Hi,
Is it possible that a property pass the 11 sec solution and still not be positive cashflow due to the outgoings? Does this mean that it’s not worth the buy anymore?You need to look at the net yield.
Forget about the 11 second solution which is simply a 10.4% gross yield.Divide the annual rent by the purchase price and multiply by 100 to get the gross yield.
To calculate the net yield, deduct the outgoings from your rent figure.You need to consider the big picture and not get bogged down on whether it’s exactly a 10.4% gross yield.
Consider the opportunities for cap gains as well as adding value to the property, and always make sure it’s well located so as to attract tenants and minimize your vacancy rate.
Any property within 5km-10km of the CBD will show good cap gains if held for a term of at least 5 years.
Remember that real wealth is all about equity and NOT cashflow.
Hi Michael, could you explain what the 11 second rule is please?
Hi guys,
Thanks for all that useful advice and information. I was a bit worried coz the deal I was getting into (my first one!) failed the 11 sec solution. However, after calculating and re-calculating, I finally got the correct bottom line. Yes, it is positive cashflow. Return of about 8-9% so it’s not bad. The property is Mackay CBD. It’s a 2 bedroom flat. Got it for 65K. 5% deposit and 60 days settlement. Weekly rental of 125. Current tenant to sign one year lease. Outgoings of about 1500 which would be 1000 council and 500 for body corp. The property management is a bit high though 8% plus gst plus $5.50 for postage and petties and letting fee for new tenants. It’s roundabout 12.48% of the weekly rental altogether. I figured, it’s okay as long as they do a good job.
I was a bit apprehensive posting my first deal as it might look so silly. But as Steve would put it, who cares if I look silly. [
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Yes, I did it. After weeks of no sleep and just searching and searching and searching. I did my first deal. Thanks to all of you and thanks to Steve and colleagues.
Cheers.
By the way, since the body corp already covers the building insurance, is it advisable to get insurance for contents as well. Say for example the tenant gets tripped by the carpet…I know, it sounds unreal but maybe it happens in the real world. As I say, this is my very first venture.Great work!
first property is always exiting.
8% rental management does seem a lot!
Anyway, I don’t feel that exited about property buying any more, since I have now brought a few, I
Look at it from a business point of view and thats it.
By the way, all ypu need is landlords insurance, it pretty well covers everything to do with tenants but the building.
It costs me $220 p.a. per property, the rental manager can organise and deduct from rental.
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