I'm looking to purchase a property, undertake a quick reno and rent it out. I've done a "back of the envelope" equation to try and understand my final position at the end of the year once i take in rental income, expenses and P&I payments. To confirm the feasiblity of the investment property which professional could i turn too? Does a Quantiy Surveyor do this (i know they can calculate the depreciation schedule but can they do more) or an accountanct?
thanks…appreciate the advice!
Ok some people only count the 80% loanm in their calculations but I add EVERYTHING I have spent as the deposit etc has come from somewhere and represents lost income from wherever it was.
I add- sale price + legals + stamp duty + reno costs = total outlay.
Multiply this by your interest rate pa. I don't pay P&I. If you are worried about out of pocket expenses either should you. Actually I wouldn't recommend it to anyone.
Add to this council rates, water This is your gross outlay.
Take away rent minus management fees.
This is your net outlay (or income if CF+).
I don't add depreciation as I see this as the icing on the cake. I like mine to be CF neutral or close without depreciation.You won't have time to get a professional to tell you whether each property is feasible. It will be gone.
Depreciation varies a LOT. We reno houses- new bathroom, kitchen, new paint, carpet, AC and usually get $3000 the first year.Hope that helps.
Ok realised I answered more for cash flow estimates rather than actual out of pocket.
SO- Interest on money borrowed + council rates, water, insurance, management fees, depreciation.
From this deduct rent. This is your gross out of pocket. You get tax deduction on this (except the principal part if you are paying P&I). As I mentioned do not do this. You will be robbing yourself off deductable debt. If you have no non deductable debt get an offset account and put the extra payments in there. Same effect on interest rate as P&I but you get to contral the money (unless you are hopeless with money and will spend it).
Thanks Catalyst. I've done a few "back of the envelope" sums as per what you outlined as well. I just didn't quite trust myself on it and would like a professional to do it instead…..but don't know which type of professional that is. I thought Interest only was the way to go, but my accountant had told me to pay P&I…..it didn't register with me that i'd only get a deduction from the Ineterest portion (boo). …plus the bank will only do interest only for 5 years and i'm looking for a 10 year investment….excellent point on the offset account, understand it has that same affect on interest. thanks for the advice.
Not sure how proficient you are with Excel Tiger but I've found making a spreadsheet can be an excellent way to understand the numbers for any calculation or project. There are spreadsheets you can borrow to begin with and use them as a complete product or modify yourself.
First- Get rid of your accountant. You need somone who owns and understands property.
I don't understand why you need someone to add up your figures if you've done it yourself (you don't trust your adding or your figures??
Or do you want advice on what to buy and whether it is a good deal? If so maybe use a buyers agent.
Is a bit strange for the accountant to say P&I. But if i have a good QS then the accountant doesn’t have to do much does he. Anyway if you guys suggest Interest only, as i’ve heard many times, it makes the figures look much better (of course).
I reason i don’t fully trust my figures is that sometimes, the calculators take property cost with and without stamp duty/reno costs, and or they calculate rental yield either without payments on loan, or as P&I or as I only.
Anyway, yes i have found some excel calculators, and i could put one together myself too if i tried hard enough and could iron out some more questions but anyway…..see below are some figures excel spat out on a unit i’m looking to buy…. how come there is a negative though??? can’t see why i wouldn’t include interest in the calculations, you can’t ignore they are there…. but who wants negative yield….
Gross Rental Yield 4.57%
Net Rental Yield 3.40%
Net Rental Yield (after Interest) -3.79%this was based on purchase price $509000 (including stamp and reno), rent $420 per week, interest payments $2600 per month….
some people want a negative yeild as a tax offset.
This may work for you if your looking at reasonable capital gain
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