All Topics / General Property / help with the maths???

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  • Profile photo of wannabe2wannabe2
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    @wannabe2
    Join Date: 2003
    Post Count: 65

    [:)] hi guys just wondering if anyone can help us with the figures,havind read steves book and rich dad im now reading dolf de roos,however im useless with maths and can’t get my brain around it and heres the rub:- just put $1000 deposit on a block of 4 units and got them for $165000,they rent for 355per week combined so i think 11 second rule is ok rates are 3500 per year which hurts usual figures apply re closing costs 5% etc and stamp duty is 4500 but not sure what is cash on cash return or return on investment? is this a lemon??[xx(]

    Profile photo of pinit2000pinit2000
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    @pinit2000
    Join Date: 2003
    Post Count: 85

    Hi Wannabe,

    The numbers look good … let’s do the maths …

    Cost of property = 165,000
    Stamp duty = 4,500
    Legal fees = 1,000
    Mortgage SD + fees = 1,000
    Misc = 500

    So your total purchase cost is = 172,000

    Borrow 100% of 172,000 at say 6% so your annual interest repayments will be:

    172000 x 6 / 100 = 10,320 p.a

    Your rent per annum will be 355 x 52 = 18,460 p.a.

    Management fees at 7.7%: 18,460 x 7.7% = 650

    Insurance = 300

    Rates = 3,500

    Misc = 1,000

    TOTAL COST PER YEAR = 10,320 + 650 + 300 + 3,500 + 1,000 = 15,770

    TOYAL RENT PER YEAR = 18,460

    TOTAL PROFIT = $2,690 p.a.

    Your cash on cash return if you put NO money into the deal is INFINITY (this is the BEST return on investment you can aim for … I did say best “return on investment” NOT the best type of investment strategy! You may ask “if an infinite ROI isn’t the best then what is?”. I will leave this for you to think about…)

    By the why all positively geared properties have a potential cash on cash return of infinity (by definition). (this is assuming you don’t have to do major maintenance work on the units every year etc…)

    Numbers are very interesting and well worth understanding…

    Pin

    Profile photo of wannabe2wannabe2
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    @wannabe2
    Join Date: 2003
    Post Count: 65

    [:)] thanks for the reply but im not sure what the roi or cash on cash return will be if i put down 20% (its a low doc at 6.8%) with the closing costs as well.can anyone help???[:I]

    Profile photo of melbearmelbear
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    @melbear
    Join Date: 2003
    Post Count: 2,429

    Hi wannabe

    Just ‘play’ with the figuers that pinit put in for your deposit amount.

    Cost of property = 165,000
    Stamp duty = 4,500
    Legal fees = 1,000
    Mortgage SD + fees = 1,000
    Misc = 500

    So your total purchase cost is = 172,000

    Assuming an 80% borrow on PP, and that you are covering other costs out of pocket…

    Borrow 80% of 165,000 at 6.8% (Interest Only) = $132,000 so your annual interest repayments will be:

    132000 x 6.8 / 100 = 8,976 p.a

    Your rent per annum will be 355 x 52 = 18,460 p.a.

    Management fees at 7.7%: 18,460 x 7.7% = 650

    Insurance = 300
    Rates = 3,500
    Misc = 1,000

    TOTAL COST PER YEAR = 8,976 + 650 + 300 + 3,500 + 1,000 = 14,426

    TOYAL RENT PER YEAR = 18,460

    TOTAL PROFIT = $4,034 p.a.

    Your cash on cash return

    You put in 20% ($33,000) + costs ($7,000) = $40,000

    Your return = money rec’d/money in
    = 4034/40000 = 10.085% return.

    As you can see from this return compared to infinity, the more cash you have to put in the less return you will make. However, you are making money, and with 4 units, there are multiple ways of increasing rent, or providing other services that can increase the overall return.

    If I stuffed the numbers anybody, please correct me.

    Cheers
    Mel

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Using Pin’s figures.
    20% deposit = $33,000
    closing costs = $7200
    total money in = $40,200.

    The profit from this deal will be roughly $2690 per year. so the ROI will be yearly profit divided by the upfront money invested. 2690/40200. which is about 6.70% return.

    This is not very high due to the large deposit needed. But it also doesn’t take into account any future capital gains.

    But, rereading Pin’s post, she used 100% finance. If you had cash for the deposit, and borrowed 80% of teh value = a loan of $132,000 @ 6.8%, yearly interest will be $8976. This will give you another $1344 per year profit, so your ROI would be 10%. But you are probably getting your deposit etc from a LOC anyway.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of muppetmuppet
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    @muppet
    Join Date: 2003
    Post Count: 900

    Hi Guys

    Re management fees:
    $18,460 * 7.7%= $1421.42 not $650 as stated.

    Therefore expenses will increase by another 1421-650 = $769.

    Regards

    Profile photo of melbearmelbear
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    @melbear
    Join Date: 2003
    Post Count: 2,429

    D’oh! Didn’t check that one!

    Takes profit back to $3263.

    Cash on Cash Return = 3263/40000 = 8.2%.

    As Terry says, doesn’t take Cap Gain in.

    Cheers
    Mel

    Profile photo of Fudge111Broz00Fudge111Broz00
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    @fudge111broz00
    Join Date: 2003
    Post Count: 245

    Hi Everyone,

    You have mentioned in the post about taking out an interest only loan, while i understand the workings for this, how many years will you have to keep paying the annual interest, is it forever?
    I am relatively new to all this stuff, my more i learn now the less of an idiot i’ll look like later, lol[:I]

    Thanks, Fudge111

    Profile photo of melbearmelbear
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    @melbear
    Join Date: 2003
    Post Count: 2,429

    Hey Fudge

    You basically pay it forever, or as long as you owe the money anyway.

    Although what the banks tend to do is give you a five year IO term, after which it reverts to P&I, and is a 25 year loan or something like that. If you want to keep it at IO, you just renegotiate with them for another term, or refinance to another bank.

    Hope his helps.

    cheers
    Mel

    Profile photo of Fudge111Broz00Fudge111Broz00
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    @fudge111broz00
    Join Date: 2003
    Post Count: 245

    Thanks again Melbear!

    It’s amazing how much I’ve learnt in the short time i have been a member of propertyinvesting.com, this forum is such a great source of information!

    Fudge111 [:D]

    Profile photo of wannabe2wannabe2
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    @wannabe2
    Join Date: 2003
    Post Count: 65

    [:D] thanks for the help guys,as a token of goodwill in the spirit of sharing info on this site i think where we bought is a great place to start looking for +ve ip’s….innisfail,80km’s south of cairns which is boomtown at the moment.all the best.[;)]

    Profile photo of ozzpomozzpom
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    @ozzpom
    Join Date: 2003
    Post Count: 5

    Hi Wannabe im having problems with the maths?in the following advice given to you i cant see where the principle ammount is being factored in to the repayments,i thought this would be necessary to work out the repayment or are they talking interest only.Do you know the correct way to work out the repayments from the bank on say a $100.000 loan over 25 years @ 6.75%? i would be appreciative if you could help regards
    ozzpom

    Profile photo of TruskaTruska
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    @truska
    Join Date: 2003
    Post Count: 20

    Hi ozzpom

    For a quick formula on 6.75% over 30yrs see earlier posting “Helpful repayment formula”

    T

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