How to go from - to + in 1 Day....

[HomeBuyAU]

I'm tired of increasing monthly repayments and would appreciate some feedback/ideas on how to do better with my properties. I actually called my bank ANZ to ask some questions and maybe arrange a further discount but I ended up hanging up on them as they said I had to go into the bank with 100 points of ID as I had answered a question wrong. Ended up swearing at them..

Ok so here I have some figures and radical ideas to improve things:

I used http://mozo.com.au to get some comparisons but I have not looked at any details on what the loans involve, i.e. exit fees, setup fees etc...

So I have for this property in my example:

Current Loan with ANZ:
IO loan repayments $13,776 or per month $1148
Strata $1,424 or per qtr $356
Rates $800 or per qtr $200
Water $843 or per qtr $211
Insurance LL $266 or per month $22.15

PM fees $801 - 5.50%
Other PM fees $40 Anual Statement fees etc
Total running costs $17,949

Expected annual rent $14,560 - Rent per week $260
Cash income $14,560
Straight cash flows before tax
-$3,389 pa
-$65 pw
Now here is what it would take to get it out of the red:

Proposed Changes:
Change from ANZ to "Hemisphere Financial Solutions" (save $108 pm)
Put Rent up to $280 per week (extra $80 pm)
Stop paying insurance (save $22 pm)
Get rid of the Property manager and manage myself (not too keen on this)

IO loan repayments $12,480 or per month $1,040
Strata $1,424 or per qtr $356
Rates $800 or per qtr $200
Water $843 or per qtr $211
Insurance LL $0 $0.00
PM fees $0
Other PM fees $0
Total running costs $15,547

Expected annual rent $15,680 or per week $280
Cash income $15,680

Straight cash flows before tax $133 pa
$3 pw

I have attached the spreadsheets for these ( very nice if you want to use for your own properties that include more details).

If you can offer other ideas to improve cash flow then let me know thanks.

These are the only things I can really think of to make this property an investment rather than a burden but it might be the only way unless I want to wait another 3 - 5 years for rents to rise and the property becomes profitable fromt the rent.

 

[alexlee]

Are you claiming depreciation on it?

 

[HomeBuyAU]

You would think a property that cost $220k would be fine with $260 pw rent but you have to becareful to understand how you pay so much in Australia for rates, water, insurance, PM fees and Strata with units. If you buy a property for $220k then you need to be able to see a rent of probably about $300 per week,

 

[HomeBuyAU]

Are you claiming depreciation on it?

No, from my understanding it would need to be built after 1985, this was built before that.

 

[JoshyBoi]

No, from my understanding it would need to be built after 1985, this was built before that.

Have you (or anyone else) made (or potentially made( any substantial improvements since 1985? If so, dep'n may be available.

If you have sufficient deductible expenses, have you filed a tax variation form?

 

[Value Emperor]

You would think a property that cost $220k would be fine with $260 pw rent but you have to becareful to understand how you pay so much in Australia for rates, water, insurance, PM fees and Strata with units. If you buy a property for $220k then you need to be able to see a rent of probably about $300 per week,

Agreed, this would give a gross yield of about 7% which should be the bare minimum for anyone wanting to limit their risk at the present time.

I personally aim for 8-9% gross yield because I like an even bigger buffer.

 

[HomeBuyAU]

Have you (or anyone else) made (or potentially made( any substantial improvements since 1985? If so, dep'n may be available.

If you have sufficient deductible expenses, have you filed a tax variation form?

I haven't done anything to this particular unit, I have with my other house. This one has had a new stove put in by strata and I also think they put the Air con in. I guess I should contact strata about this.

Anyway, this is all ok for tax at the end of the year but it doesn't give me better cash flow right now.

 

[JoshyBoi]

I haven't done anything to this particular unit, I have with my other house. This one has had a new stove put in by strata and I also think they put the Air con in. I guess I should contact strata about this.

Anyway, this is all ok for tax at the end of the year but it doesn't give me better cash flow right now.

The tax variation form will increase your cashflow...it effectively spreads your tax refund at the end of the year of 12 months, so instead of receiving say $3,000 at the end of the financial year, you'll actually receive an extra $250 month - as your takehome salary will be reduced by this amount...=$57ish pw increase in cash flow...

 

[Brett IP]

Proposed Changes:
Change from ANZ to "Hemisphere Financial Solutions" (save $108 pm)
Put Rent up to $280 per week (extra $80 pm)
Stop paying insurance (save $22 pm)Get rid of the Property manager and manage myself (not too keen on this)

I wouldnt even consider this. Insurance is essential, in my opinion, unless you are covered by body corp for this??

 

[peaches]

I think you will find that insurance is a condition of your mortgage contract.

 

[artlez]

Don't cut out insurance. It's one of the smallest expenses you're paying but it can save you plenty. I'd never trust a tenant on my property without properly insuring it... less than $6 a week is nothing.

 

[Gremlin]

If you can't afford to insure it, you can't afford it...

 

[The Y-man]

I think you will find that insurance is a condition of your mortgage contract.

I have never come across a mortgage contract mandating LL insurance which is what HBAu was talking about?

The Y-man

 

[Token Funder]

I have never come across a mortgage contract mandating LL insurance which is what HBAu was talking about?

The Y-man

It's a condition ofthe loan contract that you keep the security property insured. Whether you insure for rent or whatnot is your choice.

 

[tobe]

suppose you did manage to do all of what you propose, and get a before tax cashflow of $3 pw.

What happens when/if interest rates increase again? the tenant vacates? The property gets damaged?
How do you value your time as a PM?

To me the risks having $3pw before tax seem a lot worse than having slightly negative cashflow (perhaps $40pw) after tax.....

Depreciation, Although the property wasnt built after 1985, carpets, and any other fixtures and fittings would have been replaced since then. there are loads of companies who will do the survey for you, at no cost if they cant save you some money with depreciation. The red $40 might turn into positive cashflow after tax.....