Hi Guys,
As our newest moderators I Just wanted your in-put on this sheet and to post on forum rather than direct e-mail, for others to give constructive criticism/ideas or absorb into their own ideas.
Currently I’ve printed out copies of a sheet titled “Investment Details” for myself, so all I have to do is write in the figures.. this along with the 11 second rule gives me an idea of whether the property is ok on paper..
By asking these questions along to the agents it gives me something to look at before going to my CoCR calculator.
What do you think.. Example property-
Description: 1 brm 1 bth fully furnished brick unit in block of 38, communal parking
Location: Tourism town of 30k +, Great growth
Price: $87’000Rent inflow: @ 120 p/wk $6 240 7.17% Gross
Less
Management Fees @ 8.5%+ GST $583.44
Inspection/Let fee/post & petties $300.00Fixed outgoings
Shire rates $762.00
Water/Sewer $422.60
Strata/Annum $1120.00
L.L Insurance $200.00
$2’504.60
Total Outgoings $3’388.04Nett income $2’851.96 3.27% Nett
Note– Not inclusive of repairs/maintenance or taxation considerations
which could affect nett return.*Strata levy is high due to 2003/04 budget – Caretaker $20k, General Admin & Building Insurance $20k, repairs & Maintenance inc Pool $12k
11 second rule – should be $60 000 price
This is one of some properties I’m looking at, the plus here is growth, what do you think of- firstly the sheet and secondly the property ??
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Hi Redwing,
I cant complain about your sheet, All thumbs up! [^].
Though im a bit concerned about the property being -ve geared. Main reason is, your approx annual net profit is $2,851.96
$2,851.96 / 52 weeks = $54.84 a week.
Just basing on interest rates of 7% over 30yrs on a 100% borrowed P/I loan. The weekly repayment on:
Selling Price
$87k — $144.67 pw
11 Second Solution Ideal Price – $60k — $99.78 pwOut of Pocket (every week) due to -ve geared.
$87k — $144.67 pw Out of Pocket $89.83 pw
$60k — $99.78 pw Out of Pocket $44.94 pwInterest Only (30yrs @ 7%)
$87k — $117.11 pw Out of Pocket $59.83 pw
$60k — $80.76 pw Out of Pocket $25.92 pwJust based on these figures, its going to put a big dent in your pocket everyweek, which could make the difference in being able to purchase more properties. Depending on what the growth is and what you think the property will be worth say in a years time or 2, if you were to purchase it for capital gains. Then i would hope for at least the very minimum of $30k capital gain.(To cover orginal cost and now selling and closing cost and factoring a small percentage to tax).
Overall the property seems fine. Though, im very touchie about units, personally i dont like them and also the fact it worries me its a 1 bdrm unit. If the capital gain stacks up, might be worth it.
But if the property is going to cost about $60 – $90 pw out of pocket. Ideally i would look for sumthing that would return a much higher capital gain.
Overall Redwing, i like your sheet and found it very quick and clear to read [^][^], but the property im a bit iffy on.
Cheers,
s.i.sMakes a lot of sense to put everything down on paper logically. One more way to remove the emotion from the deal.
You have all the right headings I think.
I agree with SIS about his points re cashflow and also the units.
I think to take a hit on the cashflow or to buy a unit with the higher outgoings and less land content than a home you need to be assured of better than average capital growth. Just something else to consider and weigh up. No real right or wrongs.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Many Thanks to you both
The sheet gives me some basics to work with and acts as a reminder of cost figures to ask the Agents for, as i said i can then transcribe to CoCR calculator
Recieved an e-mail from the same Agent stating a 2 brm in the same complex is for sale for $115k, rent 160-170 p/wk using same figures for fixed outgoings i work out a $5 276 income and 4.58% nett ( strata may be slightly higher as 2 brm ?)
still not the best, working out whether it’s worth it for growth as the Town is “very” good for the state, or… to pursue more cash positive but lower growth properties.[
]( I know the answer though looking at my IP’s.. i need + Geared property for balance ) [
]REDWING
being units in a complex, did you get a depreciation schedule or similar from the agent?
if so, how does that affect your cashflow?the deductions on tax for the interest alone would be approx $35 per week at the 30% tax bracket. and then you would have the depreciation on a fully furnished unit….
i hope i did my sums right.
if you don’t intend on selling a property, isn’t it wise to use depreciation and tax deductions to their full advantage? obviously it depends on each persons strategy.
[
]Hi Redwing:
I think I know the city you’re talking about[
]. I agree that it’s got good growth prospects – the average price there is lower than the coastal town to the south and the coastal city to the north.That yield % is OK (not great) for that city. But I’ve found that charges like rates are proportionately higher for something that rents cheaply ($100-120pw) than somewhere that rents for a little more ($140-160pw) but which has a slightly lower yield %.
The block of 38 scares me off as well. You have little control over the body corp. Also the chances are that at any one time there will be 1 unit vacant. This affects what rent you can charge for your place, and may mean that even if you do it up inside people will still only want to pay the same rent as other tenants there.
Wouldn’t a cheap house or duplex with no strata levy do better for you? Yes you might only get 6% rtn, but you might be paying out less than with the unit.
Given that you’re investing for growth you’d be getting a bigger land component that’s more likely to appreciate. It may also be that you’ll get a longer term tenant in the house than the 1br flat. After all that city is not a high rent place, and anyone with a job should be able to afford to rent at least a 2br flat.
But if the 1br place is handy to everything and in top-notch upkeep maybe you could rent it as short-stay FF and get $160-200pw? That’s the only way I can see it paying, but you’d still be getting less growth than the house.
Re the sheet, I’d include some repayment info unless you were going to buy outright. Before the interest rate rise, I went on $60 per month per $10k borrowed.
I’d also add something re the construction date if you want to claim building depreciation. I would certainly want the option of being able to claim this.
Regards, Peter
Ryanmel
I’d added onto the notes section of sheet-
Not inclusive of repairs/maintainence or taxation considerations ( This includes depreciation )I hadn’t asked the agent about depreciation schedule, i believe the units are about 30 yrs old, with new units in the area asking for 210-230k for 2 bedroom, unsure as to how this affects depreciation ??
Anyone know.?
With our other IP’s i’ve had QS conduct depreciation schedules as i believe it’s money well spent..
REDWING
Let’s face it- how many 87K units are there around these days in a town of 30,000 people? I think we take what we can get these days personally.
sis, I know what you mean re units and the land factor. But a price of 87k for a house might mean restumping, rewiring, etc etc. The thing about units is that the entire set of owners pay for major repairs.
Whilst we might all be looking for great CG or cashflow, doesn’t it sometimes make sense to change our expectations at the end of a boom period? If prices have doubled in so many areas over the last few years, surely we have to pay a bit more. And rental return is limited basically to what the market will pay.
Perhaps we might now take seroiusly some 7% returns given the state of the market?
kay henry
Have the CoCR calculator to add loan figures into the equation, trying to establish a “ready reckoner” type sheet that i can just write figures into to get an idea of the value of the property as an investment, i know wehave the 11 second rule but those properties are getting harder to come by, and have jumped a bit in price llately, so if i’m looking for a bit of growth as well, then…..
Like i said have the CoCR to finalise figures, just trying to establish this quick reference sheet, the $60 per month per $10k borrowed is a start, any more ideas out there……… ?
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
]
]
]. I agree that it’s got good growth prospects – the average price there is lower than the coastal town to the south and the coastal city to the north.
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