How to make P+ cashflow?? Help??

Hi,

I'm hoping some readers may be able to give me an idea about how far off my property might be from being positively geared as I'm new and don't understand the breakdown.

Purchase price $125,000
Rate 6.95% - 30yrs
Rates $1300
Renovations needed $10,000

The reason I'm interested is because I can arrange for a tenant to privately pay $170.00 per week rent while I have full access to place to do reno, and then once completed, I can rent the property for around $200 per week.

Does this sound close to being positively geared?

This would be our first investment property - it’s in our town, has a good tenant and, for now, I will manage it myself as it's family (and I used to work in property management).

Hi

Try Steves 11 Second Solution.

See calculators on website.

Regards Teach

Just about to get into P/I in a large way with an aim to early retirement and having fun along the way.

Hi there,

From your info it is not positively geared (but very close) unless you have any other tax deductions (any depreciation?)

On 6.95% with a loan of $135,000 (cost plus reno cost , no borrowing or purchasing costs were included I am assuming and which you should allow for) you would be paying $9382.50 in interest, $1300.00 in rates (have you included water rates ?) and you didn't mention it but you would have to pay for insurance (I have allowed $200).Total expenses $10882.50.
Your gross income would be $10,400 at full occupancy at $200pw.
However as you can claim the expenses as tax deductions this will give you a positive cashflow. The amount of this will vary according to your tax bracket for the year but at 30% you would receive $3264.75 back.
Sounds good to me.
Out of interest what state do you live in and in what state is the property ?

Cheers

MIKALA

Hi ,
Thought I should clarify part of what I said in my reply in case you misunderstood - your rental income is taxable so you don't actually get the $3264.75 back (as in your hand)- it will just reduce your tax due or increase your refund by that amount depending on your income situation.
Hope this makes sense...

good luck..

MIKALA

I recently downloaded a 21 day trial of "Investment Detective" (from this site), which would be ideal for your scenario. You type in your figures and it does all of the calculations for you. I too have just started looking for my first investment, and it's hard work. You could well be on to a winner though. Are you able to value add to the property, create an extra bedroom for example. Good luck, I hope it works out for you.

oh, is that wiat investment detective does, I was wondering about that.

We use dolf de roos REAP for analysis and find it to be very thorough.

We buy properties in Adelaide. Immediate Cash Settlements, No Real Estate Agents, No Fees.
bricksnscience@optusnet.com.au
phone 0412 437 582

Thanks to everyone for the replies.
Firstly i have the $10,000 as a line of credit already which i will pay $40 a week off.

Water rates the tenant pays where i live.
Buying for $125,000 now stamp duty $2,865
I can add a LOT of value to this place. Has a great yard, great street etc so i'm thinking if it didn't stetch to be positive cashflow or i needed to sell down the track i will certainly make good capital gains.

I'm thinking it's too good to pass up being my first, in my own town, tenanted straight away and i have all week to work on reno's as i work weekends now. I have done a lot of renovating previously and think it will come up great.

I live in Country NSW by the way.

Sorry i should clarify figures a bit.

Purchase price $125,000 (hopefully) asking $130,000- 120 knocked back.

I want to borrow 100% if possible to include the deposit amount.

I'll use the line of credit already in place for renovations as i don't pay interest till drawn upon.

I can cover stamp duty and legals out of savings.

interest rate around 6.65% through Rams same as line of credit. Pre approved.

Hope i included enough.

Thanks for the tool help i'll look it up.

After Renos....:

TOTAL Income= $200 pw rent = $10,400pa

Expenses=interest on renos + purchase 6.65% * $130,000 = $8645pa
=rates $1300pa
=insurance at say $200 (Probably closer to $500)
=annual repairs at say $500
TOTAL EXPENSES = $10645

Cashflow = $10,400-$10645 = -$245pa = -$4.71pw

I'd say that it is close enough neutrally geared, which is great! + you get all that potential increase in capital through adding value.!!

I'd go for it

----------------------------------------------------------------------------------------------------------
Live, Learn and Grow

Lifexperience

positive cashflow is just looking at your income(rent) versus your expenses (holding expenses ie: insurance,interest, rates, repairs, vacancies)

You can make a property positive cashflow easily by decreasing the amount of interest you pay. Ie: Pay more deposit/money off the loan.

This is separate to what the property value is. As the value of a property is usually affected by how much family homebuyers are prepared to pay in any given area and in what condition/location/size/etc it is in.

----------------------------------------------------------------------------------------------------------
Live, Learn and Grow

Lifexperience

Sounds like you have a home mortgage as well???

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the "Non Bank Lender of the Year?"
(Money Magazine 2005).

This is the stuff i have to learn about *reading with interest* sorry i cant help..

An update!

On closer inspection and advise of agent the property had termite damage.

We are not going ahead.

on advice of agent? really/?

Thats unusual that ann agent would steer you away from a vendor?

Do you think the agent had ulterior motives? (like buying it cheap himself?)

----------------------------------------------------------------------------------------------------------
Live, Learn and Grow

Lifexperience

Agree with LifeX,

I would request the agent send me a copy of the report before I dismiss it. Lots of props have termite damage.

hrm

Well the agent advised me of the fact termits were evident yes after phoning to answer my offer of $125,000 (which i never received)

I know little of fixing termites permanently or the damage and as i already have to spend around $10,000 i was worried about the fact that could blow out.

Maybe i should look into it further.
Apparently the owner is considering taking it off the market.

I estimate quite confidently after renovation i could resell for a minimum of $220,000. Even if i just rent out (family) while renovating and then sell it. make a quick profit??

It's only $500 for a building inspection - request an estimate of repairs needed for the "termite damage".

This will tell you where you stand with the building.

The vendor is taking it off the market? I'd ask why. I'd also find out if the RE Agent actually put your offer to the vendor. This smells like an agent doing his own deal behind the scenes.....

....of course I am a conspiracy theory freak.....

....maybe the vendor just didn't want to sell........

----------------------------------------------------------------------------------------------------------
Live, Learn and Grow

Lifexperience

MORE HELP PLEASE!!

Ok.
The property has since dropped down to $110,000.
I am having a builder look at it for an estimate.

I'm not too worried about the actual termites but the damage. We estimated $10,000 repairs and now the price has dropped can afford to go above that but i don't want to have to rebuild the whole house.

As for the agent well being a small town and all his reputation is one of being extremely ethical so i think he probably wants to insure the sale doesn't fall over (Isn't there some rule about non disclosure?)

Anyway i'm itching to buy it now the price has dropped it's looking very good so hopefully the builder agrees.

Originally posted by EllyH:

I recently downloaded a 21 day trial of "Investment Detective" (from this site), which would be ideal for your scenario. You type in your figures and it does all of the calculations for you. I too have just started looking for my first investment, and it's hard work. You could well be on to a winner though. Are you able to value add to the property, create an extra bedroom for example. Good luck, I hope it works out for you.

Can't seem to find the link for the trial download. Anyone know where it is? Thanks