All Topics / Creative Investing / Rent to Purchase Formula

Viewing 20 posts - 1 through 20 (of 34 total)
  • Profile photo of serkanserkan
    Member
    @serkan
    Join Date: 2005
    Post Count: 12

    Having read this formula on this forum, I tried it out and it doesn’t seem to work. It isn’t practicle.

    Just tried this formula on few properties, the purchase price was way lower then the advertised price, usually close to 100k difference.

    Am I doing something wrong? Or do I need to do this formula over 100 properties?

    Cheers,
    Serkan

    Profile photo of XeniaXenia
    Member
    @xenia
    Join Date: 2002
    Post Count: 1,231

    what formula are you referring to? Im not familiar with it!!!

    We buy properties in Adelaide. Immediate Cash Settlements, No Agent Fees.
    [email protected]
    phone 0412 437 582

    Profile photo of cameronsmithauscameronsmithaus
    Participant
    @cameronsmithaus
    Join Date: 2005
    Post Count: 14

    Did you mean Steve’s 11 second solution?

    Cam

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    Post some examples so we can ascertain what is wrong..

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of serkanserkan
    Member
    @serkan
    Join Date: 2005
    Post Count: 12

    Sorry I thougth you were all familiar with the formula.

    Yes Steve’s 11 formula or Hans Jakobi’s formula, same thing.

    Weekly rent x 500 = Purchase Price

    Having a look at properties at L.J. Hooker for example:

    1. Location: Blacktown – NSW
    Price: 209,900
    Rent p/w: 185
    RPF Formula: 92,500
    Difference: 117,400
    Link: http://www3.ljhooker.com.au/property_listing.php?id=1467630&type=residential&category=buy

    2. Location: Guildford – NSW
    Price: 209,950
    Rent p/w: 180
    RPF Formula: 90,000
    Difference: 119,950
    Link: http://www3.ljhooker.com.au/property_listing.php?id=1262688&type=residential&category=buy

    3. Location: Surry Hills – NSW
    Price: 210,000
    Rent p/w: 280
    RPF Formula: 140,000
    Difference: 70,000
    Link: http://www3.ljhooker.com.au/property_listing.php?id=1459140&type=residential&category=buy

    4. Location: Bondi Beach – NSW
    Price: 219,000
    Rent p/w: 180
    RPF Formula: 90,000
    Difference: 129,000
    Link: http://www3.ljhooker.com.au/property_listing.php?id=1453000&type=residential&category=buy

    Maybe I’m not understanding this formula’s real meaning. What do you think? Am I doing something wrong? Any help is appreciated.

    Cheers,
    Serkan

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    Getting Closer?

    Maybe this one as well?

    You may have to serach wide and far..

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of serkanserkan
    Member
    @serkan
    Join Date: 2005
    Post Count: 12

    Thanks RedWing!

    Now I get it, if the purchase value is higher then the advertised price then thats a gurantee of %10 return (exluding costs), and if the purchase value is lesser then asking price then its less then %10 return.

    Maybe its 1 property out of 150 I guess.

    Cheers,
    Serkan

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    Serkan..

    Have a look at Jaffasofts link at the bottom of my post, its a calculator that will assist youevaluate purchases

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of jenwrenjenwren
    Member
    @jenwren
    Join Date: 2005
    Post Count: 92

    Sad to say but the best deals are found on the street, no the internet.

    Profile photo of DDDD
    Member
    @dd
    Join Date: 2004
    Post Count: 508

    I use a very basic formula when calculating what I need from a property.

    The ideal is 7.5% return or better. So to achieve this you need to get a ratio of 1.5/1 per property.

    A house for $100k then needs $150/wk to hit the ratio or 7.5% return. This is very basic and does not include body corp fees or council rates but is a clean easy to remember ratio.

    So $100k needs $150 rent
    $110k needs $165 rent
    $120k needs $180 rent and so forth.

    So if you hit this figure it usually covers the IP payments on the mortgage(around 7%) and the management rate (the 0.5% balance from the rent).

    So if your body corp fees on $100k townhouse are $800/yr and your rates are $1300/yr, your upfront owning costs are $2100 for the first year. A depreciation schedule will achieve between $2-3k for a property like this, so lets add $2500 to the $2100 in costs and you have a tax deduction of $4600 in this first year.

    Depending on your taxable rate you then determine your actual tax saving (say 30% or $1380) which then means that after tax this basic property costs you a whopping $720/yr to own.

    Seems that from either Steves perspective or mine you are looking in the wrong places for the right kind of properties.

    DD[buz2]

    Buyers Agent (Dip Financial Services(FP)
    Don’t sweat the small stuff,and it’s all small stuff!!

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733
    Originally posted by jenwren:

    Sad to say but the best deals are found on the street, no the internet.

    Its great for researching potential areas and sourcing information though Jenwren..[biggrin]

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of calvin_thirty4calvin_thirty4
    Participant
    @calvin_thirty4
    Join Date: 2004
    Post Count: 556

    Thanx DD –
    great working example! Simple but effective!

    Cheers
    [email protected]

    Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
    – Thomas Edison

    Don’t let reality be the benchmark for your Dreams

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    Hi DD

    Just a query

    when looking at your rental returns/yield

    i.e $100k IO loan on IP at $150 rent

    $150x 52 =$7,800/7.8% Yield

    When the IP goes up in value to $120k for example, do you still look at the yield against the loan or the new value?

    Just wondering, I still look at it against the loan, but wondered what others do..

    My yields against loans at the moment are
    7%
    6%
    10%
    5%

    28%/4 = 7% Average

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of Andrew ScottAndrew Scott
    Participant
    @andrew-scott
    Join Date: 2005
    Post Count: 1
    Originally posted by jenwren:

    Sad to say but the best deals are found on the street, no the internet.

    Why do you say that?

    Profile photo of Don NicolussiDon Nicolussi
    Participant
    @don
    Join Date: 2005
    Post Count: 1,086

    I agree that the net is very good for identifying trends and price points but there are still so many properties with a sign out the front and no other advertising at all – strange! What I have been finding lately is that most of the net listings are very “stale” and are not selling for some (usually very good) reason. However, some of these do have fixable problems. But I suppose it really does depend what type of property you are after. You could probably buy a new dwelling without seeing it (or your agent/spotter) if the other due dilligence adds up – straying off topic.

    Just wanted to add something about yield. It’s not the be all and end all when purchasing property. Yield (imo) is just one of the many filters through which the deal has to pass before you sign on the dotted line. It is probably not a good idea to fill your portfolio with just one type of property.

    Cheers

    Don


    D&L Property Projects NZ Ltd
    Sourcing Investments that fit.
    [email protected]
    Email to receive current deals &
    New Zealand Information Sheet
    http://www.nzproperty.org

    Don Nicolussi | Mortgage Broker - Home Loan Warehouse
    http://homeloanwarehouse.com.au
    Email Me | Phone Me

    "I think of finance as a technology, a way of getting things done." Robert Shiller

    Profile photo of kdhnkdhn
    Member
    @kdhn
    Join Date: 2005
    Post Count: 68
    Originally posted by redwing:

    Originally posted by jenwren:

    Sad to say but the best deals are found on the street, no the internet.

    Its great for researching potential areas and sourcing information though Jenwren..[biggrin]

    REDWING

    Can’t agree with that one . l think good buys are found anyway you can think of . Net – drive buy and asks , papers , realestates , driving round , l’ve found dozens of absolute one off’s with all of the above and more . Follow the nose is my modo , anything goes !
    Cheers.
    Mkc

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of hanibannahanibanna
    Member
    @hanibanna
    Join Date: 2006
    Post Count: 5

    I agree. I know of a property that was sold for $290 (before stamp duty) and is now fetching $400 a week in rental return. This is an appartment in a CBD area.

    Obviously it’s not +ve geared, but it’s not far off it. This property was not advertised online. The agent simply dropped brochures around and sat on it for a while.

    My concern is that most +ve geared properties are located in small towns it seems with 30,000 or less in population, not to mention in remote locations. I would be a lot more comfortable if I know I could drive past every now and then :)

    Has anyone had experience buying, frunishing and rent out furnished? this seems like an ideal way to get close to +ve gearing in urban areas?

    Thanks

    Profile photo of kdhnkdhn
    Member
    @kdhn
    Join Date: 2005
    Post Count: 68

    l think DD’s formula is a great way of doing things . l have this thing with my very first question in my mind is , rent verses repayments or what will it take to make it worth alot more than l can get it for ?Lets me know in one second where l’m at before bothering further.
    l have a thing about houses that aren’t selling to , l’ve looked for them . One was only 70 grand and l thought why hasn’t this place sold , it had new everything and was the nicest little cottage , turns out all they were all worried about was the septic and it’s small block . Made 70 grand on it in 12 mths , living in it to so but we only spent $200 bucks on it . We mainly just did some labour , not that much , painting /lanscaping it and shifting things around abit . My place now was another stubborn seller but it’s a stunning property with sea views . Turns out it was mainly just that it wasn’t very pretty as was , the ugly duckling we called it and that was turning people off . But it was all such light superficial stuff l still can’t believe it . We paid $190 for it 5 mths ago , we haven’t spent cent yet but have done alot of cleaning up so far and some light fencing , abit of cosmetic – not much , anyway wrapped to say it was just revalued yesterday for 450 and we haven’t even begun. No one we know can believe now how we got it so cheap and those that don’t know come in thinking we own a 600,000 dollar property .
    Seems really weird to me the light super ficial crap that turns people off a property but it does , you can really cash in on that .
    Cheers
    mkc.
    PS not that l’m an expert , both these were just my own homes .

    Profile photo of redwingredwing
    Participant
    @redwing
    Join Date: 2003
    Post Count: 2,733

    Great work mkc

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of kdhnkdhn
    Member
    @kdhn
    Join Date: 2005
    Post Count: 68
    Originally posted by redwing:

    Great work mkc

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Thanks very much Redwing .
    Mkc

Viewing 20 posts - 1 through 20 (of 34 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.