How do you calculate profit when you make a sell

[shail]

what are the things you consider when you check if the sell has made you a profit or loss?
e.g. (PPOR sell after 2 years, following are hypothetical figures if they dont make sense pls ignore)
Property cost - 290k
other costs - 10k
purchase cost - 300k

sell - 420k
agent fees - 10k
other sell expn. - 10k
in pocket 400k

(A) difference 400k-300k = 100k

other expenses during 2 years
mortgage - 35k x 2years = 70k
strata, council, etc - 5k x 2years = 10k
renovations = 10k
total = 70+10+10 = 90k

purchase costs + other expenses in 2 years 300k+90k = 390k

(B) difference 400k-390k = 10k

If you are renting during those 2 years instead of leaving in the ppor
saved on rent 10k x 2 years = 20k
(C) difference 400k-390k+20k = 30k

What is the profit amount you consider? A,B or C? or something else?

 

[DaveM]

If its your PPOR, then you also need to remove the rental cost over the same period of ownership. You may have paid $70k in mortgage but to rent would have cost, say, $50k. So your net cost of owning is $20k not $70k.

 

[gm12]

Imo I'll pick C. To calculate Roi, I'll base my return on the capital I put in (i.e. not borrowed money). This is for my own workings only.

Profit for CGT purposes is a whole different story.

 

[BV]

Also, what would you rent for $10K pa?
1 single room?
A Property with that $ value would have costed you at least $350/w or $18K to rent per year

 

[shail]

So your net cost of owning is $20k not $70k.

I have done this calculation in (C)

Also, what would you rent for $10K pa?
1 single room?
A Property with that $ value would have costed you at least $350/w or $18K to rent per year

Agree. i was only using that as an example.

 

[AJG]

Depends if you want accounting profit or economic profit.

Accounting:

Profit = Sale Price - All On paper costs (buying, owning, selling)

E.g.,
$50 Profit = $100 Sale Price - $50 Costs

Economic:

Overall Profit = (Sale Price - All On paper costs) - (profit/cost of next best thing)

$25 = ($100 Sale Price - $50 Costs) - ($25 opportunity cost from having a PPOR instead of renting and having an investment property to sell instead of your PPOR)

=

$25 = $50 - $25

As an investor, economic profit is where your mind should always be focused. I would be doing an economic profit analysis before I buy, and through-out the holding period of an asset. Accounting profit analysis typically is most useful post-hoc and for the tax man.