Hi all,
How do you arrive to an indicative figure when assessing cashflow? I definitely would like to invest in positive cashflow. Together with on paper deductions and other depreciation, I understand that this will give extra cash.
However, how does one calculate whether the cashflow is positive or not while considering a property?
I understand things that you need to calculate cashflow
– Interest
– Building cost
– Non-plant items
– All other costs to maintain the propertyHow do you calculate the contribution of non-plant items while assessing whether one property will provide positive cashflow?
Thanks
Hi,
You do not specify if you are assessing residential or commercial properties. Your question about “non plant” items has me confused.
I have found the following to be of assistance.
The Offline Investment Analysis Calculator! With Conectatibity for online use.
Enables users to use The Financial Calculator OFFLINE, in a Laptop anywhere at anytime! Also if you’re connected to an Internet connection the links will work the same as if you were using the Jaffasoft.com calculator online. It can be used in a standard PC. So it has become very variable and very versatile.
Because of the very nature of a downloadable package and once you get it, that’s it! It cannot be changed! I can not guarantee that the external links that launch from this transportable calculator will not change, as the web sites where it links to may change (this is if the links change by the web masters or owners of the web sites the links launch to)! In the event of this happening, this current ‘LapPack’ will not be able to be rectified until the new version of the LapPack comes out! Live current updated version can be always found at http://www.Jaffasoft.com , which is the online version, in the ‘Property’ drop down menu under Analysis Calculator! This usable Offline ‘LapPack’ calculator was released 22/05/2004.
This, ‘Offline’ version can be put on a floppy disk, burnt to a PC or sent in an email to your friends. To do this simply
send the ‘LapPack’ file (that is the zip file you downloaded and saved onto your hard drive), which is the file you have opened right now, as an attachment in an email. You do this the same, as you would send any other normal attachment via an e-mail. The online version at Jaffasoft.com Property > Analysis Calculator could only be used online and or while the calculator was still in your browser cache, hence the need to make an OFFLINE ‘LapPack’ downloadable version. This has given the convenience to use ‘The Calculator’ offline in a Laptop or a PC anywhere at anytime.Hope this helps
aquila
“Dare to be Different – earn, spend and then pay tax – control without ownership “
Im looking at residential property.
For example:
200k residential property
returning
$200 rent per weekIncluding all depreciation claims, maintenance costs and other costs, interest payments and plan and non-plant items depreciation, how does one calculate that this will be a viable positive cashflow investment?
Im sure I can work out all of the above.
However, Im not sure on how to calculate paper deductions e.g. plant & non-plant items….
Thanks
Originally posted by lionheart2000:Im looking at residential property.
Including all depreciation claims, maintenance costs and other costs, interest payments and plan and non-plant items depreciation, how does one calculate that this will be a viable positive cashflow investment?
lionheart2000
I am a little confused . You are trying to calculate a cashflow but want to calculate the non cash items to assess whether the property is cashflow positive?
There is a difference between profit/loss, pretax cashflow, and posttax cashflow. In my view a property that is not pretax cashflow positive but is posttax positive is negative gearing.
aquila
“Dare to be Different – earn, spend and then pay tax – control without ownership “
Hi Lionheart,
First of all – welcome to the forum! I’m sure you will find this a fantastic resource.
I would start by reading Steve’s books – “0-130 Properties” and “$1,000,000 in Property in One Year”. Here you will find the very simple calculation which you can do in your head as an initial qualifier before you go on to do your full financial analysis. Steve calls it the “11 Second Solution”. What you do is take the rent (eg. $100/wk), multiply by 2 (=$200) then multiply by 1,000 (=$200,000). If the purchase price of the property is less than or equal to this figure, then there is a good chance it will be +CF.
11 Second Solution therefore is
Rent/wk x 2 x 1,000 = >Purchase Price of Property
or
Purchase Price / 1,000 / 2 = <Rent/wk
It’s a very simple way to pre-qualify properties, rather than having to wade through lots only to find you’re wasting your time.
Two words of caution:
1. This is only a pre-qualifier. It does not take into account any of the “due diligence” you need to conduct before purchasing. It just suggests to you that the raw numbers would work in theory.
2. You may be hard pressed in the current market finding deals like this, especially if you’re just relying on the internet for your searching. But don’t lose heart! Maybe start by doing a search on this forum for “11 Second Solution” and reading the posts that come up – they will give you a good idea of what the current situation is. The key at the moment (as suggested in “$1,000,000 in Property”) is to find “problem properties” and solve the problem to make a profit. This could mean doing a reno and onselling, finding a small subdividing opportunity, finding other forms of income in the property, etc etc. You are limited only by your experience, knowledge and imagination (and the law!).
Okay – hope that’s helped!
Best of luck!
Adam
Don’t let life get in the way of living.
Originally posted by adambc:Hi Lionheart,
11 Second Solution therefore is
Rent/wk x 2 x 1,000 = >Purchase Price of Property
Adam,,
I realise that you are a much more experienced forumite than me but I think you have the formula mixed up.“Rent divided by 2 multiplied by 1,000” is the formula
Therefore Adam’s calculation
200 x 2 x 1,000 = 400,000 ( value of property)The correct calculation
200 divided by 2 x 1,000 = 100,000 (value of property)
Thats a bit of a difference in the value of the property or the rweekly rent to pass the 11 second solution
Thanks for your other suggestioins
aquila
“Dare to be Different – earn, spend and then pay tax – control without ownership”
Hi Lionheart,
There are several software packages that do this, taking into account your tax rate as well. PIA by Somersoft and POSH are two that I know of.
Regards
Alistair PerryAquila,
You’re absolutely right! Thanks for correcting me. Done in too much haste!
Regards,
Adam
Don’t let life get in the way of living.
(Wouldn’t it be nice if that WERE the formula! We’d all be millionaires!)[biggrin]
Don’t let life get in the way of living.
Originally posted by APerry:There are several software packages that do this, taking into account your tax rate as well. PIA by Somersoft and POSH are two that I know of.
Hi,
To add to this list there is also “Investment Decective” available from the online shop of this site.
aquila
” Dare to be Different – earn, spend then pay tax – control without ownership “
The 2 to 1 ratio quoted is actually 10% flat
1.5 to 1 is 7.5%
1 to 1 is 5% etc.So to have a property worth 200k getting 200 rent sucks as it is only achieving 5% return.
For every $1000 invested you need $1.50/wk to get 7.5% return. This covers the mortgage and the managing agents fee but DOES NOT cover the body corp fees or council rates. So even at 7.5% return you are up for an average of $2-2.5k/yr actual costs.
This can be claimed against your tax as well as depreciation which you should have on every property anyway. So if depreciation on a $100k property is about $2200. Your total tax deduct would be in the vacinity of $4500/yr. At your marginal rate of 30% tax you would have $1350 actual cash saved off your tax bill. So if this amount is then redirected back into your shortfall on the property in the second year, it would mean your real cost of annual ownership in year 2 would be less than $1000.
So what you really need to cover costs in total is about 9.3% return or just under the 2 to 1 ratio suggested earlier.
Hope this helps.
DD
Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!This is also what EZ-Rent does and costs you no money so it certainly can’t hurt..
It allows you to add depreciable items and even simulate buying additional depreciable items later (for example you might want to replace all whitegoods at a future date)..It also handles more than 1 property so you can do some complex cashflow simulations if you want to..
EZ-Rent. The freeware tax and cashflow simulator for Australian property investors. Version 2.5 out now!
http://www.ez-rent.com
It allows you to add depreciable items and even simulate buying additional depreciable items later (for example you might want to replace all whitegoods at a future date)..You must be logged in to reply to this topic. If you don't have an account, you can register here.
