All Topics / General Property / gross return reality check

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  • Profile photo of brahmsbrahms
    Participant
    @brahms
    Join Date: 2004
    Post Count: 485

    Hi – in some earlier posts ppl have been calculating gross return on investment – surely a net return is more accurate?

    For instance

    P/price = $100 000
    Rent = $140 per week ($7280 pa)

    Gross return = 7.28%

    Assuming interest only 7% = $7k therefore +ve

    However:

    P/price = $100 000
    Rent = $140 (factor 4 wks vacancy = $6720 pa)
    Rates = $1200 pa
    Management and Repairs etc = $1000 pa

    Net return = $4520 on $100k

    Therefore 4.52% (and -ve as well)

    Whether your drive is -ve or +ve, do others then add to the net the expected capital appreciation?

    Whatever the figures that you put into the above, is a gross return hold any relevance to your purchasing decision? (other than a quick check)

    cheers

    brahms

    If you don’t ask, the answer is no!!

    Profile photo of RugbyfanRugbyfan
    Member
    @rugbyfan
    Join Date: 2003
    Post Count: 683

    I always calculate yields using net figures. otherwise it is as you say, not showing the true picture.

    If you forget about management fees, body corporate fees, council rates, maintenance, land tax, insurance etc etc., the figures will be very skewed.

    ________________________

    Bundy made me do it…..

    Profile photo of IbuycashflowIbuycashflow
    Participant
    @ibuycashflow
    Join Date: 2004
    Post Count: 274

    I agree on net cash figures – the exception is depreciation as it is non-cash.

    If you can determine a net taxable return then you can work out internal rates of return for comparison.

    Your money has to be working best for you.

    Jeff

    Profile photo of CastleDreamerCastleDreamer
    Participant
    @castledreamer
    Join Date: 2003
    Post Count: 288

    Hi guys

    I add interest, rates, insurance, and management fees up and deduct them from rental income. It ain’t positive unless its a figure in black at the end (and even then, think about repairs, maintenance if needed etc – but I factor an allowance into purchase price for the next few years of repairs, unexpected outgoings)
    Cheers
    CD

    CastleDreamer

    Profile photo of brahmsbrahms
    Participant
    @brahms
    Join Date: 2004
    Post Count: 485

    Hi guys, appreciate your feedback.

    cheers

    brahms

    If you don’t ask, the answer is no!!

Viewing 5 posts - 1 through 5 (of 5 total)

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