All Topics / The Treasure Chest / Assist to analyse figures

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  • Profile photo of battz71battz71
    Participant
    @battz71
    Join Date: 2003
    Post Count: 95

    G’day all,

    I was wondering if I could run some figures of a property I have by one of the experienced members of the forum?

    I can either post to figures within the forum, or privately.

    I supppose my main questions relate to depreciation, and if its necessary.

    Regards,

    Battz

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Hi battz71

    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 ?

    westan

    Profile photo of battz71battz71
    Participant
    @battz71
    Join Date: 2003
    Post Count: 95

    thanks Westan,

    Property price is $94,000, rent is estimated $200 p/w.

    Low vacany rate for long term lease
    Population growth low, but around 2%
    Capital Growth for area last 1/4 was 10.5%
    House built prior to 1985

    Any suggestions/advice re further investigation required?

    Cheers,

    Battz

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    I ran it through a spreadsheet I have and made a lot of assumptions.

    Very roughly I can see that property putting about $45 pw in your pocket with 100% finance.

    As I said these are very rough figures without knowing some more exact details.

    Cheers,

    Simon Macks
    Mortgage Hunter
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of battz71battz71
    Participant
    @battz71
    Join Date: 2003
    Post Count: 95

    Simon,

    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.

    Cheers,

    Battz

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Hi Battz

    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

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Westan I used similar figures but a 100% lend rather than 80%.

    The difference on the additional borrowing of $18K is about $22 pw – so we are almost exactly the same!

    Cheers,

    Simon Macks
    Mortgage Hunter
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of battz71battz71
    Participant
    @battz71
    Join Date: 2003
    Post Count: 95

    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?

    Cheers,

    Battz

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Hi simon

    that’s good to see are figure are so close to each other. Hopefully we know what we are talking about [:D]

    regards westan

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Hi battz71

    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%.

    westan

    Profile photo of battz71battz71
    Participant
    @battz71
    Join Date: 2003
    Post Count: 95

    Thanks for the revised figures. On a subjective note, are they “good” figures?

    I intend heading off to do some negotiating tomorrow, any last minute tips?

    Unfortunately its not local, so I have a few kms to do to view the property/negotiate.

    Cheers,

    Battz

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Battz

    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

    Profile photo of MiniMogulMiniMogul
    Participant
    @minimogul
    Join Date: 2002
    Post Count: 1,414

    yes true 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

    Profile photo of MiniMogulMiniMogul
    Participant
    @minimogul
    Join Date: 2002
    Post Count: 1,414

    yes true westan

    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

    http://www.vocalbureau.com

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