How to evaluate IPs for yield/CG (spreadsheet?)

M

marmalade

I'm just curious what criteria you use when actually choosing which IP to buy. (And if anyone wants to share a basic spreadsheets? For some reason you can't search for 'spreadsheet' and the couple that I managed to find seemed pretty complex for a beginner and didn't come with instructions!)

*A bit of background*
I'm new to all this, just done a lot of reading so far.
Because it's my first IP, I've decided to buy in my area because I just feel heaps more comfortable actually seeing a property before purchase. Also, I plan to live in it for 6 months to get FHOG. I live in Cairns.

I've started looking at a few properties, and done up a basic spreadsheet to list the features of properties viewed and work out the true yield.

I've done this as (((weekly rent*50)-(expenses))*100)/price

Expenses = insurance, rates, body corporate and property management fees.

Am I missing anything important here?

This 'true yield' allows me to compare properties by yield, and also do a reverse formula to work out what price I would need if I want (x) yield.

On the other side of the coin is capital gain. I'm a bit unsure of the best way to check this out. Just by having a glance at the graphs of property prices in recent years (by suburb) it seems all suburbs in this area have the same trends. In a regional centre such as this, is there much difference between similar suburbs? By similar I mean the same facilities, distance to city, population demographics, 'niceness' factor etc. Common sense tells me to buy somewhere close to the CBD, schools, shops, facilities, with lowish vacancy rates and without a really bad reputation. However this is not based on figures, and I feel I should be looking at those!! Also, I'm not sure how to figure out CG on individual properties, or if this is necessary. Any advice?

I know which figures you focus on depends a lot on your investment strategy, but I'm guessing even if you want to buy for CG (for example) you'd still want to know the yield!

I'd really appreciate any advice (or links to info)....:)
 
simple answer - yield is easily calculable, capital gain is not. capital gain is pretty much just a gamble you take on the property that you buy. But generally if prices in your general area go up, then your property should also rise too. No one can tell you what the capital growth of an area will be nor which areas will have the best capital growth. If they did they wouldn't be posting here but would be on the Forbes Rich List.
 
In terms of location within a regional city, if possible I'd buy in the nice area near the CBD or water.

When a town in small the difference in locations matters less. When a town gets bigger and its no longer a 5 min drive everywhere then the locational difference comes into play. Somewhere like Cairns it may take 10-20 years for that difference to show up, but down the track it may be much harder to get into the "good" areas.
 
Build your own spreadsheet. One way of doing it.

You could try revenue less expenses.

Grow your revenue at the rate of population growth. Grow your expenses at the rate of CPI.

Work out your EBITDA. Have a switch where you can work out your vacancy so you discount the EBITDA.

Then factor in your D&A etc to get your tax. Work backwards and add your non cash items back on.

That way you can see your cash yield.

Then you can discount each year's CF back and move it forward with a similar discount rate to estimate what the capital appreciation would be each year from your purchase price.

All voodoo because a the end, the market doesn't trade according to intrinsic value. Buy on your emotion, not your head.
 
Hi there
I have a spreadsheet and have attempted to attach it to this post. I've never done it before so if this doesn't work please feel free to PM me and I can email it to you. It's nice and easy to use and covers all incomings/outgoings to give you yield and yearly/weekly shortfall or surplus.


View attachment COCRworksheet.xls
 
Thanks

Thanks for all the advice, and some of those spreadsheets are great!!

Deltaberry, what's CPI and EBITDA? Probably really obvious once you know...!
 
CPI = consumer price index = inflation
EBITDA = Earnings before interest, tax, depreciation and amortisation.

deltaberry was just being a silly panda
 
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