Whats your buffer?
- Thread starter dunno
- Start date
Hi dunno,
I think people would be very interested in this but perhaps explain in more detail how you came up with the number and your strategy.
Cheers
bigtone
Do you borrow that 1.5% net loss or contribute it from your own income?
I wouldn't call that a buffer, that is a break even point.
A buffer is how many months you can survive if you lost your largest income source (usually wage, but for some of our CIP friends it is a tenant).
Really what you seem to be calculating is your negative cash flow as a percentage of value. e.g. $100K property is an after tax negative flow of $1500 in your example.
Just remember that you need to calculate how much of the capital gain you will lose in tax (possibly as much as 24%) or that only 80% can get use as LOE.
A buffer is how many months you can survive if you lost your largest income source (usually wage, but for some of our CIP friends it is a tenant).
Really what you seem to be calculating is your negative cash flow as a percentage of value. e.g. $100K property is an after tax negative flow of $1500 in your example.
Just remember that you need to calculate how much of the capital gain you will lose in tax (possibly as much as 24%) or that only 80% can get use as LOE.
Ours will be negatively geared, so my break even point would only occur if rates dropped back down to 'historical lows' again
huh im confused? I its negatively geared you are already loosing money every year. As a result you are, like me, counting on capital gains to make up at least the difference...so at current or projected interest rates (I used 8% interest only) what growth do you need to off set the losses?
OK. sorry, misunderstood.
So If I am out of pocket approx $150 p/w - $7800 p/a (conservative estimate, may be considerably less dependant on real expenses and rental income).
Purchase price is $418k.
Current value $460k (approx - keep in mind it still isn't sctually finished being built yet).
How do I calculate this as a percentage? And do I work off current value or purchase price?
Sorry I am a little mathematically challenged at the moment (my statistics and accounting lecturers would be shaking their heads in vain I am sure).
On my huge portfolio of one IP, I calculate 0.39% based on my fixed interest rate.
Whys that-the capital gains is the buffer between you making money or loosing money.
So if you only need .41% cap gains your property must be very close to cash flow neutral?
To me, buffer refers more to what another poster mentioned earlier ie. Cash surplus to cover costs for a certain period. Above is more about the required ROI to get you to neutral or after that positive.
Yes, couple of them are positively geared whilst another needs 1.5%. Technically the positive geared ones could actually experience a price decline and still break even - not that I want to test that theory.
Yes, couple of them are positively geared whilst another needs 1.5%. Technically the positive geared ones could actually experience a price decline and still break even - not that I want to test that theory.
Well my PPOR comes in at -0.5% (postively geared if we rented it).
My (yet to be built) IP (I am counting my chickens here
I find it more interesting to know what the break even point is for the PPOR as it stands, i.e. to compensate you for the amount of interest you are paying.
It asks, and maybe answers the question: Is it worth owning your own home if you need to borrow to be able to do it?
Mines at 4%, but I have half of the loan offset, so if i was paying full interest, it would have to increase 8% pa to break even, which is pretty high.
For me to rent a 3 bedder house in Canberra (assuming I could even get one with a labrador and 2 cats) it would cost me at LEAST $400p/w but up to and exceeding $500p/w. My mortgage repayments a less then that.
I have looked at renting mine out and moving into a rental, but it is definitely not worth it financially for me - even with the tax deductions.
But is that 4/8% the total cost of having the PPOR ie. interest + running costs, before or after you assume that you would have to rent elsewhere?
In other words you can't take into account all PPOR expenses and say you need 8% growth to cover costs unless you're planning on living in a field and not renting elsewhere - otherwise that rent figure would have to be taken into account in your calculations.
