Hi,
I am just running through the 11 second solution in the book and website. I am not too bad with figures, but would like to clearly see the exact mechanical details behind it. Can’t quite hatch it myself but granted I could persist a bit more.I can see that we are saying that dividing by two and multiplying by 500 gives you 10 years rent – during which time you hope to recoup your investment. ie. if we pay 250/week we shouldn’t be paying more than 125 000 for a +ve cashflow property and hope to earn 10.4%. The return you are looking for is 10.4% of 125000=13000 and the rent is 52*250=13000.
Where I got confused is….. if the above analysis assuming 10.4% ROI on the total value of the property (125000) is as deep as this is meant to go, then that’s I think I have it ok. The property presumably brings in 13000 a year which covers interest and costs and hopefully leaves a margin of +ve cashflow.
But I was reading the discussion of COCR on the website, and the 11 second solution was mentioned there. From what I can gather, your COCR would be higher than the 10.4% you look for because you might put down 20%=25000 on the above property and COCR is therefore 13000/25000 or around 50% meaning you get back your cash in two years.
Is there supposed to be a relationship between COCR and the 11 second solution? Or is it just a rule of thumb to apply to total ROI referring to the return on the price of the property and ignoring the loan to value ratio etc.?
Secondly, when crunching your numbers, what calculator do you apply?
I hope you can follow the question ok and appreciate someone helping me out with it. I am keen to see the ‘back of the envelope’ before I jump in and use it – Can’t wait to get home from Ireland and try some stuff out.
Kind regards,
Greg Ellis
[email protected]Hey,
Thats an interesting question, wish i could help.
I would also like to know the answer to that!Cheers
Matt“If you do what you have always done, you will get what you have always had.”
“Isn’t it time for a change?”
The 11 Second Solution is just a rule of thumb to help identify potentially +ve cash flow properties quickly.
Your COCR will depend on how much you actually borrow, the repayments on that loan, rates, insurance, management fees, etc.
Checking the COCR is part of what some people here call “due dilligence”, ie use the 11 second solution to identify potential properties, than do your “due dilligence” to further reduce this list to those properties you really might wish to buy.
Dino
“If you don’t know where you are going, every road will take you there.”
Great stuff,
If it really is just that easy Im sorted.Thanks. I thought it was but when I read something in the COCR page on the site it threw me a curveball – and I thought I was missing something.I suppose the assumption is that one day we will eventually own the property outright, so we use the total price and ROI rather than COCR to make an initial judegment….and we wnat the money back in ten years and whether its ours or the banks is neither here nor there when scouting.
Cheers.
Hi guys,
but sorry to be the party pooper. The 11 second solution was only good when interest rates were at 5%. Now that they arent and if you are using interest rates of 7% you need to find a property with a gross yield of 14% to be positive cash flow.
If not, forget that 11 second solution, it might be good for sorting out properties, but your only gonna get neutral or just gone positive geared properties due to the interest rate hike.
Other than that, if you do want to use the 11 second solution, have a cash deposit of about 20 – 30% of the purchase price, for the property to be positive cashflow.
Sorry guys to be the party pooper, but that 11 second solution, has passed its time and you need a new caculating forumula to work out 14% gross yields at current interest rates of 7%.
cheers
s.i.sSave on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”
http://www.theenlightenedway.com/tools/mil_calc.shtmlBut I suppose it is still just a quick way to see if it is going to be roughly +CF. Ill still use it but more due diligence will be needed. [
]Matt
“If you do what you have always done, you will get what you have always had.”
“Isn’t it time for a change?”
Remember that the 11 sec sol is just a filtering system and not a total requirement of investing. This helps new people to sort out the totally poor deals. Everyone should have their own guidelines as to the type of return they acheive. So modifying the 11 sec sol to suit your expectations is simple, instead of divide by 2 just divide by 2.75 or even by 3 then times 1000.
Remeber to keep everything in perspective and do your due diligence.
Cheers
Leigh K[]Carve your own path and lead the way …
Hi,
but sorry to be the party pooper. The 11 second solution was only good when interest rates were at 5%. Now that they arent and if you are using interest rates of 7% you need to find a property with a gross yield of 14% to be positive cash flow.Bollocks. Actually, the 11 Second Solution was created when interest rates where higher than their current levels. The problem thesedays comes about through higher property values and finding deals rather than high interest rates.
The 11 Sec solution is a filtering tool for you to gauge a quick evaluation as to likely positive cashflow return.
CoCR is really the defining financial ratio I use to ensure I obtain an adequate return relative to the risk involved.
Finally…
People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.Yeah… I believed that once too. For example, if I saved $1 per day and earned an after-tax return of 10% per annum, then according to the calculator I’d be a millionaire on Feb 14 2060. That’s still 56 years away. Now, assuming an average inflation figure of 3% over that 56 years, in today’s dollars that be equivalent to $191,000.
Steady savings is needed as a discipline more than a wealth building vehicle.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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