What numbers make a purchase feasible?

[lostis]

Hi Guys,

One major step in the process of choosing and deciding on whether to buy property or not, is to analyse and crunch the numbers as thorough as possible to find the financial feasability.

The confusing part that I find with this is that there are SOOOO many numbers, calculators and acronyms which I don't know what are used for.

From what I can gather when deciding on a unit for example, we look at the expenditure and income, which is:

Income

1. Rent

Expenditure

• Mortgage Repayments
• Body Corporate
• Strata
• Landlord Insurance
• Property Insurance?

Take these numbers and work out what your out of pocket is and if the number is relatively low, then BUY

What else are people looking at when they crunch these numbers?

How do people take tax advantage and depreciation into account when they are working out whether a purchase is feasible?

 

[Rob Williams]

If you're buying a strata property, then building insurance is covered in the body corp fees.
You need to add on water & sewage, council rates and property manager costs (unless you self manage).
Because I don't claim building depreciation, I don't put the depreciation into my back of the envelope calcs. I allow them to be a bonus or buffer against unforseen expenses.
Once you've worked out your out of pocket expenses (income less interest costs and other expenses) then you will know what your tax losses will be.
You can then work out what, if any tax refund you will get back at end of fin year. Or you can look at doing an ITWV to have the tax benefit each pay day to improve cash flow. The ITWV has been covered in detail in other threads already.

 

[lostis]

THanks Rob,

I am a bit confused because some people have told me that tenants pay water and council rates whilst others tell me otherwise.

Is this something negotiated in the lease with the tenant?

 

[Rob Williams]

Sounds like they might be talking about commercial property as opposed to residential. With residential, herein SA, it uis usually only the excess water usage thet gets paid by the tenant, in addition to their utilities.

 

[Jonathon]

Because I don't claim building depreciation,

Why not Rob? Surely you're aware that it'll get added back for CGT purposes anyway, irrespective of whether you've claimed it or not, as long as you reasonably could have claimed it.

 

[Rob Williams]

Why not Rob? Surely you're aware that it'll get added back for CGT purposes anyway, irrespective of whether you've claimed it or not, as long as you reasonably could have claimed it.

That should have read can't not don't. I have no properties that meet the criteria. The depreciation that I do claim I treat as a bonus and I don't factor it into my ITWV, so I get a nice cheque from the ATO each year, that I can use for a holiday. Not that I've actually been on a holiday. Gee, I do need to get out more, don't I?

 

[Rixter]

What else are people looking at when they crunch these numbers?

Numbers to verify your holding costs are the 2nd half of the overall equation.

The primary half is your reason 'why' you are purchasing the property in the first instance.

What do you ultimately want the property to deliver to you (in the time frame you want it in) and does that particular property have the potential ability to provide and get you it?

This half of the equation is what dictates whether you put the number crunching half of the equation into practice.

Hope this helps and provides you some food for thought.