How to do a Cost-Benefit analysis of paying rates full/part

[antonio]

Howdy Somersofters!

Not sure if this is the right place...

Being new to the property investment game and always
subscribing to making the dollar work the most for us,
we've just got an investment property with an offset account
and lo and behold have to pay more rates


Have you done a Cost-Benefit analysis of paying rates
either in FULL or part-payment (half-yearly, quarterly)?

(clarification: yes there is a discount if you pay full upfront)

My head is spinning on how to calculate the:

Savings of paying in full upfront
vs
the interest saved (money still in offset) when paying in arrears


Hope that makes sense

If you have a spreadsheet that can be shared publicly or privately,
that'll be great - most appreciated!

Many thanks for your help

grasshopper
A

 

[jaycee]

Like this ?

Change the figures then do the sums

$1000 pyable in July
$1k withdrawn from offset at beginning of fin year.
Assume 7% interest on mortgage ($1000x7%)
Loan interest by end fin year: $70
TOTAL INTEREST


$500 in July , $500 in December
$500 withdrawn from offset at beginning of fin year.
Assume 7% interest on mortgage
Loan interest by end fin year: $35 ($500 x7%)

$500 withdrawn from offset at middle of fin year(december).
Assume 7% interest on mortgage
Loan interest by end fin year: $17.5 ($50x7%)/2)
TOTAL INTEREST $52.50 pa

 

[vbplease]

Antonio,
What savings are there in paying upfront? Does your council offer a discount?

The only savings I can think of is pre-paying it just before the end of the financial year (like interest on a loan) and therefore claiming the tax deduction sooner.

But how do you know what your rates bill will be for the year? Mine seem to vary every quarter... Seems a good idea to me though as you won't have to worry about the bills during the year.. but then again you won't have that money in your offset account.

 

[tess85]

For me, there's absolutely no benefit in paying rates upfront as there isn't a discount offered for doing so.

But wait... the council did offer a chance to win $1000 if I paid my rates upfront... surely I need to factor that in my cost benefit analysis?

$1000 divided by number of rate-payers in the council municipality is still much much less than the interest saved by paying rates quarterly instead of upfront...

 

[antonio]

Like this ?

Change the figures then do the sums

$1000 pyable in July
$1k withdrawn from offset at beginning of fin year.
Assume 7% interest on mortgage ($1000x7%)
Loan interest by end fin year: $70
TOTAL INTEREST


$500 in July , $500 in December
$500 withdrawn from offset at beginning of fin year.
Assume 7% interest on mortgage
Loan interest by end fin year: $35 ($500 x7%)

$500 withdrawn from offset at middle of fin year(december).
Assume 7% interest on mortgage
Loan interest by end fin year: $17.5 ($500x7%)/2)
TOTAL INTEREST $52.50 pa

Thanks for that Jaycee!
Just like that!


Now I have to do the calcs for their instalment periods...

 

[antonio]

@vbplease
@tess85

yup, there's a discount for paying upfront AND,
be in with the chance to win some prizes

decisions, decisions...

methinks brainpower is better spent on looking for next investment property...

 

[Bigtone]

methinks brainpower is better spent on looking for next investment property...

spot on, not worth ur time working it out, the hourly rate is less than what u would save.

go and find another bargain property where u can make real money and get a much better return on ur time!

 

[jaycee]

methinks brainpower is better spent on looking for next investment property...

bingo

not worth ur time working it out, the hourly rate is less than what u would save.
I'll take it, who do I send my bill to ?

 

[travelbug]

You are going to do your head in if you are going to worry about how to save $10. I must admit I was always looking at figures for stuff when I had one property. I do love numbers but now I don't have time to waste on little things. Too busy chasing big things.

Sweat the big stuff.

 

[tess85]

Good point travelbug. When we bought our PPOR we stressed out a bit because everyone told us the solicitor ripped us off ($3000 or something like that - I can't remember, and no disclosure of fees or itemisation when requested). And in the grand scheme of things... considering the CG it's had since then... who cares really?

I was the kind of person who would constantly switch high interest bank accounts chasing an extra 0.2% pa return..... trying to relax and have a looser view now.

 

[marg4000]

Check your rates bill carefully.

Many provide for interest to accrue from the due date until the full amount is paid. I reckon it will be far higher than your home loan you are offsetting.
Marg

 

[jaycee]

You are going to do your head in if you are going to worry about how to save $10. I must admit I was always looking at figures for stuff when I had one property. I do love numbers but now I don't have time to waste on little things. Too busy chasing big things.

Sweat the big stuff.

Hehe

How many times have I done just this.. and how many times have I re run the same numbers again.. and again. I even actually missed thinking about the big picture and one day it hit me n the face and i thought, damn, I could have maybe done this 1-2 yrs ago (!?!)

But at least it taught me how they work better, most of it just sounds like common sense to me now, but it me took a while to get the picture !

So don't 'sweat' it antonio, everyone pays what you pay. work out things like this as they pop up, then leanr from them.

Let's say my figures were accurate, and you could save $17.50 in interest by paying in 2 instalments. Is it worth doing this for these rates, an dthe water rates and saving say $35 ? If not, oyu know not to bother looking at this again, lesson learned.. if yes, new money earnng skill learned, another notch in your belt... keep going like you are.. and keep in mind, what am I learning from this and you'll have "got it" before I did.