Holding costs budget blow out

[Matt_]

Hi all,

I've been lurking for a while but finally gearing up to get my first IP and I've hit a snag budgeting.

Do people really find the 20-30% of rent as holding costs is a conservative enough estimate? I estimated a few numbers and I'm running upwards of 50% of rent in holding costs, assuming rental yield of 4%.

I've attached my spreadsheet but below are some of the figures.

Purchase Price - $600,000
Property Management 8% $2400
PM Small Expenses $250
Landlord insurance $750
Repairs 1%pa $6000
Water rates $750
Council rates $1200
MBF Levy $138
Body Corp $1200
Land Tax $475
Vacancy 10% $3000

Nil for cleaning, gardening, pests as this would be body corp or if no body corp, those funds will cover this.

I assume it is the vacancy and repairs that I'm overestimating is that right? What figures do others work with?

 

[Tano]

For most of my properties repair is well under $1k per year and vacancy rate is 2 to 4% %. It's usually vacant about 1 or 2 weeks a year

Everything else seems very close. You also get depreciation

 

[strongy1986]

Land tax?

Only if your over the threshold
Repairs of 6k???
Sounds like a disaster - it can happen but not every year - as above allow 1 maybe 2

 

[Cash Flows]

Hi all,

I've been lurking for a while but finally gearing up to get my first IP and I've hit a snag budgeting.

Do people really find the 20-30% of rent as holding costs is a conservative enough estimate? I estimated a few numbers and I'm running upwards of 50% of rent in holding costs, assuming rental yield of 4%.

I've attached my spreadsheet but below are some of the figures.

Purchase Price - $600,000
Property Management 8% $2400
PM Small Expenses $250
Landlord insurance $750
Repairs $1,500
Water rates $750
Council rates $1200
MBF Levy $138
Body Corp $1200
Land Tax $nil
Vacancy 3% $1000

Nil for cleaning, gardening, pests as this would be body corp or if no body corp, those funds will cover this.

I assume it is the vacancy and repairs that I'm overestimating is that right? What figures do others work with?

Fixed it up

 

[Angel]

Why would you consider purchasing for $600K with a 4% yield? Interest rates on the loan will be a bit more than 4%.

If buying a unit, my LL insurance is $285 a year as the BC pays the building insurance out of its fees. If it is a house, the insurance is way higher than your estimate.

 

[hugh72]

I think that you have answered your own question to some degree, the estimated vacancy rate is too high, try for 2 weeks per year and the allowance for maintenance seems too high.
There could be some years when maintenance could potentially be higher though
4% yield is pretty ordinary but it depends on the location I suppose and what you are willing to accept in the hope of future CG

 

[The Y-man]

Body Corp - allow higher - about double to quadruple depending on developement and sinking funds

Reapir - as others have said about $1,000 pa, less if repairs by body corp (as part of your body corp fees)

Prop management = make sure 8% INCLUDING GST

Rental yield 4% - seems fair for an apartment.


The Y-man

 

[Matt_]

Thanks for all your help! I knew something wasn't quite right!