Hi All,
As a "wanna be" investor I've got a couple of questions….
1) could you please tell me what ROI% means… I'm assuming it means the percentage of return on your investment but i dont understand how it is calculated?
2) what are the tips and tricks to identify properties below market value?? Do i keep track of a particular property and see how long its on the market for? Any other things I should be looking for???
3) i want to invest in a property with good CG and yield… i dont mind if its negative cashflow as we can afford to cover a small amount of weekly outlay and hopefully with a minor reno we can change that to a positive… but i have no idea what figures i should be looking at or what figures to calculate so that i'm not out of pocket too much whilst its a negative cf… ie what costs are involved that i should factor in… (I dont mean the initial set up costs, ie stamp duty, LMI, conveyancing, etc), just the general weekly (or monthly) costs… is there a spreadsheet or something that will make this simpler? I'm also hoping to invest in a freestanding house, rather than unit.
its very basic, i know but i've got to start somewhere
thanks in advance
boshieroi is return on investment – yield -expenses / investment property cost at purchase * 100 is percentage
ROE is return on equity
It is useful to compare the ROI against the share market or a high interest deposit account or other property dealsFinding out market price. – look at other similair properties on the market.
look in back of
Australian Property Investor magazine for median prices of properties in market. RPDATA is another source but you pay for itYour other question is a bit of a paradox.
you will discover that High yields usually go with low capital gain growth suburbs
and that low yields go with high capital growth suburbs.
Costs to consider
are Land Lords Insurance $800 p/a plus, Council Rates $400 – $1300 p/a, Water rates $600 p/a, repairs $2000 p/a should be budgeted in case you have to fix something in a hurry. real estate property management is a percentage of the rent .
If you can manage it a $3000 saved buffer fund is a good idea to cover unexpected repair costs or unexpected vacancies.PM me if you would like me to create a spreadsheet and email it to you as I am pretty good with computers.
Here's a very quick calculation on a couple of numbers to help assess the likely cashflow:
1. purchase costs are 6% over and above purchase price. eg: $200k property; costs are around $12k. $212k total.
2. allow 20% of the rent to be eaten up by all costs (includes 1 month vacancy per year). eg: $300 p/w rent will nett you after all expenses around $240 p/w. (disclaimer; good luck getting this rental yield in a Capital City).
3. didvide your loan interest by 52 weeks, subtract that from your nett rent.
4. The result is your cashflow per week.eg:
Property cost = $212k (including costs).
20% cash deposit + purchase costs = $52k.
Loan amount = $150k @ 7.5% interest only
Total interest and bank fees = $11,250 (round up to $12,000 for safety)
Divided by 52 weeks = $230.00 p/wMinus Nett rent = $240 p/w ($300 – 20%)
Cashflow = pos $10 p/wIf you are borrowing the entire amount, and round up the interest/fees cost to $16k (from $15,900) to buy the property the cashflow would be neg $67.69 p/w. Roughly; neg $65 p/w.
You can offset this figure to a degree with good "on-paper" deductions if the property was built after 1987, or has had a recent renovation and there are receipts for the costs of the reno. A qualified Quantity Surveyor can assess all the on-paper deductions for you.
The above figures are a worst-case scenario usually, and ensures you will not get a nasty surprise.
hi duckster and marc,
thankyou so much for taking the time to explain… i appreciate every bit of help i can get…
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