Hi All
One of my "ah ah" moments whilst learning about property investing was to think about what else I could be doing with my money so I can maximise my returns. (instead of blindly going into property investing because every else is).
With this in mind say I need clarification in interpreting the CoCR.
Say there is a property offering a CoCR of -3.14%.
Since the CoCR is negative I would think it's a poor cashflow outcome when compared to leaving money in the bank??
(Please confirm)
However, if I was trying to achieve capital growth for the same property and I expected the following:
Desired growth in the first year : 6% ($18 600) – (for a property worth $300 000)
Pre tax cashflow in first year: -$3768
Net return would then be $14832?? (which represents a 4.9% net return) ($14832 / $300 000).With a net return of 4.9% would a growth strategy also be more riskier than leaving money in the bank with higher returns??
In this case, unless I can achieve higher growth or improve my cashflow, would it be better to move on to another deal?
Thanks for your help!
Given the info you listed
House value: $300,000
6% capital growth on the propertyAssuming info (for negative gearing)
10% deposit on Interest only loan
9% interest charged
4% rental return: $12,600___________________________
On your deposit on $30,000
you loan $270,000 to purchase the house (not accounting for stamp duty, or other fees)
for pay 9% of that in I/O payment per annum. ($24,300)
__________________________After 1 year
Est. Property Value: $318,000 (6% growth)
Loan amount: $270,000 (I/O payments, no change)
Interest payments: $24,300
Projected rental income: $9,600 (80% of $12,000)Interest payments – rental income = tax deduction (not taking into account Depreciation, rates, and any other deductions)
$24,300 – $9,600 = $14,700Tax deduction @ 40c in the dollar
$14,700 x .4 = $5,880Costs – Tax benefit = Real lose
$14,700 – $5,880 = $8,820Property value – Loan = Your share
$318,000 – $270,000 = $48,000Your share – Initial deposit – costs = “Profit”
$48,000 – $30,000 – $8,820 = $9,180On your $30,000 deposit you made $9,180 (30.6% profit)
Please be advised that I am not a financial planner, the information listed above are only stats and figures. Please do you own homework to find true costs.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
