Like Sooshie’s ‘links’ page etc, we should have a calculations page to help determine at a glance if a property is cashflow positive, for the newbie’s. Here’s a start:
11 sec rule: Rent/2 * 1000 = property purch price
M. lomas: Rent/PP (*100) = Minimum of 0.175% to be cashflow +ve
Pls add to this (for those who are better at languages than math).
This is a valid post. A novice has to have quick formulas in their head prior to proceeding with due diligence.. What other quick calc’s are available?
JarsHas anyone got any good ideas on how to run some numbers when it comes to property – numbers that you use as a rule of thumb as a precursor to investigating a property for positive cash flow?
Other than the 11 second rule, and the margaret lomas 0.175% of PP. what other quick formulas are available to discover if a property is cash flow positive, theby setting a limit to what one would pay at say auction to get X % return etc. Any good ideas?
Why not just use the forumlas listed, as they work?
I think those rules should be taken with a grain of salt. There are so many other variables that will over ride such simplistic rules. Try using a decent negative gearing calculator. That will give you a better indication of where you stand, becuase it can project your cash flow position into the future several years ahead.
Jars11
I think what you are doing with this thread is a good idea, however both of those formula are for ppl to quickly gauge if a property is going to meet their basic return requirement. So those listed are probably it.
My suggestion is that we maybe put up other calcs simple and hard to help everyone understand other aspects, such as stamp duty, equity, etc.
I have got the formula for Vic stamp duty somewhere under this paper mountain when I find it I’ll post it.
Cheers
Leigh K[
]Read, learn, grow but most of all just do it.
Using the Lomas formula, i’m getting 0.146 meaning neg cashflow, right? I’m presuming, the higher the outcome, the more positive. Well, if I were in the market at the moment I don’t think many properties would pass the Lomas test….. in the major Cities anyway. So that’s a very handy formula! As for the 11 sec rule, does anybody have any properties that pass this test? It’s a toughy!
PS, I believe the 11 second rule is used to not only calculate a cashflow positive property, but a cashflow positive property with a gross rental return in the viciinity of %10.4.
Obviously this assumes that the property fits into the assumptions built into the formulation of the 11 second rule..
This is worth noting as its not always just the gross return that needs to be considered, but also the prospects for capital growth, taxation benefits and other benefits the depend on personal and regional circumstances.
Basically just because a property doesnt meet the 11 second rule doesnt mean you should discount it straight away!
Hey Toe Edge,
In answer to yuor question. I got some last week. They do exist.Enjoy
AD [:0)]
(Andrew)“Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.”
The reason I did this is because when you are assessing so many properties, you need some rough guide so that youre time is well spent investigating the ones that will work. I thought there would be other quick calcs. In handing the brief over to the buyers agent also, I wanted him to have a quick guide too, so he knows what my min % consideration will be.
Thank you all for replying! AD, what rules do you follow in investigating one property over another (with hundreds out there to choose from in areas you have picked)? There has to be a dividing line between paying not a $ more for a property in an area and some clear rules in ones head.
JarsOut of interest –
Rent/2*1000 = rent/pp*100 = 0.2
eg
300/2*1000=150000
300/150000*100=0.2Yeah. I’m a little bored.[^]
As a newbie I found the above calcutations very interesting.
How would I calculate how much rent to charge on a property I own to make a +ve returne, and what the percentage of return would be.Lee-Ann
This site is Fantastic, I found the aswer to my Question I just had to keep looking!
mother,
If you use Lomas guidelines then simply multiply
IP debt * 0.175% = rent pwIf you use 11sec rule –
IP debt * 0.2% = rent pwTo work out return –
(rent pw * 52) / IP debtI believe you should use outstanding debt rather than property value, as that gives a more accurate result. Others may disagree.
Toe Edge,
Thank You Thank Tou Thank You!!
That makes life much easier,
Lee-Ann
Hmmm, Michael, this isnt the first time youve left me somewhat speechless. Thats pretty rare for me. -sigh- ok, so I launch into a commercial property at 8.5%, do I review it each year/quarter/month etc? Do we continually review each +ve cashflow property for better loans, better deals elsewhere, better properties…
” I believe you should use outstanding debt rather than property value, as that gives a more accurate result. Others may disagree. “
What if the outstanding debt is $10,000 ?
I mean anyone can pull simple formulas out of thin air. I just thought of one with 10 seconds.
Try dividing the property value by 1000 then multiplying by 2 that give you your rent. Hmm that gives you your 0.2% Damn I just realised thats the Eleven Second Rule reversed. heheMore seriously, mother I suggest you utilise a decent negative gearing calculator, with forward projection capability. Also ask to view the body corporate meeting minutes for the last few years.
Hello,
I found a free cash flow calculator at:
Hope this helps everybody out.
Frankie
michael,
great post[]
i always love learning about different ways to crunch numbers on potentail deals.
as i have said before i am mathematically challenged and posts like this help enormously. thanks alot[8D]
rie
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