hello all investor's i have been going over the numbers for my IP and just want to see if any one can tell me if what i have come up with is correct?
let me tell you abit about the property, i bought it 5 years ago for 76,000 i have refinanced and done a whole reno etc now i have tenets in there and the purchurse price i have worked out but geting my new valuation and deducting the current debt and the money used to buy my 2nd ip that was in a LOC line of credit so that left me with a total of 120,000 if any one can help that would be fantastic
gross rental return (GRR)
annual rent / purchurse price x 100
annual rent $13,000
purchurse price $120,000
x 100
Gross rental return 10.83
Return on investment (ROI)
Annual profit / purchurse price x 100
annual rent – all expenses
calcuate profit
Annual rent $13,000
minis all expenses
loan interest $4,470
rental management $780
letting fee $280
council & water rates $2,000
insurance $600
equal profit/ loss $4,870
calcuate ROI
profit/ loss divide purchurse price
profit/loss $4,870
purchurse price $120,000
x100
equals total ROI % 4.06
Cash – on cash return (CoCR)
Cash back / cash down x 100
purchurse price $120,000
Cach down
Deposit
closing cost's
or money allready in deal $95,000
cash back
annual rent $13,000
misis all expenses
loan repayments $4,470
management fee's $780
letting fee's $280
council and water rates $2,000
insurance $600
total cash back $4,870
(CoCR) calculation
cash back $4,870
divide
Cash down $95,000
x 100
Equals total (CoCR) % 5.13
growth on equity return (GoER)
expexted annual growth x 100
current equity
step 1 annual growth
your expected growth $10,750
step 2 equity
current market value $215,000
loan balance $70,000
equity used on another property $50,000
equal current equity $95,000
step 3&4 GoER calcuation
your expected annual growth $10,750
equity $95,000
x 100
equals GoER % 11.32
net profit percentage (NPP)
cash flow + expected growth x 100
cash down
net cash flow $4,870
expected annual growth $10,750
equals profit $15,620
cash down $95,000
x100
NET PROFIT PERCENTAGE % 16.44
net operating income (NOI)
income – operating expenses x 100
purchurse price
rent $13,000
management fee's $780
letting fee's $280
council and water rates $2,000
insurance $600
NOI $9,340
purchurse price $120,000
x 100
cap rate % 7.78
if any one has any idea if i am right that would so much appreacted
regards daniel
Hi Daniel,
Wow, lots of work there !! This introduction of yours leads me to ask you a bit more (I was confused…)
Quote:i bought it 5 years ago for 76,000 i have refinanced and done a whole reno etc now i have tenets in there and the purchurse price i have worked out but geting my new valuation and deducting the current debt and the money used to buy my 2nd ip that was in a LOC line of credit so that left me with a total of 120,000What I am confused about is that it seems you might be including costs from your second IP in the calcs for your 1st. Or, I am misunderstanding the workings in the quote above. For clarification, why not lay out just what each value is :-
Purchase Price = $xxxxxxx
Reno cost = $yyyyyy
Deposit for IP2 = $zzzzzzz
And the total of $120k – what is that made up of? Is that the "total cost of purchase, reno, and….. (anything else) "?
You seem to have garnered a whole bunch of stats – some I have never heard of (must have been a great book !!
) I note the CoCR seems way LOW – but then, you appear to have included a whopping $95k as total cash invested – if that is true, what costs made up that total? The point I am driving at is this – if you are borrowing, then your actual cash might be just 25% of the total purchase price (80% loan, 25% deposit and costs). Of course, you MIGHT have paid all cash….. Yes? Probably not !!
Add a bit more, so we might be able to help a bit more,
Benny
hey benny
thanks so much for your response!
sorry i didnt make it more clear
purchurse price – $76,000
reno cost – $50,000
deposit ip2 $50000
the reno i paid cash also burrowed money but that just went stright on to my exsisting mortgage at the time so i have calcuated that in in full as money in the deal !! but i arn't sure to include the reno cost's aswell in to the calcuations as that really changes the CoCR
but what i didnt take in to thought was i never put the rest into the deal yes it is finianced i orignaly only put $10,000 in to the deal
i feel abit weid i cant quite get my head around it but the property was bought 5 years ago and i have refinanced around the traps befoure so its hard for me to work out how much i have invested quite so to speak
regards daniel
iam just trying to make sure i have the formula set up for my excell spred sheet so when i do finiancial due diligence iam more acurete with my calcuations and avoid risk
daniel
Hi Daniel,
All this numbers even if they are correct, they mean nothing if do not use them properly.
They are used for what in your case?
Some of them are historical and some are current and some are futuristic.
Hi Daniel,
It is good to know that you will be using your numbers for due diligence and avoid risk, Other use can be to compare the performance of two properties or expectation of performance over the period of time.
You need to include impact of your tax bracket, strata cost and money in offset account reducing potential interest but still allow to deduct full interest on loan. These are real life considerations.
The formulae became more complicated.
Personally Daniel i think you are doing a good job.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
good point arun that makes sense!!! i guess it would be easir to calcuate if i havent refinanced etc and made it more complicated but i feel like i have lernt more through this exersise and appreateate everyones in put iam sure it can help me with future research on property ill get there
thanks richard
Hi Daniel,
Quote:the reno i paid cash also burrowed money but that just went stright on to my exsisting mortgage at the time so i have calcuated that in in full as money in the deal !! but i arn't sure to include the reno cost's aswell in to the calcuations as that really changes the CoCRI think the "cash on cash" deals only with your cash in the game, and NOT borrowed money (the latter is considered in ROI). I would think (from your words above) that your cash in the deal might only be $10k. The rest has been borrowed, yes?
Also, it seems your figures "might" include two IP's there. So is $215k the total value of both? Having $95k in Equity is goodness though – travelling well there.
Benny
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