Greetings P.I Peers,
I've just secured my very 1st loan (never had a credit card
) with my sight set on several properties in the west side priced at ~220K and I just wanted to find out whether the following plan is financially viable.I'm planning to live in it for first 6 months to get the FHBG to negate the cost of borrowing and after that rent it out until the propery is paid off.
Monthly Wage After Tax: $2900
Monthly Loan Repayments (15 yr term): $1700
Potential Monthly Rent (roughly based on rent prices advertised on domain): $940
Capital Growth: at least 7.5% p.a. according to the Herald Sun House Guide Lift OutIgnoring the 1st year (because I'll be living in it for 6 months) and only considering years 2 and onwards I should be making the following p.a.
Income total of $27780:
– $11280 from rent
– $16500 from capital growthExpense total of $22600:
– $1000 for insurance
– $300 for council rates
– $900 for water/electricity/gas
– $20400 for loan repaymentsNet R.O.I = $5180. I consider anything that returns +ve to be a pass, what do you guys think? Should I include capital growth as part of my calculations because it's not reliable?
Cash flow wise I'll be out of pocket $943 (~ one-third of wage) each month to cover all expenses taking the rent income into account. I know I could also claim back some from the taxman as an investor but I don't know how much so I've excluded it.
All comments welcome
Thanks in advance,
KenHi kenzel first off congrats for securing your first home loan , i'm also an individual keen on buying IPs , i know i can't really help with your questions but maybe you could help with mine. What is the basic calculations that i should make wen evaluating my own homeloan product to see if my tax , insurance and interest rates are not killing 1/3 of my monthly take home wage. I'm really not good with the numbers part yet . What should i know? Is there a spreadsheet etc. or a step by step guide showing what numbers i should know before i purchase a property or accept a home loan product?
Kenzel,
Your nett useable income after the rent has been considered (and not the cap growth as this is not useable income), loan repayments as a percentage of your after tax income is quite high, which for me is a concern.
A good rule of thumb is to allow 20% of the rent to be swallowed up by holding costs (other than loan interest), and also factors in 4 weeks vacancy. In actual fact it is always less (in my experience) but it is good to over-estimate expenses a little.
Don't forget the possibility of a Depreciation Schedule which will provide a good sized tax deduction through 'on-paper' deductions.
If your property was built after 1987 it will be worthwhile getting the D.S done; a Quantity Surveyor does this for around $500, is tax deductible and will pay for itself in the first tax return.
Also, allow around 6% on top of purchase price for purchase/finance costs and stamp duty. Again; this is a slight over-estimate.
You also need to factor in the rent etc you will need to pay on another place for you to live in while your I.P is rented.Your nett income (earned) will be: $2,900
The nett rent will be: $752. (allow 20% of rent of $940 for expenses other than loan, this includes 1 month vacancy)
TOTAL USEABLE INCOME: $3,652 (cap growth is not useable income at this stage)
Loan repayments will be: $1,700
TOTAL NETT USEABLE INCOME: $1,952 PER MONTH.This leaves you $450 per week to live on for rent elsewhere, food, living. After tax return will be more of course, but it is an unknown, and you should re-invest the tax return back into the property loan anyway in my opinion, so it is not money for you to spend on living expenses.
I hope this will be enough for you to live on. You would have trouble buying another property if it had similar figures to the ones mentioned in your post due to the neg cashflow.
G'day All,
First of all thanks for all you replies
Young Investor – I'm just starting out also and the way I calculate the percentage of my salary that goes into investing is (for -ve geared investment as in my case):
[ (Total Annual Expenses/12) – (Total Monthly Rent Income) ] * 100 / (Total Monthly Wage)
This may not be the correct way of calculating it but I just did what ever made sense to me at the time
L.A. Aussie – Thanks you once again. I've decided to increase my loan term to 30yrs to lower my repayments down to $1120 pcm which should loosen my net usable income to ~630 pw. Living expense shouldn't be a problem as I will living with me folks once the property is rented out – during this time I'm planning to save up for 2yrs (60K) which should give me enough for a down payment for another IP. Do you think this is feasible? Also what should I be expecting in terms of Property Management Fee and more importantly what is the main responsibility of a property manager apart from liasing with tennants?
Thanks,
KenHi young investor I created a unique easy to use spreadsheet from my accounting days when I was also a first home buyer. Happy to forward it on to you, send me an email to [email protected]
Kenzel you too might be interested in it to help back up your numbers and give a different view. Email me as well if you want a copy
) with my sight set on several properties in the west side priced at ~220K and I just wanted to find out whether the following plan is financially viable.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
