How to Calculating Cash Flow Before I Buy my first IP?

[10in10years]

Hi Everyone, I'm new here and keen to learn.

Thank you everyone for contributing to this awesome forum and passing the knowledge on. I will be doing the same as soon as I can.

Question. How to calculate cash flow before buying my first IP?

For example, The following figures are a bit of guess work. Please let me know if i'm in the ball park or if I've overlooked something(s).

Price = 400k
Deposit = 40k
Loan = 360k (assume no lmi)
Stamp duty = 15k

Income
Rent p.w. = 440
Rent p.a. = 22,800

Expenses
Mortgage repayments = 21,600 p.a. (assume 6% x 360k)
Prop Mgt fees = 1600 p.a. (7%)
Maintenance/repairs = 2000
Vacancy = 880
Landlord insurance = 1000
Council rates = 1000
Misc = 500
Total exp = 27,582


Net cash flow before tax = -4,700
Depreciation (say 3k x 37% tax rate) = 1110

Net cash flow after tax = -3590 or -70 p.w.

Let me know if I'm on the right track?

Thanks guys
steve

 

[D.T.]

Yea sounds about right.

Keep your eye on the horizon though, not on the footprints, if you wish to travel far.

 

[Nemo30]

Net cash flow before tax = -4,700
Depreciation (say 3k x 37% tax rate) = 1110

Net cash flow after tax = -3590 or -70 p.w.

Wouldn't you add the depreciation to the before tax loss ... so 4700 +3k x .37 = 2849

so $1851 after tax loss.

 

[alexlee]

Net cash flow before tax = -4,700
Depreciation (say 3k x 37% tax rate) = 1110

Net cash flow after tax = -3590 or -70 p.w.

You're mixing before and after tax.

Net tax loss is 7,700.

After tax cashflow is (-4,700 x 0.63 + 3,000 x 0.37) = -1,850.

This assumes your other income is at least 87,700.

 

[Singo]

(Cashflow before tax+depriciation)x37% is what you will get from ATO.
That's $2849

(-4700+2849)/52= -$35.5 per week.

At 3% inflation, in 3 years the rents will be $480.

 

[Nemo30]

At 3% inflation, in 3 years the rents will be $480.

Not necessarily. Rents rise and fall with the market, not inflation.

Rent on my properties has decreased over the last 12 months.

 

[10in10years]

thanks

thanks everyone, i really appreciate the help.

Those figures were guess work only - but it seems correct (as long as i add the depreciation to the taxable loss).

My goal is positive cash flow, which is proving extremely difficult to find. After a lot of research, this only seems possible through dual living, or buying cheaper properties in country areas.

I am looking at buying my first IP sight unseen. How do you guys handle dealing with agents to ask all of the right questions? I don't really trust them (esp when they give rental estimates) and don't want to give too much away when i talk to them.

steve

 

[D.T.]

thanks everyone, i really appreciate the help.

Those figures were guess work only - but it seems correct (as long as i add the depreciation to the taxable loss).

My goal is positive cash flow, which is proving extremely difficult to find. After a lot of research, this only seems possible through dual living, or buying cheaper properties in country areas.

I am looking at buying my first IP sight unseen. How do you guys handle dealing with agents to ask all of the right questions? I don't really trust them (esp when they give rental estimates) and don't want to give too much away when i talk to them.

steve

Don't rely on agents for info. Find out what you can for yourself, send them an email or a phone call for the final bits or to make an offer.