Often, when a property is bought for rental, the owner will do it up shortly after purchase and after it is tenanted.
Is this a good idea?
IRD’s view is this cost should generally be added to the amount paid for the property.
Why?
Because if it is work which the previous owner might have done, it is assumed, if that had happened, you would have paid more for the property.
It is better to plan your maintenance and delay to a point where some wear and tear has occurred while you own it.
Don’t rush in at the beginning.
The following are the factors which should be taken into account when determining whether a maintenance cost should be added to the cost of the property or treated as repairs:
- the time which has elapsed before the repair is undertaken
- the state of repair of the asset at the time it was bought
- whether the asset was in a fit state to use at the time of acquisition
- whether this state of repair of the asset affected its value when you purchased
- intended use of asset compared with previous use
- nature and extent of repair work done
- whether the owner made any use of the asset before or during the repair work
It pays to consider whether to update a rental property straight away, or wait until a reasonable time has elapsed before starting the renovation.
Financially this could be a better option.
