IP calculations

[gprp]

Hi Guys ,

I am a newbie here , so please don't critize too much .

We've inspected a property on Saturday .
Property is not too old (approx. 15 years) , 3/2/2/2 ( 2 cars garage) .
Price range $365-385K . I think vendor is ready to accept the offer around
370-375K .
Location is 5 min. walk to primary school , pre-school is 10 min. walk , 2 buses 150m and shoping centre is 1km away .

House needs aircon and renovation , I estimate the cost is 20-25K .

Total amount : up to 400K


To let: $335-345 p.w.

I can invest $100-130K cash in this property.

Income :

weekly rate $345
Agent commission 7%
effective weekly income $316
weeks in a year 52
weeks vacant 3
effective weeks 49
yearly income $15493

Expenses:

Loan amount $262,500
(I will pay 30% of the value plus $2,600 stamp duty ($15.120 stump duty - 12.5K FHOG) up front.


Interest rate 6.25% (projected)
Monthly P&I repayments $1,616
Yearly repayments $19,392
Landlord insurance $500
Maintenance $500
Council rates $1,200
Accountant fee $80

Yearly expense $21,672

Yearly cost $6,179

Negative gearing $6179 * 46.5% = $2,873

Effective cost $6,179 – $2,873 = $3,306 p.a.

Renovation (20-25K) Depreciation (30%) $7,500 .Total renovation cost $17,500
( initial investment) .

I am not sure how to calculate an annual depreciation , so I don't include it in my estimation .

I can offset morgage $30K -40K annualy , it means after 2 years :

$262,500 - $62,500 = $200K
Monthly P&I repayment $1213 X 12= $14556 p.a.

Capital gain in the area is around 5% p.a. I have an additional investment property abroad , however can't sell until 2012 .
We'd be able to sell the property after 3 years and to purchase the property within 10km radius from CBD .

Do you believe it's a viable investment and my calculations are correct?

Kind Regards
gprp

 

[Rixter]

Do you believe it's a viable investment and my calculations are correct?

1/ What is your chosen investment strategy?
2/ What are you wanting the said property to achieve for you in relation to your answer to Question 1?
3/ Do you think the said property will provide you with what your answer is to Question 2?

The property itself is merely the conduit or vehicle as to how you will be driving it ( the strategy). A lot of people dont realise it tho.

The majority of people (newbies) are too property (vehicle) focussed and dont even entertain the question of is it the right vehicle to use (in a strategy) to get them to where they want to go.

Hope this provides food for thought.

 

[Gools]

Gprp,

What's this bit?

Renovation (20-25K) Depreciation (30%) $7,500 .Total renovation cost $17,500
( initial investment) .

Are you saying 30% is your tax rate so after tax the renovation is $17,500?
You can't claim the renovation as an expense, it has to be depreciated so you won't save anywhere near that amount in the first year.

Gools

 

[gprp]

Gday ,

Thank you for your comments .
Rixter , I appreciate your response. I think I have answer to all those questions .

Gools, you’re absolutely correct .I’ve made a mistake in my calculations .
Depreciation has nothing to do with tax rate .


I’ve used depreciation calculator and it shows 1st year diminishing value $9K , prime cost $6,000 .

http://depreciationschedule.washing...DepreciationScheduleQuote.aspx?RID=WDFEERT2SD

Please your brief explanation regarding the depreciation calculation if I spend $17.5K on renovation . Does it mean I divide $17.5K / 10 years ?

Kind Regards
gprp

 

[Rixter]

Please your brief explanation regarding the depreciation calculation if I spend $17.5K on renovation . Does it mean I divide $17.5K / 10 years ?

There are 2 types of depreciation - Buildings & fittings/fixtures.

If the property is a residential long term leased property then you can claim 2.5% for 40 years. If its a residential short term/holiday lease type property then you can claim 4% for 25 years.

So using the former situation if you spend $17.5k (on the building renovation) putting aside fittings/fixtures for the purpose of this example, then your calculation would look like: $17.5k x 2.5% = $437.50 per annum for 40 years. (if its brand new renovation). If it was done 5 years ago you would have 35 years left to run.

In relation to fittings/fixtures different items have different life expectancies and % rate of depreciation. A list of rates can be found on the ATO website.

I hope this helps.

 

[gprp]

Rixter ,

Thank you very much for your time and comprehensive explanation

Kind Regards
gprp