what are your figures ?
i need price and rent per week.
i don’t take into consideration depreciation with my figures if there is any its very nice bonus. You canm claim depreciation on the building only if it was built since 1985, but you can claim the chattles (floor coverings, heater, stove curtains etc)
What questions do you have re depreciation ?
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks very much for that. I have read Steve’s book, but i just thought I’d throw the figures at the forum to see if I had missed something, or in case I had miscalculated.
in comparrision to Simon this is what i get
ok lets assume you put in 20% finance and loan the rest at say 6% (you can get 5.65% at homepath.com). also assume purchase costs of say 3k.
Rent 200pw
less costs
interest on loan of 75,200 is 86.50 pw
rates estimate 800 15 pw
Water 400 8 pw
Insuarnce 300 6 pw
Agent management @ 8% inc GST 16 pw
Total costs 131.5pw
total profit 68.5 pw
You will have to pay for maintenance and will have vacancy periods, which will effect profits
$3,562 per yr. you put 18,800 plus 3,000 costs into the deal so a total of $21,300 This represents a return on cash of 16.7% (not High enough for a cash positive deal that i’d be after).
But if this is a Capital Gain purchase the figure look better. Forcasting the future capital growth is difficult but if you feel it is a long term hold then it should appreciate over the next 10 yrs. If the property was to average 7% growth then in 10 yrs the property would have doubled to be worth 188,000. the risk for you are
1. flat growth don’t expect quick capital gains as we ahve experienced over the past few years.
2. rising interest rates, you have a healthy buffer against rate rises.
whilst i say this property wouldn’t meet my criteria of a cash positive property it appears like it would met Steves 11 sec Rule.
But if there is the posibility of capital gains it could be worth investigation. hope this helps please ask any questions if you have them.
westan
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks for the time in crunching those figures for me. Initially I had just used Steves “11 sec rule”, however as this will be my first IP, I was unsure of the approx amount of the “other costs” such as insurance/rates.
I was actually looking at a 90% lend, which I suppose I should have mentioned. SO it is about $9000 deposit + costs. I will only be putting in about $13000. Does this improve my “cash on cash” returns?
given you put in 90% your costs rise by about 560, so that cuts $560 off the profit bringing it down to say 3,000 profit with 13,000 cash in or Return on Investment of 23%.
it depends what you are trying to achieve and how it fits in with your own financial goals. its really hard to comment without knowing where the property is. Remember the agent is working for himself first the vendor second and you third. Good luck with your negotiation. Ask local property managers how many houses they have vacant and how long have they been (If long it may reflect on the condition of the property rather than the town). Ask what can you do to increase the rental return, look for ways you can add value to the house.
all the best
regards westan
I was able to turn a 20 percent return on the list price into a 29 percent one just by negotiating.
It wasn’t a piece of cake though – I’d done some hard core statistical anaylysis-type research of actual sales versus GV’s in the area which meant that I’d come up with a figure which I thought was exactly how much I *should* get the property fo,r to be a ‘fair market price’. Trouble was, it was a 30 percent discount on the asking price!!
I threw the evidence at the RE agent to back up why my offer was so low, (2K under what i wanted to pay!) got rejected, walked away from the deal, and then the vendor came back agreeing to the exact figure I’d decided was fair.
Renovations –
Even budget renos are relatively expensive (or time consuming) and so far I’ve only been able to get about a ten percent return on the renovation costs alone, BUT it does mean your property will be good to go for many a year, you can raise the rent, and it should attract a better tenant
I was able to turn a 20 percent return on the list price into a 29 percent on just by negotiating.
It wasn’t a piece of cake though – I’d done some hard core statistical anaylysis-type research of actual sales versus GV’s in the area which meant that I’d come up with a figure which I thought was exactly how much I *should* get the property fo,r to be a ‘fair market price’. Trouble was, it was a 30 percent discount on the asking price!!
I threw the evidence at the RE agent to back up why my offer was so low, (2K under what i wanted to pay!) got rejected, walked away from the deal, and then the vendor came back agreeing to the exact figure I’d decided was fair.
Renovations –
Even budget renos are relatively expensive (or time consuming) and so far I’ve only been able to get about a ten percent return on the renovation costs alone, BUT it does mean your property will be good to go for many a year, you can raise the rent, and it should attract a better tenant