Hi. I’m fairly new to property investment and wanted to know the thoughts of other more experienced investors in terms of this particular case.
I’ve purchased 3 properties in the last 4 years and have recently agreed to accept an offer to sell my first one. I decided to sell for a number of reasons, but mainly as I’m getting married next year and would like to throw the available equity of this property into another one, which will be my PPOR.
These are the figures:
Purchased in April 2001: $155,000
FHOG: $14,000
Stamp duty & fees: $8000
Furniture & air cons: $9,000
Body Corp & rates (3.5 yrs): $8,000
Interest payments (3.5 yrs): $26,000
Rental (3.5 years): $42,000
Selling price: $203,000
Outstanding loan amount: $105,000
Still need to determine if I need to pay CGT as I lived in the unit for a few months…How do I calculate whether this was a good investment or not? I’ve tried a number of ways (Income vs Expenses, cash on cash return) but just end up getting myself more confused…
I guess I’d like a few wise opinions as to whether you would consider this a good investment decision….or not. Thanks heaps in advance.
Hi C of G, Welcome to the forum.
I am far from an expert in accounting but by my limited experience it appears your rental average is around $230 per week. Based on your purchase price, this would represent a gross return of 7.7%. Based on todays value, it is a gross return of 5.89% which doesn’t even cover the interest rates, let alone Council rates, insurance and maintenance costs.
Buying your own PPOR means the interest payments on the loan are not tax deductable against your income which means you are paying the loan with after tax dollars.
Paying down debt via sales or just repayments over time, is a strategy in itself. You may have the equity to purchase a PPOR without selling an IP but can you service the extra loan without hardship to your finances and indirectly to your personal relationship? Cheers Brenda. [biggrin]
If you want to get out of a hole, first stop digging.
Hi CrownOfGold,
Thanks for your post.
There are a few holes in your figures, but for the sake of discussion I’ve used some assumptions to flesh out my answer (see below).
First, let’s look from a cashflow perspective:
Rent: $42,000
Interest: $26,000
Body Corp etc.: $8,000
Management: $2,940
Other Expenses (10% of rent): $4,200
Overall: $860That’s a good start.
From a capital gains perspective:
Bought: $172,500
Less FHOG: $14000
Net PP: $158,500
Sale Price: $203,000
Capital Gain: $44,500Overall (pre-tax):
Cashflow + Cap Gain: $45,360
Purchase Price: $158,500
% Gain: 28.6%
Over 3.5 years: 8.2% per annumWhether this is a good investment or not depends on your goal. If we adjust for inflation and then take away tax, it’s at least a good step in the right direction.
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
Steve, I am just wondering where the $172,500 purchase price comes from and why would you subtract the FHOG from the purchase price you used?
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Thanks for your replies. I’ve never tried working out cashflow separate from capital gains…it makes a lot of sense.
In terms of my cash flow, I managed the property myself (just for fun), so I didn’t have any management fees. The property was also bought brand new, so I had negligible expenses and excellent depreciaiton. In adding all that up, the cash flow works out to be about $8,000 positive.
Overall, excluding income tax, depreciation and inflation, the gain/yr is then 9.4%. I’m pretty happy with that, considering I’m selling out of necessity rather than desire.
I personally would look at what you made from cashflow and from capital gains, and like Steve see what it averages out over the number of years held.
Then compare this to what you could have made if you invested the deposit elsewhere such as shares or bank deposits.
Terryw
Discover Home Loans
Mortgage Broker
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
hi crownofgold,
someone once said “you’ll never go broke making a profit” and 8.2% p.a. aint a bad profit…
You must be logged in to reply to this topic. If you don't have an account, you can register here.
