What is your Debt Coverage Ratio (DCR) ?

[joeExpat]

What is your approx. before-tax Debt Coverage Ratio (DCR) across all properties ?
i.e. (property income - property expenses) / annual interest.
(<1.0 being negatively geared).

Example:
Gross Rent: 18,000
Management, Rates, Repairs, Body Corporate/Land Tax, Utilities: 4,500
Interest: 16,000
DCR = (18000 - 4500) / 16000 = 0.84

Should be in interesting statistic.

 

[alexlee]

Mine would definitely be less than 0, since I'm negatively geared. But so what? You're not including tax effects, especially depreciation. That changes the numbers significantly, since I can be negatively geared but have positive cashflow. And it ignores LVR, available equity, etc.

What exactly do you think that statistic tells you?
Alex

 

[joeExpat]

Mine would definitely be less than 0, since I'm negatively geared. But so what? You're not including tax effects, especially depreciation. That changes the numbers significantly, since I can be negatively geared but have positive cashflow. And it ignores LVR, available equity, etc.

What exactly do you think that statistic tells you?
Alex

<1.0 is negatively geared, a vacant property or block of land would be <0.0.
The statistic is a rough indicator of by how much people are negatively geared, or if they have a positive cash flow.
By including tax effects the figures are distorted by contracting around the figure of 1.0, with depreciation possibly pushing it up very slightly in some scenarios. I thought the raw figures would give a clearer picture.
In the UK for example a Buy-to-Let loan is not generally granted for investments <1.1, but Australia obviously allows much lower (I was granted 0.8 no problem). I wonder how low.

 

[redsquash]

Is it sensible to compare UK loans with OZ loans when ones tax is taken into account and how taxes and depreciation are assessed

The poll is good because it is simple but
By not accounting for ones tax rate or depreciation is actually distorting the real world situation of investors.
I think even a guesstimate of the ratio you are seeking could mislead you from 15 to 20 % depending on depreciation alone

 

[MichaelW]

0.4

Rent $34K
Expenses $8K
Interest $64K

($34K-$8K)/$64K = 0.4

Big gap huh... Another way of looking at it is that 60% of my interest is not covered by rent after expenses. Will take a while before she's neutral.

But that shortfall is all deductible and I'm in the second top tax bracket so still a decent deduction. Nil depreciation left in this old baby though.

Cheers,
Michael

 

[alexlee]

<1.0 is negatively geared, a vacant property or block of land would be <0.0.
The statistic is a rough indicator of by how much people are negatively geared, or if they have a positive cash flow.
By including tax effects the figures are distorted by contracting around the figure of 1.0, with depreciation possibly pushing it up very slightly in some scenarios. I thought the raw figures would give a clearer picture.
In the UK for example a Buy-to-Let loan is not generally granted for investments <1.1, but Australia obviously allows much lower (I was granted 0.8 no problem). I wonder how low.

I don't know how you calculate cashflow, but I calculate cashflow as AFTER tax, since tax has to be paid (and is refunded) in cash.
alex

 

[grossreal]

hi all
what if the rent is 131k
cost is 1.2mil and no out going or costs as tennant pays
but you have a leverage position of 2.4mil.
into another property and that property has a loan of 1.5 mil and income of 129k no out going tennant pays
whats the ratio then.
I know the return.
but not sure of the ratio for this thread.
oh and the loan used is a 9.5% but you pay 7.5% with 2 percent added to the loan.
so if you do the first its 1.45
the second is 1.14
but the leverage position is
a return with no money down of 57.5k
and this last line is the only one I look at

 

[joeExpat]

whats the ratio then.

The ratio would be ((129000 + 131000) / (2700000 * 0.075)) = 1.284
So debt is covered by 28.4%,
so return is 28.4% * (2700000 * 0.075) = 57500, the same as you calculate.
Sounds like a pretty good investment you've got there !

If tax at marginal rate of 40% were considered, then this ratio would decrease to 1.17
Similarly in the example from MichaelWhyte the tax benefit increases the ratio from 0.4 to 0.65
Myself I get no tax benefit as I'm non-resident and have minimal other Australian income.
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