Hi all,
Can somebody please look over the below sums and let me know if i have done the correct maths for an IP?
i have been presented with an opportunity to purchase a family home direct from vendor at below market value (they need to sell within 7 days). My initial thought is to quickly purchase and immediately place back the property on the market.
Purchase price – $700,000
EXPENSES:
Stamp duty – 38,350
5% deposit – 35,000
legal fees – 1,000
TOTAL = $74,530
Sold price – $800,000 (8 weeks post settlement date)
gross profit = 100,000
real estate commission – (2%) 16,000
CGT – $30,000
holding cost – $5,500
NET PROFIT – $48,500
net profit – total expenses = -$26,030
So based on the above figures – i am out of pocket $26,030 despite selling for extra $100,000?
Have i missed anything or miss-calculated all together?
Thanks
You forgot the legal fees of the selling process, and mortgage discharge fees. It goes like this:
800000 … sell price
-16000 … agent commission
-1000 …. selling legal fees
-3000 …. guestimate at mortgage discharge fees
-700000 original price
-38350 stamp duty
-1000 buying legal fees
-5500 holding costs
$35,150 = gross profit
CGT is dependant on your tax bracket. Let's say you are in the 37c tax bracket.
CGT would thus be $35,150*0.37 = $13,005.50
Net profit would thus be $35,150 – $13,005.50 = $22,144.50
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks jacM.
So iI then deduct my deposit of 35,000, I am left with a net loss of -$12,855.50?
No- don't deduct the deposit again. The $35,000 formed part of the original $700,000 purchase price, which was taken into consideration in JacM's calculations above.
Sounds like a lot of risk for $12k. Is the $800k a conservative sales price? What if it takes 12 weeks to sell etc.
I had the same scenario drop into my lap last month. Same figures, I realised I’d rather use the money to buy 2-3 positive geared properties where the variables were more manageable.
Then again, I ain’t no millionaire :p
What about Mortgage insurance on the initial purchase…….aprox 30k
Looks like a tight deal.
Mick
It shows the power of doing your numbers up front. If you could have purchased the property on an options contract then onsold you have reduced your exposure and risk substantially.
Yep, though in Vic you still have to pay stamp duty I believe
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks for the response.
Mortgage insurance from my understanding would be added on to the principle and therefore increase holding cost by roughly $500 for the 6 weeks?
the median house price for the suburb is $850k so I am using hopefully worst case figures.
If the property does not sell then that would be the joys of property investing.
EdmundSt wrote:Thanks for the response.Mortgage insurance from my understanding would be added on to the principle and therefore increase holding cost by roughly $500 for the 6 weeks?
the median house price for the suburb is $850k so I am using hopefully worst case figures.
If the property does not sell then that would be the joys of property investing.
LMI can be added to the loan in some cases but it is still can expenses and will be paid for in full as the loan balance increases.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Two things. First stamp duty is calculated at market value, so even if you bought it at a discounted price, if it is valued at the $800K mark, you will need to pay stamp duty at that number.
Secondly LMI can theoretically be added to the loan, but it is a cost that won't be recouped in full if at all. Therefore it will eat into your profit.
Cheers
Tom
You must be logged in to reply to this topic. If you don't have an account, you can register here.
