Is a depreciation schedule a good indication of value? – Brad Beer

Sonya asks if a depreciation schedule is a good indication of a unit’s value.  It appears an agent said it is just an estimate.  Brad Beer from BMT Tax Depreciation sets the record straight.
Kevin:  I had a question from a listener during the week who writes, “I inspected some units currently being constructed and was shown a depreciation schedule. The agent said it was just an estimate. How reliable would it be, and is it risky using these estimates to calculate the unit’s viability?”
To answer that question, a man who knows all about tax depreciation schedules, Brad Beer from BMT Tax Depreciation. Good day, Brad.
Brad:  Hi, Kevin.
Kevin:  Sonya’s question there, is that something she should be cautious about?
Brad:  It’s an interesting question. As quantity surveyors, we do a lot of estimates of what sort of depreciation might be available. The important thing is looking at who it’s being prepared by. Has the builder prepared it? Has a specialist quantity surveyor prepared it? What exactly the numbers are made up of. Have a look at it.
Now, we have calculators on the website you can use to check against. You can talk to us or someone who’s reputably doing depreciation. It should have a minimum and maximum range of depreciation potentially available.
Obviously, it’s an estimate. When we’ve done that as an estimate, we don’t have all the information. But we’ve done a lot of depreciation schedules, so if we’ve done it, and we know what we’re doing, we should come up with numbers that you should be able to rely on being pretty close to the truth.
Using the minimum or a bit less than the minimum to be really safe is the thing to do. Making sure it’s prepared by someone who knows what they’re doing is the important thing.
Kevin:  Are these depreciation schedules, or the supply of these, regulated in any way, Brad?
Brad:  The regulation is not very heavy as far as an estimate like that. The costs that are used for the purpose of depreciation – a quantity surveyor’s cost – will be acceptable. Sometimes a thing to be a little bit wary of is when it has an agent or someone who is selling you the property. It’s probably in their interest to make the numbers look high, so you really want to double-check it or make sure it’s done by a reputable company that’s not prepared to move the numbers to help sell the unit. That’s the thing to be really careful of.
Kevin:  How would you check out their credibility? Go to their website?
Brad:  Go to their website. Ask your accountant, “Have you used their report?” Have the accountant have a look at that. If it’s not done by a depreciation specialist, get a depreciation specialist to actually have a look at it.
Kevin:  That’s actually a very good point – going to your accountant – in all of these things. If you’re buying any property, you should always be checking with your accountant and your solicitor, and running it by them anyway.
Brad:  If they’re an accountant who deals with property investors – and if you’re a property investor, you probably want that to be the case – they will probably have specialist depreciation guys that they regularly do use. Maybe the accountant would want to ask their contact, just to get a double-check on that to make sure it’s not something done by the builder or something to make it look more than it really is going to come out at.
Kevin:  Is it reasonable that someone would want to get their own depreciation schedule done even if they are looking at buying? Would that help them substantiate those figures, Brad?
Brad:  That’s most definitely the certain way as a potential buyer of any property, not just one that’s new that has a depreciation estimate done. There are calculators on websites, and they’re free. You can go in and use them to check and see. Put some of the information in yourself, and see if it comes out close to what’s been provided.
You can always talk to my guys about your particular property, and send us some photos. We’ll have a discussion and give you a rule of thumb based on what we can see. We don’t charge for that to have a bit of a look at it.
If you want to be certain, you get one done properly, absolutely, but normally it’s done after the fact. We can get pretty close with an estimate, and we’ll give you a range. Whenever you’re plugging in and crunching your numbers on property, it’s always good to be conservative to start, and then at the end of the process anything else is a bonus.
Kevin:  Very good advice from Brad Beer, one of our recommended suppliers. Of course, all BMT Tax Depreciation’s details are on our website, and you can check out their featured channel, as well. Lots of great information there for you, and in fact a link straight back to their site, as well, if you want to check that.
Brad, thank you so much for your time. We’ll catch up again soon.
Brad:  Great. Thanks, Kevin.

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