Hey guys,
I am just reading Steve’s book 0 to 260 + Properties in 7 years and I was wondering if you could help me work out the following for some of his examples
1. Closing Costs – How do i work this out for myself if i am applying these formula’s to a property of my own
2. Interest Paid – How is this worked out??
Apologies i am only new to this and still working through some of the formula’s.
Hi Markerman
What page are you referring to specifically? That might help me understand the point you are trying to clarify.
In the RESULTS program, Steve talks about using the figure 5% for calculating the purchase costs, ie stamp duty etc. He also seems to base some of his calculations on 8% interest, depending on the strategy you are trying to employ, for example if you are doing a buy and hold then maybe you could average out the interest cost over a year. In the case of Buy reno, Sell, Steve has a formula that uses an interest rate of 8% pro-rated for the length of time the property is held for.
Hope this helps
SueMIT | Owen Real Estate
Email MeHey Sue,
I am re reading the chapter on the 321 easy deal evaluations and trying to work out the net profit percentage based on the finance variables for a property.
So would the closing costs be 5% of the purchase price?? and the interest paid be the first 12 months of the loan?
Hi Markerman,
I believe that the closing costs are closer to 6%, especially if you get the property valued and building inspected. The costs are a summary of: Building Inspection, Registration of title, Stamp Duty on Loan and Property, Loan Application Fee, Mortgage Registration Fee, Title Search, Valuation, Adjustment of Rates and Land Broker.
The interest paid is for 12 month if you looking at a yearly picture, eg a rental situation. If you are doing a reno or development it is for the period between settlement with the vendor and settlement with the buyor at the end of the deal.
If you sent me a PM I can e-mail you an excel sheet that works the 321 out automatically.
Good LuckAs a very simple calc for the closing costs and interest paid, I work on:
– 6% of the purchase price for closing costs (this is usually an over-estimation).
– yearly interest, using 1% higher than what I am paying right now (again, an over-estimation for the most part). This is worked out AFTER adding the closing costs to the purchase price.I then work out yearly rent, subtract 20% of rent for all expenses (this is an over-estimation and includes 1 month vacancy).
This formula wiil pretty much guarantee that you will not get a nasty surprise.
It is also a very quick guide as to working out how close (or how far away) to cfp the property will be ‘as is’ without any value adding, and tells me whether to continue with the property or not.One last thing; when I enquire about the likely rent return for the property with the agent, I factor in a 10% decrease just in case the agent is incorrect with their estimation (speaking from experience).
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
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