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Whether you own one or one hundred properties there is always something more you can do to get that little bit extra out of your investment. This month I’d like to share with you a few strategies for maximising your income, your cash flow, and the wealth generating potential of your investment. Don’t forget there are also many more suggestions for maximising your investment in the Investor Resources section of the Investors Choice website.

Before we begin, please note that Investors Choice Mortgages are not financial advisers or accountants so we recommend that you obtain independent professional advice before adopting any of these strategies.

(1) Tax Deductions - Borrowing Cost

Did you know that you can claim the costs associated with arranging finance for an investment property in your tax return? ‘Borrowing costs’ include expenses directly incurred in taking out a loan such as mortgage stamp duty; mortgage protection insurance; loan application fees; title searches; and legal and valuation fees. Unlike most other allowable deductions, borrowing costs must be claimed over five years or when the finance contract comes to an end (eg. when the property is sold, refinanced or the loan is paid off) whichever comes first.

(2) Tax Deductions - Depreciation

Depreciation is a tax allowance that covers the decline in value of buildings and assets over the period an investment property is used to produce an income (i.e. rent). There are 2 types of depreciation allowance available for investment properties:

(i) Depreciable Assets (Plant and Equipment Allowance) covering items such as light fittings, carpets, hot water systems etc; and
(ii) Capital Works Allowance (Building Write-off Allowance) relating to the physical structure of the property itself.

All investors are entitled to claim depreciation allowances, regardless of the age of the property. Depreciation can provide cash flow by reducing your taxable income and increasing the returns on your property.

While many investors are claiming depreciation as a taxable allowance already, they may not be maximizing the depreciation they can actually claim. For example did you know that in Strata Unit Investments you can claim depreciation on common areas and property? Or that depreciable assets can be re-valued and given a new effective life from the date of settlement?

Depreciation is a specialised area requiring extensive knowledge of asset values, tax laws and effective lives of assets. As an investor myself, rather than attempting to estimate asset values on my own or not claiming them at all, I use the services of a Quantity Surveyor who inspects the property and prepares a detailed report; usually providing a 40 year schedule of depreciation allowances for capital works and depreciating assets. My accountant then uses the depreciation schedule to prepare my tax return.

As an investor one of the key benefits of depreciation is that it’s a non-cash expense in the sense that you haven’t had to write a cheque or dip into your pocket to pay for it.


Hot Tip: Quantity surveyors usually charge between $500 - $600 to inspect your residential investment property and prepare a report for a capital city location, they will charge more for commercial properties and non-capital city locations. The fee is tax deductible and I’ve always found that the depreciation identified pays for the report many times over in the first year. Ensure that the quantity surveyor you use is a member of the Australian Institute of Quantity Surveyors.

(3) Reducing Costs/Tax Deductions - Prepaying Interest

If you’re in the fortunate position of having some spare cash lying around you may want to consider pre-paying interest on your investment property mortgage. The two main benefits of doing this are
(i) Banks will often provide a discounted rate for paying up front (for instance currently one lender is reducing fixed rates by 0.20% for paying interest in advance); and
(ii) From a tax perspective you can claim the interest expense when you paid it, not when it was due – this can be an attractive strategy if you’re facing a large tax bill or next year’s financial circumstances are changing (eg. you’re working overseas or having a baby which means your taxable income will fall, pushing you into a lower tax bracket).

Note: Not all banks and products offer a prepayment facility and the maximum prepayment deduction allowed by the ATO is usually 12 months. There are also timing issues to consider, it usually makes more sense to prepay interest in June rather than July to maximise the tax benefits of this strategy. Consult your bank/mortgage broker to discuss prepayment options and your accountant for independent tax advice. The ATO also has a useful publication which can be accessed via their website:

(4) Cash flow - Tax Variation Schedules

If you own negatively geared investment property, chances are you receive an annual cheque from the ATO for the tax you overpaid during the year. Did you know that you don’t have to wait until your annual return is processed before you get your money? By completing an ATO tax variation schedule your PAYG tax rate will be adjusted to reflect your net income position when negatively geared investments are taken into account.

After you or your tax accountant have completed the form, the ATO will calculate your new effective tax rate and notify your employer so that instead of getting that end of year cheque, the refund will be reflected in your pay packet monthly. This strategy will clearly help with your cash flow because you’ll get your money now rather than later.

If you’re going to complete the form yourself remember to be very conservative with your numbers or you may find the ATO rejects future adjustment application if you end the year with a large tax bill.

(5) Managing the Managers

If you’re like me and prefer to leave the day-to-day management of tenants and your investment property to others then you’re probably using a Property Manager. While a good property manager will help give you a good night’s sleep free from the hassles of chasing up late rent and dealing with difficult tenants’ even the best property managers can get a bit lax particularly when the property is running smoothly. Two common aspects of management that are often neglected by property managers are regular inspections and rental reviews. If properties aren’t inspected on a regular basis then problems can go unnoticed or unreported, leading to expensive repairs later.

While the legal requirement in some States is for licensed property managers to conduct an inspection at least annually, 6 months or more is ideal, and for one of my properties I have inspections every 3 months. Similarly if regular rental reviews are not conducted, the investor could be losing money through below market rent. This is becoming particularly important in some capital cities (notably Sydney) where rents are rising rapidly as vacancy levels fall. If you use a property manager and can’t remember the last time a rent review or inspection was done it could be time to give them a call.

(6) Accessing Equity

If you’ve owned an investment property for any length of time, chances are that you’ve built up some equity due to rising property prices or having paid off some of the principal with a ‘Principal and Interest’ loan.

Consider this scenario: you purchased a property 3 years ago for $400,000 (financed with $80,000 equity and a $320,000 interest-only loan), it is worth $500,000 today. If you refinance the property or get a ‘top up’ loan for the additional $100,000 equity, the bank will lend you $80,000 (assuming the same 20:80 equity to finance ratio). If the $80,000 was used as a deposit to buy another $400,000 property you could refinance both properties in 3 years time, this time having enough funds to buy 2 additional properties and so on. Obviously this is an over simplified example ignoring factors such a individual borrowing capacity, uneven capital growth and so on, but you get the idea. The other point is that the $80,000 doesn’t have to be spent on property and could just as easily be used to finance shares, house renovations and extensions, cars, boats, holidays etc.


I am sure one or several of these strategies will help you get more out of your Property Investment. However I also look forward to hearing from others who have useful property investment tips and strategies of their own. If you’d like to share your successes, please email me.


PS: Don’t forget that Investors Choice Mortgages can also help you with your refinancing queries. Contact Jane on 1800 464810 or email jane@investorschoice.com.au



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