I am trying to understand if I have accounted for all costs in some calculations. I am not in a position to buy yet but just crunching some numbers to get a feel for it all. I was hoping to lay out an example and get feedback as to if it all is covered.
example:
Property cost : $80,000
Closing costs (6% of prop value) : $4,800Total Required : $84,800
Deposit : $20,000
Loan Required : $64,800
Assume 7.5% interest, P and I loan over 30 yrs.
Loan Repayments = $105.30 per week, $5,475 per year.
Rent = $110 per week.
Yearly rent (allowing 4 weeks vacancy) = $5,280
Rental Manager commision (Assume 8%) = $422.40
Expenses (Assume 20% of rental, as advised in another post here.) = $1056
Usable Rent = 5280 – 422.40 – 1056 = $3801.60
Repayments = $5,475 per year.
Usable Rent = $3801.60 per yearCash Flow = -$1673.40
Has everything been accounted for here? I am not concerned by actual numbers in regards to if it is a good deal. Rather I just wanted to understand if all the costs have been accounted for. This does not take tax into account at all, that is the next step for me to learn about.[cap]
Mainly I am a bit confused by what all the expenses will be that cut into the rent. As I see it there are the following
Rates
Insurance
Repairs & maintanence
Advertising (will rental managers fee cover this?)Is there anything else to consider, and is 20% of rental income a good number to use?
Thanks
Hi Small-time,
Well done for taking the time to calculate and understand the figures in advance.
I notice you’ve used 6% Closing costs for the deal, and I’m not sure what these are, but you should be allowing for Stamp Duty on the property, legal fees, stamp duty on the mortgage, loan application fees, and building & pest inspections.We generally allow 30% instead of 20% of the rent to cover overhead expenses such as rates, insurance etc. Other costs you can claim are:
Advertising
Body Corporate fees
Cleaning
Council Rates
Gardening
Insurance
Interest
Land tax
Legal fees relating to tenants
Pest Control
Property Management fees
Motor vehicle per km
Repairs and maintenance
Stationery, phone and postage
Travel and accommodation
Decline in value (Your Accountant will calculate this)The Tax Office have a 2006 Rental Property guide that you can download, here’s the link: http://www.ato.gov.au/content/downloads/NAT1729-06.pdf
You may also find many of the free downloads from our site of help also.
Happy investing,
AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”
I’d second AmandaBS that my experience indicates expenses are closer to 30% than 20%. I also like to have a small buffer to cover the cost of replacing a stove etc if necessary
Other fees to consider:
-Letting Fee (normally charged on top of the management fee)
-PM often also charge extra for postage, advertising, inspections, etc.
-Emergency Service Levy
-Vacancy Rate (allow 2-6 weeks per year)
– Rise in interest costs (consider the effect of 2% rate increases)In regards to the tax Steve warns to include that in calculations to decide if property is cf+. He just takes it as a bonus if available.
Good Luck
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