By Aaron Wittstock, BBA, PGCV, CRP
There has been quite a bit of buzz throughout the BC real estate scene over the last 24 months with the provincial government’s introduction of the new Strata Property Act requirement of depreciation reports for all Strata-titled properties. Although this regulation does not have a direct impact on individual private building owners, it does create a new avenue for the proactive and invested apartment owner to better manage his or her asset. Investing in a professional depreciation report can provide valuable information that far exceeds the cost of the report.
A depreciation report is an in-depth analytical document that is designed to create a detailed component inventory and a 30-year financial projection for any property. Although there is a condition assessment element to the report, the real value to be discovered by any building owner is found in the report’s financial planning. The depreciation report establishes an estimate of when each of a building’s identified items are most likely to require major repairs or complete replacement and what each planned project is anticipated to cost. For Strata-titled properties this projected timeline is accompanied with three funding scenarios specifically designed to aid the Strata lot owners in planning for the future. However, these funding scenarios are typically not needed for individual building owners, and may be excluded from non-Strata reports at the owner’s request. This is attributed to the fact that prudent owners may already implement their own financial plans and have the best insight into how they can budget for the future expenses referenced in the depreciation report.
The report process begins with a review of the available historical financial documents related to the operation of the property and analysis of the building plans. This is followed by a site inspection that is meant to inventory the various building components and establish an idea of each one’s specific condition in relation to the building as a whole. After the site inspection the real heavy lifting begins for the depreciation report planner and the true worth of the report begins to take shape. The in-office process begins with creating the quantity take-offs for all the components and then establishing a timeline for each anticipated future project. Project timelines are typically based on the past experiences of the individual property being reported on combined with industry-accepted expected lifespans.
Landlords already have a good knowledge base for how buildings are run and when certain items are likely to require further investment. An experienced building owner has a good idea about how long a roof should last or how often they will need to replace the hot water tanks in the basement. Depreciation reports are not designed to tell owners what they already know. They are designed to take the information that is known, combine it with a third-party’s unbiased opinion and expertise, and develop a robust and useful financial planning tool that can best prepare an owner for both the short and long term.
In addition to aiding in the regular operations of a building, a depreciation report can also pay off when it comes time for the building to be put on the market. Prospective buyers will be very interested in seeing what the future expenditures for an investment property might look like and having a depreciation report will show them that the property is being looked after with pride and a proactive mind-set. All things being equal, having a depreciation report can be a deciding factor if a buyer is choosing between two similar properties.
Owning a rental building can be stressful and planning for more than a few years into the future can become a tricky task for even the most experienced landlord. Being prepared with all the available tools will help ensure that physical and financial well-being of your building is always front of mind. Having a depreciation report may not be required by law for rental properties but it can play a vital role in the operation and profitability of your investment.
To obtain a free proposal for a depreciation report for your apartment building, please complete this short form.