Just to do some "rough" calculations when looking at a rental property any advice on any of these?
a) What's the term for the final after tax "profit" divided by property value? Is it Net Yield? i.e. if property was $500k and annual income (rent – expenses – interest + tax benefit) was say -$5k, this would be -1%.
b) I thought this figure from a) above is useful as it kind of implies the annual growth in property you need to "break even" so to speak correct?
c) Rental yield typically means Gross Rental Yield correct? i.e. Rent Per Year(including effect of vacancy rate) / Property Value.
Note just wanted something in a simple spreadsheet that does a rough calculation only re these questions…
d) rough rule of thumb for purchase costs (not stamp duty, but other such as conveyancing, legal, cost to setup loan): ~1.6% ?
e) rough rule of thumb for rental expenses (not include interest): ~25%
f) rough rule of thumb for depreciation: 0.25% to 2.5% depending on age (i.e. older to new house)
Thanks
That's right
You will find in Australia when you are quoted returns they are nearly always .
However at the end of the day you need to know the return. Therefore you need to take away all the costs which includes mortgage, rates, property management fee. A good way to start would be to buy PI software from the Somersoft group. Do a search there will be free ones or trail versions you can look at. These programs will work out your net position after tax. In many cases a 4% yield may drop to 2.5%. Therefore you then have to ask what is the capital growth in the area, will it make up in growth for what you are losing in income if the answer is no then you should pass on the property and look for something else.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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