I have found what appears to be a great positive cashflow property with a secure tenant. Unfortunately I don’t have the cash/ ability to buy the property, but was hoping, if I refer it to this site then I would get some form of “spotters commission†from anyone interested (as Steve Mcknight suggested).
Here is the link if you want to have a squiz:
http://www.realcommercial.com.au/cgi-bin/rsearch?a=o&id=5222569&emailsource=emailalertI just did a very quick number crunch, based on dividing the yearly rent by the purchase price and purchase costs, then multiply by 100 = 7.49% rent return. Considering that the cost of finance is 7.5%, this isn’t that great.
I then did a slightly more in-depth, but still basic cashflow projection:-
Assuming you have to pay $120k + GST ($12,000).
Purchase Price= $132,000.
Add 5% purchase costs = $6,000 on $120k. ( I normally allow 6% to be safe).
TOTAL PURCHASE PRICE = $138,000.Yearly interest @ 7.5% (this is approx current rate and doesn’t allow for any future rate rises – which I think there will be).
TOTAL INTEREST PER YEAR = $10,350 (not including bank fees).My bank fees are $168 per year.
Assuming the Tenant pays all outgoings which is standard for Commercial Property, there are no other expenses I will have to cover.
TOTAL CASHFLOW IS: NEGATIVE $172.37per year.
It may be positive cashflow after the tax return. This is not that great a deal in my view I’m sorry to say. But keep trying.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I just did a correction of the summary from the last person who wrote, and it is in fact a better return than what he makes out. Perhaps this is why some people have trouble finding a good cashflow property.
The asking price is 120-130 k, but who’s to say they won’t accept 115?
Gst would not be applicable if the purchaser got himself registered for gst and acquired it as an ongoing concern.
Therefore the total purchase price would in real terms be $120,750
(115 + 5% closing costs)The rent for this property is at $10,345
The costs are as follows;
Interest from your loan at 7.5% would be $6037 (assuming a 70% loan)
Plus bank fees $200Therefore if you work it out 10,345 – 6037 – 200 = $4108 POSITIVE CASHFLOW EACH YEAR
Now considering the cash required for this property is $40,250 (30% plus closing costs)
You would be getting a 10.2% CASH ON CASH RETURN.
This is certainly better than having your money dwindling in the bank, especially when the tenant is a secure oneA few assumptions there;
1. the vendor will accept lower than $120k (the price range is $120-130k, which indirectly says they probably won’t go below $120k). No harm in asking of course.
2. the purchaser will put in 30% cash deposit. Many investors (like me) use equity from other properties as deposits, thus the deal would be 100% financed with a loan.
Almost any deal can be pos cashflow with a decent cash deposit.
3. you are assuming there will be no interest rate rises this year.
4. you assume there will be no tax paid on the profit.
At 26% personal tax rates (I think that’s the lowest income tax rate these days?), the nett profit is $3039.92 (7.55%). Still not bad C.O.C. if you are on the lowest rate.We can only do calcs on the figures presented. Everyone has a different criteria for assessing what they consider a good deal.
I do deals that are pos cashflow without any personal funds, and with a safety factor of 1% interest higher than current. A positive after tax return with no funds in is a C.O.C return of infinity. That’s what I look for. I don’t do as many deals, but the ones I do are not too bad.
I haven’t even started on cap growth yet.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
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