The Difference Between Rental Property Repairs and Upgrades

When it comes to managing your rental property, knowing the difference between a repair to your property and an upgrade can help you in a few ways.

Not only will distinguishing between the two help you to ensure you are spending money wisely on your investment property, it will also help with tax time as there are a number of tax deductions available to you, and knowing the difference between a repair and an upgrade will help prevent mistakes and erroneous claims.

Repairs and upgrades, or upgrades and improvements, to your investment property are two slightly different things. If you are among the many property owners who aren’t quite clear on the difference, read on!

Differentiating Between Investment Property Maintenance and Improvements

There is a simple question to ask yourself when it comes to deciding if you have undertaken a repair or an improvement to your investment property: am I returning the property to its original state? In general, if the answer to this question is: yes, then you have undertaken a repair.

Repairs and Maintenance at your Investment Property

Repairs, or maintenance, usually involves repairing or replacing something in your rental property that has become worn out or has broken as a direct consequence of renting the property out, or the natural ageing process of the property.

Some common examples of repairs and maintenance might include:

• Repairing leaks

• Replacing air conditioning units or parts

• Repairing damaged weather boards as a result of a storm

• Replacing or repairing white goods and appliances that are malfunctioning or no longer working

• Repairing leaking windows

• Staining or oiling a deck

• Repainting the interior or exterior of your investment property

The list of common repairs and maintenance to investment properties is extensive. A useful rule of thumb is to understand that anything that involves restoring your property to its original condition will fall under repairs and maintenance.

Upgrades and Capital Improvements to your Rental Property

Just as there is a simple question to ask yourself about repairs and maintenance to your investment property, there is a simple question you can use for determining if the work you are doing to your property counts as improvements or upgrades: am I improving the property in order to make it better than it had been previously? Generally speaking, if the answer to this question is: yes, then you have undertaken improvements to your investment property.

Determining if the work you are doing to your investment property qualifies as capital improvements seems pretty easy, right? To make things just a little bit more confusing, there are actually two types of improvements you can do, but we break them down for your here:

Capital Works

This type of work is anything that improves or adds to your property’s structure. In general, this type of improvement adds to the earning potential of your investment property.

Some examples of capital works might be:

• Renovating a kitchen or bathroom

• Adding an additional room to the property

• Adding a fence to enclose the property’s entire yard

• Upgrading the property’s roof

There are many more examples of capital works. 

Depreciating Assets

Depreciating assets are something that can be added or installed at your property that do not make up part of its structure. Depreciating assets have a shorter lifespan than other additions or upgrades to your rental property.

Some examples of depreciating assets might be:

• White goods such as an oven or dishwasher

• Window coverings

• Furniture

• Timber flooring

There are many more examples of depreciating assets.

Together, both of these types of improvements go a long way to adding value and bumping up your investment property’s earning potential.

Improvements or Repairs: Which is Right for You?

Deciding whether to undertake repairs or improvements of your investment property can be a difficult choice. As an investment property, you are probably running it like a business. This likely means you are trying to maximise profitability while minimising your monetary investment.

It is important that, if your investment property is tenanted and you have withheld your exiting-tenant’s damage deposit in order to undertake repairs they caused, you are required to undertake the repairs you have withheld money for and they must total the amount you have withheld.

Apropos of repairing damage left by a previous tenant, in our experience homeowners who do the bare minimum when it comes to repairing and upgrading their investment property often lose out when it comes time to sell their property. Often, there is a great deal of repair work that needs to be done after a property has been left to wither with only eminently required repairs done. This expense of repairing and upgrading an investment property when it comes time to sell can be too much to bear. Especially considering most properties are not tenanted at the time of sale.

Additionally, leaving repairs and upgrades until you sell your investment property often means, getting things seen to will take a lot longer as there will be more to do. It is especially important to consider that, in the lead up to selling your investment property, it will become an expense rather than a source of income as it will likely not be tenanted.

SQUAREPEGS HANDYMAN DOES Property Maintenance

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