All Topics / Help Needed! / whats the point of owning an IP – does it really make money

Viewing 7 posts - 1 through 7 (of 7 total)
  • Profile photo of penti99penti99
    Member
    @penti99
    Join Date: 2010
    Post Count: 21

    guys

    I have joined this forum recently and this is a great forum

    I got some good piece from folks here

    thanks

    I have been trying to follow your advises to read books and gather as much information as I can ( as a rookie to IP market )

    I have been trying to use this IP calculator which i found the other day …

    but the figures ( assuming I am putting in correctly ) are making me crazy

    eventually its shows that I am loosing money with IP ( APPEARS TO BE TOTALLY BETTER OFF WITH savings account term deposit )

    I attaching the file here but here is a snap shot of figures in the file

    lets say my purchase price is 160 k

    i got 10% deposit

    weekly rental retun of 200

    my annual gross in 69k

    the calculator shows me total deductions of 8459.03

    but shows me an annual tax savings of 1332.30

    my total annual investment is 2326.73

    so does it mean I am off the pocket by around 1000 bugs !!!

    shocking

    looking at CG

    lets say I have decided to sell the property after 3 years

    with captial growth of 8%

    here goes my annual tax profit of 16394.00 ( after tax )

    so does it mean I made
    17k by having this property for 3 years ( after all the efforts and running around )

    am I missing some thing or the whole point

    this is what I want to do

    have 2 IP's for 5 years

    sell one after 5 years and by then slog hard to pay off ppor and move overseas ( as I have to )

    the other IP pays for itself

    I have read that there are many guru's here who have a an excellent portfolio

    in comparision my goal looks very small but I would be very happy If I can achieve that

    enlighten me

    all ears

    here is the link for IP calculator that I have used

    http://www.investmentpropertycalculator.com.au/free-investment-property-calculator.html

    waiting for your reply

    thanks
    sri

    Profile photo of illuminatiilluminati
    Member
    @illuminati
    Join Date: 2006
    Post Count: 81

    what you are writing down seems very sporadically written, i am in a bit of a rush, but ill check it again and go over it when i get home from work. but did you take into account how much the rent brings in?

    basically think of tax benefits as extras. get the rental income-the loan repayments and property costs (rates etc) to lower the loan repayments you can increase the deposit to greater tehn 10%.

    tax benefits are like a secondary benefit, depreciation income losses etc can be used to lower how much personal income tax you pay.

    ill check your numbers when i get home.

    Profile photo of Ben KBen K
    Participant
    @ben-k
    Join Date: 2010
    Post Count: 103

    Hi penti,

    There will be a truckload of people who use this forum who will give you four hundred truck loads of reasons why purchasing real estate as an investment is better compared to putting your money into a savings account.

    In my opinion and limited experience, what it comes down to is your ability as an individual to make the right decisions when purchasing, and using the right people who have the knowledge to help you see your goals through.

    Some properties will give you growth, others will provide cashflow if you are creative in adding value or buy right.
    Only by immersing yourself in resources like books, websites, seminars (if you so choose), and doing the ground work for yourself will help you build the knowledge and confidence to say – you know what , property is for me as opposed to term deposits or whatever.

    your goal look achievable to me, as iiluminati said you need to factor in all your outgoings, rental income, and research the area you are buying in to see what sort of growth to expect and ask wether it is the right property to buy. can you find any ways to increase the rent? can you make i/o repayments with an offset account as opposed to p/i? all of these things and much more make for a wise investment. not as easy as throwing some money into an account, but hands on and in my opinion, more rewarding.

    good luck, hope the pros on the forum can offer you some sound advice,

    Ben

    Profile photo of penti99penti99
    Member
    @penti99
    Join Date: 2010
    Post Count: 21
    illuminati wrote:
    what you are writing down seems very sporadically written, i am in a bit of a rush, but ill check it again and go over it when i get home from work. but did you take into account how much the rent brings in?

    basically think of tax benefits as extras. get the rental income-the loan repayments and property costs (rates etc) to lower the loan repayments you can increase the deposit to greater tehn 10%.

    tax benefits are like a secondary benefit, depreciation income losses etc can be used to lower how much personal income tax you pay.

    ill check your numbers when i get home.

    hi iliminati and others

    thanks for your replies

    even I am pretty confident – IP is far better than banks

    just trying to get my numbers right

    as the example I have used has freaked me a bit

    illuminati

    waiting for your advice

    thanks

    sri

    Profile photo of illuminatiilluminati
    Member
    @illuminati
    Join Date: 2006
    Post Count: 81

    ok so i got bored at work.

    i did the bank loan at 8% so it gives you a bit of a buffer.

    160 000 property
    16 000 deposit
    =
    144 000 bank loan

    interest ONLY   at 8%  = 11520 pa

    200 rent per week = 10400 pa

    loss of 1120  not including rates etc.

    TAX SAVINGS, of 1332.3
    so
    -1120+1332.3 = profit of 212.3

    SO, you will be making a loss on this property, but the depreciation will push it into being slightly profitable for you.

    capital gains,  according to you,  that is 16 394  after tax.  is that for 3 years?  hard to understand your first post.

    if it is 3 years  then    16 394/3 = 5464

    so for a cash outlay of 16 000, you will make 212.3 a year in cash,   and unrealised post tax profit of 5464.  
    thats a 35.47%  return on your money.

    of course its not that simple… there is stamp duty, rates, commisions, management fees, etc.  and also capital gains isnt guarenteed, let alone guaranteed at 8%.

    but using just the basic figures it seems that that property gives a return 7 times greater then a bank.  if everything you said was guarenteed, id certainly go for that.

    if you wanted a profitable property regardless of the tax deductions, then you wouldnt need to increase your deposit by much to reduce the loan to a level where it was positve geared.
     or you can renovate etc, to add value and ensure the capital gains

    Profile photo of illuminatiilluminati
    Member
    @illuminati
    Join Date: 2006
    Post Count: 81

    oh and just because this property is borderline for you,  doesnt mean all properties are.

    And as other said, its more of a skill.

    Buying a property and just trying to make money from holding it is not really much of a skill.   its just slightly more involved then using a bank.   renovating, subdividing, developing are more intensive skill wise.   but because of that the returns are better too.

    if IPs didnt make money for people then no one would do it…   not all properties make money..   so run the numbers and if they dont, then dont buy that property.

    Profile photo of ducksterduckster
    Participant
    @duckster
    Join Date: 2004
    Post Count: 1,674

    lets say purchase price is 160 k

    i got 10% deposit – so loan is 144k repayment over twenty years = $277 a week

    interest is 221 a week roughly

    weekly rental return of 200 say $3000 a year in expenses so $57 weekly

    so short fall of $200 – 57 – 221 = $78 loss a week. lets assume you also pay $77 a week to pay off the loan over 20 years

    So lets assume a 10 year period

    $160,000 compounded @ 8% over 10 years = $345,000

    the calculator shows me total deductions of  $4000

    Loan would be $100,000

    So now after ten years you have $245,000 in equity not taking into account rent increases of $10 a week each year.akes off

    Compounding property value takes off when time is experienced.

    Rule of 91

    take 91 divide it by interest rate and you get 9

    every 9 years value should double.

    If you stuck money into bank account you have to pay tax each year on the interest

    Say $10,000 is saved each year say 6% interest

    Year 10 you have tax to pay each year after on roughly $7900 interest

    You can borrow against the increased equity of the IP to buy another one but time is the ingredient needed.

     

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