The 10% return is simple to demonstrate.
Even allowing for 105%gearing ( total purchase, legals and stamp duty) here's an example.
400K Apartment in low rise development, in NSW.
Total funds borrowed = 425K (use any structure you like. But for the purpose of this exercise lets use 10% + costs/stamp duty borrowed from equity plus 90%+LMI against the investment purchase . So @ 65K of your equity has been used in this example. )
Funds are borrowed at 4.79% - so 425K x 4.79% = $20,357.50 repayments
Allow 5K for p/mgt, rates, insurance, strata and NRAS admin fee
Total expenses = @ 25,375.50
Income $400 ( minus 20% ) = $16,640 per annum
Cash Flow Loss = @ $8735.50
Depreciation = @ 10K
Total Deductible Loss = $18,735.50
ATO Refund @ 37% MTR = $6.932.14 + $10,350 NRAS = $17,282.14. CF+ $8546.64 You invested 65K of equity to receive $8,546.64 tax free after all costs = 13.14% Tax Free Return
ATO Refund @ 45% MTR = $8430.98+ $10350 NRAS = $18,780.98 CF + $10,045.48. You invested @ 65K of equity to generate $ 10,045.48 tax free after all costs are accounted for. 15.45% Tax Free Return
if you purchased a 400K apartment in Melbourne, the returns would be lower because stamp duty is 10K dearer. 5% stamp duty vs 4%, and no 5K rebate available for the purchase of new stock, unlike in NSW . So you'd be putting 75K of equity in to the same 400K property, instead of 65K. And generally, you'd also get lower market rent on a 400K apartment in Melbourne. More likely $370-380 per week vs $400-420 for the same 400K spent in Sydney. The net result would be that you can expect results closer to 9.5- 10 % Tax Free in Melbourne, instead of 13-15% like I've just demonstrated for Sydney.
So the results vary depending on the interest rate you borrow at, the market rental yield, and stamp duty costs ...
Here's another example, at a lower price point - some clients just purchased units in Brisbane at 260K. 10% deposit = 26K. Stamps = @ 7400K. That's 33.4K plus 2K for legals, to get in. Total equity invested = 35.4K.
The properties are tenanted at 330 per week, minus 20%. The cash flows are therefore
Costs = Loan of 275K @ 4.79% - $13,172.50 I/O
Holding Costs = 5K
Total Costs $ 18,172.50
Income ( after applying 20% discount ) = $13,728
Cash Flow Loss= $5000
Depreciation = $7500
Total Deduction = $12,500.
ATO Refund @ 37% $4625 + $10350 = $14,975 CF +$9975. Equity Invested 35.4K. 28.18% Tax Free Return
ATO Refund @ 45% $5625 + 10,350 = $15,975 CF + $10,975
Equity Invested 35.4K 31% Tax Free Return
