Get Invested: Part 2 - Tyron Hyde on how to make property investing more affordable
00:00can affect your cash flow. Depreciation can turn a negatively geared property into a positivelygeared property, and that makes a big difference. So basically, when you get a depreciation schedule,what we tell you you can claim reduces your taxable income. So if you're paying tax on$100,000, right, and we give you a report that says you can claim $10,000 in year one,you should only be paying tax on $90,000. And the good news is that $10,000 is what's calleda non-cash deduction. It's the only deduction that you'll get on your investment probablythat you don't physically pay out for. Welcome to Get Invested on the Property Hub podcast channel,the leading weekly show for Australians who want to learn how to unlock their full self,
00:41health, and wealth potential. I'm your host, Bushy Martin, and each week I go deep with thebest investors, experts, leaders, and founders to find out what it takes to break free from thegrind, discover freedom and to live by design. Subscribe now and join me and get invested inthe life that you really want. Let's get started. Hi Freedom Fighters. Are you worried about howyou can continue to afford to hold your investment properties given the continuously increasing costsof just about everything? Or if you're thinking about investing in property or securing anotherproperty are you concerned that it's all going to cost too much hamstring your lifestyle becauseyou fear that it's going to burn a big hole in your pocket as it eats it into your hard-earned
01:29salary and savings and what's the thing that makes or breaks the sustainability of the journeyof long-term investors well no surprise it's ongoing cash flow affordability affordabilityis the one thing that you really need to consider managing control if you're serious about lastingthe distance over the years to enjoy the fruit of all capital growth. So do you know how muchyour investment property actually costs you per week in year 1, 3, 5, 10 and beyond once everycost involved in both buying and holding your property is concerned? If you don't you're settingyourself up to fail because it's cash flow affordability that will make or break youra long-term investment horizon. So how can you make investment property affordable to hold long-term
02:19wallet increases in value without having to live on hand spag and dog food in the meantime?Well this is something that we've touched on in the past here with GetInvested and it's importantto your sustainable success that it's worth reinforcing because the answer all revolvesaround clever structuring of your cash flow affordability and it's a critical thing thatvery few property investors spend any time thinking about or even working out properly.Most will be investors just look at the rent coming in and the loan repayments going outto determine if they think a property is affordable. But this simplistic and misleadingapproach misses the magic of successful property investment. Now I think it's one of the reasons
02:59that over 54% of first-time investors sell their property within the first five yearsbecause they haven't thought closely enough about the strategies and structures requiredto minimise the ongoing cost of holding their property while it actually increases in value.If you've been listening to me for any length of time, you'll know that I believe that truesustainable success and exponential growth in anything is a minimum of a 15-year journey,particularly in property, where you need to hold a property for at least this longto go through a full property cycle and enjoy the capital growth results.So the key and often forgotten question that most investors fargo ask and then solve
03:38is how do I make my investment property affordable to hold each and every year?And I'm so surprised that given today's returning gueststhat one of the biggest potential contributors to your ongoing affordability is depreciation.So what is depreciation?Well, as you're about to hear from today's depreciation expert,tax depreciation is a tax deduction claim for the natural wear and tearof an income-producing building asset over time like property.And it's generally the second biggest tax deduction
04:13for property investors outside of loan interest.Now, it's essentially a tax-free kick.You get to claim a cost that you haven't actually paidagainst your taxable income.And while it's not the reason to invest in property,tax depreciation is certainly a significant wayto improve your cash flow affordability.How? Well, let me give you a quick example.
04:36Let's say you spend half a million dollars on an investment property.If it's an existing or old property where tax appreciation no longer applies,then it's likely that the property is going to cost you several hundred dollars a weekonce all of the costs associated with buying and holding the property are taken into account.However, if you spend the same half a million on a new-built investment property,a just-built property, or undertake significant renovations and upgrades on an existing property after you purchase it,it's not uncommon to be able to take advantage of anywhere between 30 to 50 grand a year intotal claimable deductions including substantial depreciation for the capital value of the building
05:12together with fixtures fittings and equipment over 10 years or so which our guest will explain inmore detail and when it bites your income this can keep anywhere between 8 to 15 grand a yearof your hard-earned money in your pocket in the early years rather than going to the tax officeso here's the secret source that we've adopted to maximize the ongoing cash flow affordability ofour investment properties we've just bought we've just built rather than bought new propertiesusing tenants in common provisions to slap the ownership in the favor of the higher income earnerand got depreciation schedules done by coordinate surveyors who actually specialize them becausetechnically normal accountants aren't actually qualified to prepare tax depreciation check
05:57reports and then employed accountant orchestrated withholding tax variations to get the $8,000 to$15,000 extra incrementally in our pays rather than wait until the end of the year to get alump sum tax return which means we're carrying the cost of the meantime. Now this winningcombination puts an extra $150 to $130 a week back in your locker each and every week and canpotentially use negative gearing to create a cash flow neutral or slightly positive cash flowproperty. In other words, the just built, new built or significantly renovated property hasthe potential to put extra money in your pocket every week, whereas an old existing property islikely to be sucking several hundred dollars a week out of your pocket. And this regular extra
06:41cash flow injection can be plowed into paying off your home loan years earlier and save youhundreds of thousands of dollars in home loan interest repayments. It's this integratedcombination of clever tactics like this and a myriad of others because the demo is always inthe detail that can transform a negatively geared high cost and high stress investment propertyinto an affordable cash flow no stress asset that effectively looks after itself while it'sgrowing in value and doesn't impact much on your savings or your lifestyle along the journeyparticularly when tax deductible granny day reserve equity loan funds are incorporated inyour finance structure. Now, I'm not suggesting that you race out and build your next investment
07:23property in the current climate where the construction industry continues to be challengedand it's very difficult to control and fix costs, build times and quality. But as consistency andcompetitiveness returns into the building arena over the next couple of years, it's then goingto be well worth investigating. So watch this space. Now, I've also got to say that I'm notan accountant or a tax agent, so I'm not qualified to give financial advice on any of this. Soeverything we talk about here is just general information and you need to talk to a propertyspecialist accountant to confirm what actually works and is right for you. But to get startedif depreciation optimization and cash flow affordability improvements are of interest to you
08:02and you'd like to explore how you can transform your current property cash flow headachesinto more affordable assets or have any other issues that are holding you back feel free tobook in with me for a personal solution session by going to knowhowproperty.com.au and hittingthe purple book appointment button in the right hand corner of the home page and then selectingthe personal solution session option or just click the link in the show notes and we'll spend a fullhour exploring the best options. Now to further whet your appetites and to dig deeper intoappreciating depreciation benefits as another underutilized weapon in your investment armoryWe're joined again by one of the country's leading quality surveyors who specialises
08:43in producing tax depreciation schedules, and that's Tyrone Eyde, the CEO of WashingtonBrown.As you heard last week, when he shared his personal investment journey with the supportand mentorship of Australia's wealthiest property developer and investor, high-rise HarryTrugaboff, Ty is also a fellow author and podcast host.So welcome back, and let's get invested, Ty.Thank you.Thanks so much for having me on again.
09:07So I want to jump straight into it.And I guess where I always like to start with these conversations is, you know, from youryears of experience, what common mistakes do you see investors making, particularlywhen it comes to depreciation?I guess the first thing is not getting a depreciation schedule.I'd say 99% of property investors can benefit from depreciation.There are cases now, because the laws have changed recently, where there are some propertiesthat will no longer benefit you.
09:33So if your property is built before 1987 and have no renovations on it, which is pretty rare, then there's nothing we can do anymore because you can't claim the ovens and the dishwashers anymore, stuff like that, the plant equipment.The other common mistake I see, and I've actually been guilty of this myself, is to get a depreciation schedule.And I did this for a fit-out.So say you've got a fit-out and you've got the desks and chairs within that fit-out, but you've removed them, you've changed it.but three years down the line,I still see that they're in the depreciation schedule.So when you remove those items,you should be writing off the balance
10:08of whatever was left there.So I would annually check as a property investor,are the things that I'm claiming still there?Because if they're not,well, maybe you get an outright deduction for it.So that's the one thing I'd advise people to look at.Yeah, 100% agree.Now, I guess to sort of wind the clock back
10:26a little bit here,I'd love for you to just talk aboutsort of fundamentals of depreciation in terms of what it can and can't do with depreciationon residential property so that those who are new to this and are just coming into itget a better understanding of what it all means, where the opportunity is.I think that's a good start. Okay, so firstly, you as a property investor, just like you canclaim as a trader, you can claim the wear and tear of a ute against your taxable income,as a property investor, you can claim the wear and tear of a property against your taxable income.
10:58Now, there's two types of allowances that we're talking about here.One is called the Division 43, which is the building allowance,which is the structure.This is the bricks, the concrete, the roof, the windows.This stuff's going to wear longer than what's called the plant equivalent,which is the ovens and dishwashers.So it makes sense.Bricks are going to last longer than an oven, right?
11:18And so the government has worked out that they should bein two different categories.And so as quantity surveyors, what we do is we work out what the proportionof the structure is it might be say 85 of a construction cost and you as an investor getto claim that at a flat rate two and a half percent of the original construction cost perannum so it probably costs 200 grand you would get wait a second you would get five grand perannum okay the other part is the plant equipment and we go through and if it probably is brand newbecause it has to be brand new now residential you claim the oven the dishwasher the blinds
11:53all the varying rates depending upon the item.So we split that into the report, all that stuff, the carpet.So we split all those items out of the build costand put them into individual categories,and the rest goes into a lump sum called the building allowance,and that gets claimed at 2.5% per annum of the original construction costs.I love that.Do you buy property?
12:17Yeah, sorry.One of the examples I often use, Tida,to make it really simple for people to getis if the mobile phone that I've got in my hand,if I shake it,what's left in my hand is the capital cost of the propertyand that you can write off at 2.5% for 40-odd years,I think it is.
12:37What falls out of it,the fixtures, fittings and equipmenthave different lifespans and will be written offdepending on the rules and regulations around thatto come up with the ultimate impact.So yeah, that's great.That really makes it pretty clear, I think, in what you've described.Yeah, I might steal that scenario.
12:54Thank you, Bushy.I'll claim it as my own.Claim it, get it?You're free, mate.Yeah, I like that scenario.Thank you.Now, moving on from there then, because I think it's a bit of a hidden secretdepreciation that many people just don't get their heads around enough.
13:15From your perspective, given you've been up the eyeballs in it for a long timenow how important is depreciation to property investment outcomes as you say particularly withresidential well i i i think it's a lot more well known when i started in this industry i used to iused to just it was like beating a drum to let people know when it was no one was doing i usedto drive to development sites and say hey mr developer here's this free report i'll give youand hopefully if someone buys it a property off you they can come to me right that's how i startedof the industry so i'm actually what's called a fellow of the aiqs which is um which is likeis the highest you get because of services to the industry i think the f stands for freaking
13:56old these days bushy but i'll take fellow um and so look it is very important and but people havehave got a lot more um know about a lot more now i think if you don't know about depreciation youreally should be getting some advice about it because it can affect your cash flow depreciationcan turn a negatively geared property into a positively geared property. And that makes abig difference. So basically, when you get a depreciation schedule, what we tell you you canclaim reduces your taxable income. So if you're paying tax on $100,000, and we give you a reportthat says you can claim $10,000 in year one, you should only be paying tax on $90,000. And the goodnews is that $10,000 is what's called a non-cash deduction. It's the only deduction that you'll get
14:42on your investment property that you don't physically pay out for. It's already in theproperty when you buy it, right? All you need is someone like Washington Brown to tell you whatthat figure is. So if you don't claim it, you're missing out on deductions and it helps your cashflow. So it is a vital part of the property investment equation if you ask me. 100%. Andlet's just take that example. It's a bit of a free kick from where I see it for an investorbecause let's take that 10 grand a yearthat normally you would get back in a lump sumat the end of the year in your tax return.
15:14Now, if you take it to the next leveland you've got a good accountant and you're an employeethat you can then craft a PAYG withholding tax variation,then rather than carry the cost of the propertyfor the full 12 months and then get that lump back,you can get an increment of that back every pay.Now, $10,000 a year is about $190-something a week.If you're getting $190 a week back in your pay packet, which is smoothing the cost of
15:44the property, and you're pounding that into your offset account against your home loan,not only are you smoothing the cash flow, but you're helping to reduce the interestand pay your home loan off far quicker than what you otherwise would by taking advantageof that depreciation and then leveraging it in other waysto actually achieve and improve the overall position.So I love that, mate.Now, in our conversation last week,you talked about how depreciation laws have started to change
16:15the way QS firms operate.Can you give us a bit more detail around that and what that means?What happened was in 2017, and by the way,I agree with you on the income tax variation.I think that's far more underutilised than depreciation schedules,and it is a great option but in terms of the laws changing what happened was in 2017 the governmentout of the blue on budget night said if you're if you're buying a residential property a second-handresidential property you can no longer merely claim you can't claim any of the ovens dishwashers
16:44lies etc even if they're one day old so which is quite bizarre because the government saysyour carpet's going to last 10 years but and if it's now if i sold to you after one dayyou can't claim that anymore and this ever gets more bizarre because the um it's it's differentin commercial right so commercial probably you can buy a hundred year old factory and still claimuh a really old air conditioning's in there or a motorized um garage door opener right so theyonly change it for residential and also they didn't change it for brand new property so we'vegot all these very different laws now so if it's brand new you can't in residential you can stillclaim the ovens and dishwashers. It's just when it comes to secondhand. So that certainly changed
17:26the way that we operated because a lot of the times now, we might not have to inspect theproperty because we've already got the cost. So if you're buying a secondhand property that'sone year old from say Merriton, who we talked about last week, I've got all the costs. Me goingthere is not going to change the original construction costs. We used to go out thereall the time and re-inspect and re-value all the plant equipment, et cetera. That's all irrelevantit now so what we do is we offer we actually look at the property first as i well in this casewe might not have to inspect your property because there's no benefit and we pass thatsaving on to the client um uh but if it's commercial industrial where we can do that
18:02we inspect all those but sometimes if i've got all the costs on the property me going to seethat oven that's six months old even though i've been given all the costs isn't going to help it'sjust going to charge the client money so we say well we don't need to inspect that one so that'show it has changed the industry somewhat, the law changes. Yeah, I understand. So it's alwaysa moving face in that area. So I guess something that I know everyone will be wanting to wire intois can you sort of share your best tips to improve depreciation outcomes in terms of whatproperty investors should be thinking about when they're looking to invest in or structure?property? Firstly, I'd say that the depreciation shouldn't be the number one goal in buying a
18:47property. I would say it is more the icing on the cake. I would think that people should knowwhat the difference between a brand new property, now residential, and a secondhand and not gettinga big... Because a lot of people still don't know. They get a big surprise when we say,no, you can't claim... Because to put it in perspective, the difference in what the changeshave made, let's say you were to buy a brand new property now for $800,000, your firstyear property depreciation claim might be anywhere from $15,000 to $20,000, dependingupon the quality of it, right?Quite high.
19:23The moment that it's one day old, you'd be lucky to get $5,000 or $6,000 per annum, becauseit takes away, the law changes have taken away the early year deductions.After about 10 years, it's exactly the same.All you've got left is the structure of the building.but it's the early years it's when a lot of property investors need those deductions tomake it work that have been taken away by the government so i think people need to know thatthe difference and and um recently i surveyed a lot of clients i just thought wonder what howmany people know this and i reckon three out of a hundred knew that there'd been any changes in
19:56second-hand depreciation allowances which is surprising because i've been around for sixyears now but i guess it is because people don't buy a lot of people don't buy second-hand propertyfor the depreciation allowances.They buy a lot of new property before,but they're not really going in there going,oh, look, I can't wait to get that $4,000building allowance deduction, right?And I think it's right.
20:15They shouldn't be basing it upon that,but it is the icing on the cakeand it does make your property more affordableduring the journey of your property investment journey.And I think that's a key thingbecause if we're investing for 10, 15 years or more,and yes, we're focusing on growth,it needs to be affordable growth though
20:33because if the property is burning a massive hole in your pocketand you can't afford to hang on to itand you're living on dog food and baked beans for the periodto actually get to the end of the journey,then you're probably not likely to do itand it's not likely to be sustainable.So if you can take the advantage of depreciationand smooth that cash flow so that the property is affordable,
20:53and we do calculations on this all the time, Ty.We've got some software and we're not accountants,we're not QSs, but based on experience,we can make some initial allowances that at least give investors a sense. And if you buy an existingproperty that only has the capital depreciation left on it versus a new build where you get thestamp duty and you get the depreciation benefits and a whole bunch of other stuff comes in,the holding cost can go from $300 or $400 a week down to a bit over $100 a week. Now,that's a massive difference in terms of that ongoing cash flowing of the property to actually
21:27be able to enjoy the growth over that period. So I think that's a big benefit that depreciationadds to the mix from that affordability perspective. Are there any other things thatwe haven't talked about in depreciation that either aspiring investors or existing investorsneed to be aware of, Todd? Well, there's one thing you justtalked about, your cashflow analysis. On our website, there is a depreciation calculator andit took a long time to develop. It's the only one in the market that you can sit there and actuallyentering a purchase price of the property so every other cash every other calculator out there youneed to know the area of the property now the area of the property can be quite tricky to know are
22:04you talking about the internal area you're talking about the garage area you're talking about thiscommon area right not many people know those things so it is so but our calculator you canenter in a purchase price and say i want to buy $800,000 probably built in this and what it doesis i guess we were using ai before ai was a thing because we put all our results into the propertyWe've done 300,000 reports, which we put all the resultsinto a big data pool and it grabs the nearest matchesof those properties and spits out what the depreciation wason those existing properties, right?
22:36Yeah.So if you're sitting there with your clients,because people know the purchase price.Not everyone knows the area, but everyone knows what they're goingto pay for a property roughly or what they have just paid.So they can get a quick estimate that way.So it's a really good tool.We know people to sit there like financial advisors
22:50and just sit there and use our data and so on,which we're happy to dobecause hopefully when they want to report,oh, I used the washer-brow calculatorand they come to us that way.Yeah, I love that.Well, we've really only scratched the surfaceand I know you're having a bit of time and pressure today,
23:05so we'll leave the door openso you continue this conversation.I don't like the points.And you might put it on.If you're listening to this,which says make depreciation great again i was on a podcast recently and um the host said to mebecause tyron what you do no offense but it's really boring i'm like oh no offense taken that'swhat i've done all my life it's my life passion uh and so i got these hats made up bushy it says
23:34make depreciation great again and i want to get them on at least the podcast at once and um wellyeah you need to send me one of those now mate because i'm a great baseball cap wearer soSo I'll be a proud winner of one of those camps, right?Yes.I want to jump into the second bushfire round.Okay.And before we finish up, what's your favourite quote and why?Well, the last quote, well, there's two quotes.
23:59One is, the more I practice, the luckier I get, by Gary Player,which was related to golf, right?From a personal point of view, it hasn't worked.The more I practice, I don't seem to get any better.maybe i should practice more but i do like harry's quote um you know uh the secret to his success ifyou haven't heard that one please go back and listen to it but i i love that but i think it'si think it really is a metaphor for life and for business and just to ignore the noise you knowi just i thought that was so you know not simple but you know it does help having 26 billion dollars
24:32to be patient uh but i i thought that was such a an apt quote um so those two are my two favoritequotes. Love that. In the literary field, apart from your books, which we'll talk about in asecond, what's the top book that you'd recommend we read and why? Well, again, we mentioned thefirst one, but I loved Atomic Habits. I think for people who haven't read it, it's a book aboutcreating good habits in your life and keeping them. I'll give you two examples. One is toremove Facebook and Instagram off your phone and just use them on a desktop. You'll find you'llget an extra hour two hours a day and you know what facebook does they serve when you go on yourdesktop they serve you up the good stuff right the first four are really good and then goes into the
25:14ads because they want you to come back they're like they're like um i don't know internet drugdealers where they give you the first one free and hope you come back so that really worked theother one like he talked about in the book was if you want to go training in the morning get youdon't don't wake up at five in the morning and find your gym gear put it the front door beforeyou go to bed you're more likely to get up and go through that run if it's at the front door andit's true it works so um that's why yeah i think not just creating great habits but how to keepthem is the key message from that book and i really i really enjoyed that book and love it andthat is the perfect segue into the last of these questions ty which is uh what's a personal happy
25:55habit rewarding ritual or daily discipline that you've employed that's contributed most to yoursuccess today well that might make you laugh this one but every morning i wake up and i make my wifea coffee um and it's become such a ritual now that she it just does it just has to happen and i thinki know they're saying you know happy happy wife happy life there's something in it but it doesit starts the day off well that we're talking and you know we just have a coffee together everymorning and that's a good ritual that we've got into and when when when i'm away she misses itbecause I think I know how to use the machine better.Because this is one of those really complicated ones.
26:35But that's a good ritual.It gets us talking in the morning.She's got a terrible background.I love coffee.She loves coffee.Yeah, well, right with you there, mate.So I'm looking forward to catching up with her at coffee at some stage.Final question, if I ask you to get invested, what does that mean to you?
26:48Good question.I like this question.I like a lot of questions, but I particularly like this one.And for me, get invested in yourself.get invested in your education um to go a long way in your success and i think there's so manyoptions out there now you know it could be the other i was not going to say this in two waysbut i think get invested in yourself is one the other one is like just do it but nah get investedin yourself learn educate yourself whether it be podcast read read books those but also i'd also
27:14say enact don't procrastinate sometimes you know time can actually um uh turn a bit of a badinvestment into a good investment if you do have the incredible patience right but i prefer to timethe market and have time in the market like harry does but not everyone can do that so you getinvested firstly would mean to um educate yourself it's what i always thought love that mate so forthose that have really resonated with your message uh how can we find out more and get more involvedwith you man no thanks um all right well as i mentioned a couple of times here i have got apodcast because i want to get you on called 10 with ty um if anyone listens to other podcastsThere's some really good ones there.
27:52They're not just property people.I've got some share people on there,entrepreneur,it's a really cool.That's why I think everyone's coming at itfrom a different angle.And I did,I'm leaving this for my daughter.
28:01So there is a bit of a legacythat I want to leave there.If anyone listens to that,one of the podcastsand leaves a review,it sends me an emailto tyron at washingtonbrown.com.autyron at washingtonbrown.com.au
28:13Please review.I'll send you two books.Brief charge.I'll even pay the postage.One is called Keep Claiming It,which is my book about depreciation,property investment. And the other one is called Secrets of Property Millionaires Exposed. Andthat's where about 12 of us have written a chapter about property investing. And so
28:28they're both good reads. So actually this, claim it became a bestseller, Bushy.Yeah, I love that.You know that to become a bestseller in this country, you have to sell 7,000 books. Now,it's not easy to sell 7,000 books about property depreciation. The fact that my mother bought 5,000that is completely irrelevant, right?But I did actually become a bestseller.So, yeah, so there's an offer for anyoneif they want to read the books.
28:53Absolutely.Well, you've probably seen my email on much of them, mate,because I'm keen to dive in.I'm an avid reader.I've always got about five books on the go.So I look forward to having read that.And look, mate, I really want to thank you againfor taking the time to refresh us
29:08on all of your wealth of wisdomaround the benefits of depreciationand the importance of surrounding yourselfwith great people that you can learn from over the last two episodes. So thanks again and thanksfor getting invested. Been an absolute honour. Thank you. Thanks for tuning in to Get Investedon the Property Hub podcast channel, your home for property investment insights and inspiration.Make sure you subscribe to Property Hub for free. Get your weekly dose of Get Invested inspirationalong with every episode of Realty Talk, Australia's top online property show for
29:39red hot property investing news and insights direct from industry leaders and influencers.And finally, I'll see you next time.
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