conditioning.  They can even become a liability if they don’t work.

What if a tenant requests an air conditioner?

So the numbers discussed above show a favourable argument for an airconditioner for rental property.  However, when a tenant requests an air conditioner be installed in a rental property, this can still be a conundrum for landlords.

It will generally depend on personal factors and circumstances for a property owner.  The owner’s particular investment strategy can also come into play.  It can also depend upon the market at the time.  Despite the ‘upside’, it can still be a big decision whether to install air conditioning into a rental property.  If investing long term, it is attractive to secure a good long term tenancy and maintain low vacancy rates.  An air conditioner for rental property can help with this.

What if the property owner is trying to maximise the capital investment purely in terms of financial return?  The numbers can then be a little trickier to justify.

However, there may be a compelling reason to install air conditioning if other properties in the area already have air conditioners installed.

Depending on personal circumstances, there is always a potential benefit to be gained from depreciating the capital assets when you own an investment property.  Be sure to check with a property savvy tax accountant to ensure that you do not overlook any rental property tax deductions.  This may extend down to the costs of regular servicing and maintenance of the air conditioning units, as these costs can be considered reasonable business expenses.

Can you increase the rent for installing an air conditioner?

Can you increase the rent if the tenant asks you to install an air conditioner?   Yes, the answer is that you can negotiate an agreeable rental increase.  It is also important to look ahead to the longer term benefits.

Don’t try to gouge your tenant with rental increases.  This may not turn out to be such a good investment in the short term.

What if your tenant decides to seek alternative accommodation after the summer heat has passed? You may be left with an unexpected vacancy.  Then there would be no rental income to cover the cost of the air conditioner.  The better alternative is to keep your tenant happy.  This will serve to retain a longer lease agreement to keep the property rented in the longer term.  There is little doubt that maintaining high tenancy rates is preferable in terms of investment.  This will avoid the costs associated with selecting new tenants at the end of every lease.

An air conditioner for rental property can be a very good investment, indeed.

DISCLAIMER: We are not financial advisors and none of the following information is offered as financial advice.  It is up to you to seek your own independent financial advice.  We do recommend seeking the services of a qualified and experienced Tax Accountant.  They should be an expert in dealing with property portfolios, and ideally is a property investor themselves.  This is a general overview of rental property depreciation and the details vary with each person’s situation.

If you’re getting lost in the world of tax depreciation and how it relates to your rental property, you’re not alone. It’s a daunting and confusing area, but we want to take some of that confusion away by answering some of the more commonly asked questions.

In short, rental property depreciation is no different to the other items that are depreciated on your tax return. Many property owners do not realise that there are different types of allowances that you are entitled to claim on your tax returns. Many rental property owners who have purchased a property to return an income do not realise that you can depreciate what is contained inside the building and the physical dwelling against its income. You don’t need to be an expert accountant to take advantage of opportunities you didn’t know existed. You just need a basic understanding of rental property depreciation and who to contact to help you make all of the claim opportunities available to you.  Some see rental property depreciation as one of the advantages of owning an investment property.

What is rental property depreciation?

Rental property depreciation actually has two different allowances for property owners to take advantage of:

• Plant and Equipment depreciation (the items inside the property such as washing machines, ovens, curtains)
• Building Allowance depreciation (the property itself and the materials that make it a building, such as bricks, timber, driveway concrete)

If you’re not offsetting these costs in your annual tax return, you’re probably not making all the claims you could be!

How does it help me?

Making claims for both Plant and Equipment depreciation and Building Allowance depreciation will reduce the amount of tax you need to pay each year. Having a schedule for these depreciations will ensure you are making the correct claims each year, and also serve as a reminder for what you should claim for that year. I’m sure we don’t have to mention that reducing your taxable income is a good thing!

Another way depreciation schedules help you is by it being what the tax office calls a ‘non-cash deduction’. What that means is that you’re not repeatedly paying for the deduction every year because you paid for it upfront when you purchased the property. Whether you knew that it was included in the price of the property or not, it’s just another reason why it’s worth claiming deductions against the two types of allowances.

Who can claim deprecation on their rental property?

Any property owner can make a claim on depreciation of their rental property. A common myth is that some rental properties cannot claim depreciation because they were built before a certain date. This is untrue for the most part. It doesn’t matter how old your property is.  Its age, however, may mean only certain allowance types are able to be claimed.

• Residential properties that were constructed earlier than July 1985 can make a claim for depreciation on the Plant and Equipment allowance only
• Residential properties that have a construction date of July 1985 or earlier can make depreciation claims on both the Plant and Equipment Allowance and the Building Allowance.

It’s a good day for good news with opportunities to claim regardless of how old your property is!

Who should I contact for estimates?

Tax law states that accountants are not permitted to make estimations on the construction costs of properties built after 1985. Quantity Surveyors are the only people who can make estimates on unknown costs.  They should be first on your list of people to contact.

You should ensure that the Quantity Surveyor that you employ to undertake estimations on your rental property are a member of the Australian Institute of Quantity Surveyors (https://www.aiqs.com.au). The Quantity Surveyor must inspect the property to comply with their Code of Practice. They will document all aspects that can be depreciated and be much more thorough than you or your accountant could be.  It’s worth getting their help regardless of it being a requirement. It’s also important to note that the fee charged by Quantity Surveyors are completely tax deductible.

How much do depreciation schedules cost and how long do they take?

It takes between two to three weeks to complete a depreciation schedule from the date of the Quantity Surveyor’s inspection. There’s many aspects of a depreciation schedule that can affect its cost.  Good Quantity Surveyors make guarantees to ensure that the money the claims return outweigh the costs associated with developing a depreciation schedule. Ask your Quantity Surveyor if they offer any guarantees of return for the depreciation schedule they develop for you.

Is there any easy way to figure out what my claimable deductions might be?

There’s a number of depreciation calculators online, but BMT Quantity Surveyors offer a simple one of their website (https://www.bmtqs.com.au/tax-depreciation-calculator) By using the depreciation calculator you can get a good indication of what kind of claimable depreciation deductions you could expect.

What are some other myths about rental property depreciation?

Myth: You can’t make a claim on a property purchased three years ago.

Fact: You can likely make a claim on a property purchased three years ago.  Tax returns can generally be amended within two years, with a number of exceptions, of course.

Myth: You can’t claim deductions on renovations made to the property.

Fact: You can make a claim providing you know the total cost of the renovations.

Myth: If you didn’t make the renovations, you can’t claim the deductions.

Fact: Even if you purchased the rental property with recently renovated components, you can claim depreciation on the renovations. However, as stated above, you must know the total renovation cost.

Australian Taxation Office

For further reading, you may like to view the ATOs page : ATO Rental Properties 2016

It’s important to obtain the advice of a suitably qualified financial advisor.  You need to be sure that property investment is appropriate for you to undertake.  If you do embark on that path, you will be wise to appoint a qualified and experienced Tax Accountant.  Do be sure to check they are an expert in property, and invest in property themselves.  If you do this, then rental property depreciation is something they will adeptly take care of for you.

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When is the Best Time of Year to Advertise My Property for Rent?

If you’re a landlord, one of the most important questions you need to ask yourself is, “when should I advertise my property for rent?” You’re sure to agree there’s nothing worse than advertising when the market is slow and having to watch the weeks (and your profits) slowly dwindle, as your property sits empty.

Of course it’s entirely possible to have your investment occupied throughout the year.  However, it doesn’t happen automatically.  Timing your lease dates to occur at certain times can significantly raise your chance of success. This can be tricky.

For example, though it’s common practice to presume the winter months are best avoided, as people like to hibernate in the middle of the year, it’s actually one of the peak times to advertise property for rent.

Here’s where detailed research into the market makes sense, to understand the movements of possible tenants in the rental market. Your skilled and experienced property management team at Position One Property can help you identify the best times.  They know how to operate in accordance with your local area and tenant demographic.

For now, let’s take a look at the basics.

Advertise Property for Rent in the New Year

Along with ‘New Year Resolutions’, the months of January and February see many people turning a new leaf, making changes and moving forward in life. Plus, with school holidays and extended leave from work, tenants often deliberately time a change of location with the busy season. What does this mean for you, as a landlord?

A large pool of prospective tenants!

Delving further into available tenants, you may also find University students relocating at this time.  Not all properties are going to suit Uni students.  But if your property is appropriate for that market, this knowledge will benefit you. Many 12-month leases come up for renewal at the beginning of the year, so more people are looking to upgrade or change locations.

In summary, advertising in advance of a new year is nearly ideal as the peak period for rentals.

Winter is Prime Time to Advertise Property for Rent

It may be a tad colder and many people wish to stay put in the comfort of familiar surroundings.  However, from June to August is your next best bet. With regard to University students, mid-year marks a time of change. Because school holidays fall in this time, families with children often take the opportunity to move and upgrade to a more suitable property.

As tenants regularly look to sign leases at the beginning or in the middle of the year, many contracts expire at this time.  This means even more prospective tenants for you. It’s all about looking outside of the box to determine which demographic your property appeals to. This way, you can begin to understand their movements, in order to harness interest at various times of the year.

Get the Timing Right for Advance Rental Property Advertising

Depending on when your property is available to move into, it’s crucial to get the timing right, as to when you actually put the advertisement out. The timing may come down to what’s appropriate within your schedule, however no matter which month you choose, it pays to realise that advertising too early, or too late, could have adverse effects.

As the internet is so effective in serving options up on a visually attractive platter, tenants can search at their leisure, with the ability to pick and choose based on pictures and descriptions alone. This means there’s a lot of competition out there, especially at peak times.

So, the aim of the game is to get the perfect balance.

Striking That Perfect Balance

Generally speaking, tenants begin their search four to six weeks in advance. Therefore, you must consistently stay ahead of the ball, so you don’t miss out on eligible applicants. For example, most tenants, upon finding a home, need to give notice, pack and organise their schedules. They obviously want to have a new place lined up before any of that occurs.  So chances are they’ll fit into the four to six-week timeframe.

With the right information, the right planning and the Position One Property Team on your side, you’ll never again have to ask, “when should I advertise my property for rent?”

Though advertising much earlier than this may seem like the smart thing to do, it could result in drawbacks. If other properties offer an earlier date for occupancy, you might miss out on applicants who aren’t prepared to wait, due to similar competition. You also run the risk of your property being online for too long.  Prospective tenants could question why, and what’s wrong with it.

When you add it all up, with notice, inspections, screenings, applications and moving, it makes sense to advertise five to six weeks before the commencement of the lease. When you time your ad strategically, you have a fantastic chance of lining all the important dates up, for a successful outcome.

So, What’s the Bottom Line?

It’s all about getting the timing right from the beginning. Plan so it’s possible to arrange six to 12 month leases (as the general timeframe), around the two peak seasons. Then, there is every chance you’ll never again have to ask, “when should I advertise my property for rent?”

Wouldn’t it be handy to have property management specialists on hand to help answer difficult questions? Whether you’re a landlord or a tenant, having access to the experts is invaluable. When you’re new to renting, or to investing, there’s a minefield of information to wade through in order to determine vital issues.  Even the basics, such as: who pays for a telephone connection?

The great news is, rental property management Brisbane specialists, Position One Property, have already done the work for you. We know how to break down complicated situations in order to find the best solutions for everyone involved. To start you off, we’ll look at the responsibilities involved for both tenants and landlords with regard to phone connections.

RTA Guidelines

In terms of the basic rules, a landlord isn’t required to provide telephone, television and internet connections within the premises. However, when there are existing phone sockets, a landlord is required to ensure they’re in a reasonable condition.

Generally, the tenant then agrees to arrange for the connection and pay for the service. If the property is individually metered, a tenant can’t be charged more than the amount charged by the supplier and laws are in place to safeguard rights.

So, that’s a brief rundown of the guidelines, however it’s not a black and white situation and opinions can differ. A property management specialist can help to diffuse opposing opinions between landlords and tenants, by dealing with the individual scenarios that may occur. This, in turn, ensures clear communication is maintained and the responsibilities of both parties are understood and documented.

Responsibilities of Tenants

First of all, it’s the tenant’s responsibility to ensure that everything they require in a property is provided, prior to signing a lease. Upon inspection, tenants should check for phone sockets and enquire about connections, so there’s no confusion as to what is included.

For example, if there are no phone sockets installed and it’s not stated that they’re included, the landlord is not obliged to pay for them. Therefore, a tenant may have to pay for the installation, if the service is required.

If this is the case, tenants need to contact their rental property management Brisbane specialist, in order to gain approval to make alterations to the property. It’s very important that tenants wait for the ‘go-ahead’, or approval, before commencing installations or repairs.  This will avoid the possibility of losing part of their bond, or breaking lease agreements in doing so.

This also applies if tenants wish to improve previously installed services, in the way of extra phone points for convenience or increased internet reception. In this case, the landlord may or may not approve, however the expense would generally be the tenant’s responsibility.

To avoid any misunderstandings, it’s always best for tenants to note, on the condition report, that phone sockets don’t work.  This is also the time to note if extra facilities are required. This way, before commencing the tenancy, negotiations can take place as to the terms of having them fixed or included.

Responsibility of Landlords

For landlords, it makes sense to ensure a line connection is supplied for tenants. This increases the property’s appeal as it’s a primary necessity for most potential rental candidates. However, upon connecting the line, the tenant should then pay for the connection and the services used for the duration of the lease. Above all, these agreements need to be stated clearly prior to the rental agreement.

If, for example, a tenant has signed a lease on a property with a phone socket, but upon moving in discovers there isn’t a working landline, generally the landlord will need to provide one. The exception to this is if an exclusion was specified in the tenancy agreement.  If this were the case it would have been made known to the tenant prior to signing.

How Property Management Specialists Can Help

One of the ways a property management specialist – such as Position One Property – helps is to provide a buffer between the landlord and the tenant. Not only a buffer, but one that lends expertise to both parties in order to deal with any complications.

With current knowledge of rental laws and the rights of both landlords and tenants, we’re able to arrange agreements to suit everyone involved.  This applies before, during and at the conclusion of tenancy agreements.

There is an incredible amount of paperwork involved with property management.  Rules, regulations, contracts and specific agreements, are just a few of the basics. Leaving your investment property in the hands of a seasoned professional ensures every detail is covered. This is especially important in the initial stages of a property management.  Starting from the beginning, we’re able to pinpoint specific requirements from the outset, which saves time and money.  If there’s any chance of having disagreements in the long run, they’re most likely to be identified at this stage.

In terms of coordinating and managing repairs and installations, a property manager liaises between both parties.  This helps to ensure the process is easy and professional. This cuts out any unnecessary misunderstandings, which can occur from lack of understanding or knowledge of the applicable laws.

One thing you can be sure of is that property management specialists cater to both landlords and tenants.  This is to ensure all parties enjoy a smooth and successful rental journey.