"Phase As are a fantastic tool to market a property that is geared towards property investors."
Understanding phase A depreciation estimates, and how they can save you money
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Proactive property developers and sales agents are using phase A depreciation estimates, or "phase As", to help market developments to investors.
What is a phase A? A phase A depreciation estimate is a report that shows the potential depreciation deductions available to a property investor, based on a specific property or development. Phase As are most commonly found when looking at a unit within a major development. The phase As are generally prepared in line with the major unit variations. For example, you’d have one report for the one-bedroom units and another report for the two-bedroom units.
The reports generally show a minimum and maximum range of deductions over the first few years of ownership. A good phase A will show 10 years' worth of minimum and maximum deductions, and will also break up the division 40 items (plant and equipment assets), which are things like the blinds, stoves, carpets and the like, from the division 43 component, which represents the building structure.
Property investors are becoming more aware of potential depreciation deductions. In fact, we’re receiving daily calls from prospective purchasers asking what the deductions would be per year on specific properties. Investors are also turning to Excel sheets and investment analysis templates to analyse their current and potential investment properties. These tools require the purchase price, rental income and interest rate in order to spit out some interesting figures and metrics such as rental yield, cost per week before tax and so on. Depreciation is a key component to many of these investment tools, and this leads to investors asking sales agents what their likely deductions are if they purchase the listed property. A good sales agent will have a phase A ready to hand to the investor.
Phase As provide developers and sales agents an easy way to show the depreciation allowance available based on the specific property and are almost exclusively prepared free of charge by quantity surveyors. While depreciation is just one part of the investment decision, it can mean the difference between properties being unaffordable on a weekly basis to manageable or even cashflow positive.
Why do quantity surveyors prepare phase As free of charge?
The phase As are merely estimates, but they’re generally very accurate. However, a phase A report cannot be used by a property investor to calculate their depreciation entitlements at tax time. The investor would need to engage the quantity surveyor to provide a full capital allowance and tax depreciation schedule specific to the property purchased, in the purchaser's name and based on the settlement date and purchase price. The good news is that you’ll often be able to have a full report prepared at a reduced fee due to the quantity surveyor's familiarity with the development.