Number Crunching - how to evaluate.

X

X-gen

Hi all,

I've been playing around with an IP calculator I've found on the forums (thank-you to the creator) and punched in all the numbers.

What I realised is after punching in all the numbers, I've got no idea what the resulting finding are telling me or how to evaluate them.

Some of the details for you.

apartment
price $550k
rental $700 pw
100% loan purchase costs $22k
using a mortgage rate of 6.50%
annual fees 7.2k ($5k strata, $1k maintenance $1.2k rates)
cap growth estimated at 5%

the spreadsheet shows after tax cash flow of
1st yr-3,895
2nd yr-3,479
3rd yr-3,093
4th yr-2,668
6th yr-2,210
7th yr-1,805
8th yr-1,295
9th yr- 763
10th yr -211

also IRR
IRR (5 Years) 76.34%
IRR (10 Years) 41.68%
IRR(15 Years) 30.28%

What do these %'s mean??


I know it can be quite subjective, however i'm pretty lost. Should I be going for a better CG scenario seeing its negatively geared or looking for a better cash flow scenario or is this an ok scenario?

Is there an general rule of thumb in terms of what % for the cashflow/capital gains tradeoff? How do I evaluate if the negative cashflow is worth the % of capital gains etc?

any feedback would be appreciated.
 
Hi X-gen,

You IRR is outstanding because your borrowing “100% loan purchase costs $22k” for a $550k property with a $36.4kpa rental ($700pw).

You might want to recheck the amount you are borrowing. Is it perhaps 80% of $550k = $440k or is it 100% = $550k

Also your cash flow is decreasing meaning that you property must be in a mega inflation or mega high interest rate environment. You see this in parts of South America with mega inflation.

Cash flow should be increasing over time unless expenses are increasing faster that income.

Recommend to check your inputs.

Philip
 
I think cash flow is increasing. I read it as -ve, becoming less -ve as the years progress.

Could be wrong though
 
Last edited:
Hi Philip,

The numbers are correct. It will be an 100% lend (actually will be lending 570k for stamp duty etc)

Farmilor is correct, the cashflow position is increasing the figures below are negative rather than positive.

Regarding the tail-end of the question, anyone with thoughts on the cap gain/cashflow scenario etc?

thanks

X
 
Hi, Where can I find the calculator?

thanks.

Also a question of yield.

How do people normally calculate it?
I see different figures that people say they are getting and it doesn't add up to me.

I must be doing it wrong.
 
had a look at your numbers mate. your missing some substantial costings like PM fees and rental vacancies. According to my numbers you'll be negative circa $10k in the first year with further assumptions of 2 weeks vacancy pa, 15% property management fees, $3k depreciation for first year, $700 insurance (home and landlords), $400 loan pro-pack fees, and $0 in offsett. You'll also have to factor in accountant fees at end of FY.
 
Hi Cashflowplus,

I just worked out the numbers a little more. you're right, it's around cashflow -10k pa.

I estimate the cap gains to be around 5% p/a.

For a 500k property - is this a little too much negative cash flow?

thanks,
X
 
well that's the question. Pony up the chips young man.

Punting on + CG's in this environment to me = gambling.

where are the + CF properties, well it aint on realestate.com

Find a motivated seller. Look where others aren't (ie it isn't likely to be a middle class suburb).
 
X-gen said:
Hi Cashflowplus,

I just worked out the numbers a little more. you're right, it's around cashflow -10k pa.

I estimate the cap gains to be around 5% p/a.

For a 500k property - is this a little too much negative cash flow?

thanks,
X
Click to expand...

A property worth around $500,000 or so would most likely be located within the 10km zone of a CBD. 5% p/a capital growth is a little light on. In recent years, growth has been 10% p/a for property well located property. I would adjust your 5% p/a capital growth figure to 7% p/a. This figure would most likely be achievable over the long term.

The equity you build up in such a property will enable you to keep investing. Either in another asset class, or into another property.


Regards Jason.
 
Hi Jason,

ppreciate the suggestion.

The property is the cheapest 2 bedder of it's size i've found at around 1km from cbd.

Thanks,
X
 
X-gen said:
Hi Jason,

ppreciate the suggestion.

The property is the cheapest 2 bedder of it's size i've found at around 1km from cbd.

Thanks,
X
Click to expand...

Hi X-gen,

As long as you can comfortably afford the -ve gearing then it could be a good investment. As others have said, there is no guarantee when it comes to capital growth. The last 10 yrs or so have been rather extraordinary for property. But if you have a long term outlook, and can afford to pay the shortfall then I wouldn't think you could go too far wrong. :D

All the best.

Regards Jason.
 
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