I have been thinking a lot. No, actually a hell of a lot.
I am in a position to buy more IP or shares or both. I Have a chunk of equity / cash on an LOC ready to go but am somewhat paralysed at present which is unlike me.
I guess I want to really make my money count and work hard for me - looking at probably A$1mil+ in total purchases depending on several factors.
To differentiate between all the possible deals out there (which was getting difficult), I started to look at things in a different way.
Like a large company, I started to look at the ROC or return on capital employed for each possible deal. In this case I am purely using yield only assuming limited or no CG in the equation. This ROC measure gives surprising results and really sorts out the better deals from the average deals.
EG1. Note - numbers are only rough
$350K purchase regional Qld
30% deposit = $105K
Stamps = $11K (total outlayed $116K)
Interest on $361K IO @ 5.1% = $18400
Rent @ $700/week = $36400p.a.
minus 10% agents fees = $32760p.a.
-$4000 rates, insurance, repairs = $28760
$28760 - $18400 = $10,360
$10,360 / $116,000 = 8.9% ROC (no tax on net rental income included in calculations which would reduce ROC)
This can easily be applied for capital city purchases and results can be acceptable as perhaps only 10% deposit + LMI is required for the purchase.
I am interested to see if any others use similar calculations when growing their portfolio???. Perhaps people include anticipated CG in their calculations??. What is an acceptable ROC - 10%, 15%??.
The above example is actually slightly depressing as it makes me realise some quality blue chip shares (including big banks) are very good value as they are yielding 6 or 7% (after 5% interest for borrowing) fully franked. IF they hold their dividends then I will be buying a few.
But my love is property and hence most of my dollars will ultimately go into the property market.
Thoughts or other variations / calculations from others would be apreciated.
Cheers,
Bluegoose
I am in a position to buy more IP or shares or both. I Have a chunk of equity / cash on an LOC ready to go but am somewhat paralysed at present which is unlike me.
I guess I want to really make my money count and work hard for me - looking at probably A$1mil+ in total purchases depending on several factors.
To differentiate between all the possible deals out there (which was getting difficult), I started to look at things in a different way.
Like a large company, I started to look at the ROC or return on capital employed for each possible deal. In this case I am purely using yield only assuming limited or no CG in the equation. This ROC measure gives surprising results and really sorts out the better deals from the average deals.
EG1. Note - numbers are only rough
$350K purchase regional Qld
30% deposit = $105K
Stamps = $11K (total outlayed $116K)
Interest on $361K IO @ 5.1% = $18400
Rent @ $700/week = $36400p.a.
minus 10% agents fees = $32760p.a.
-$4000 rates, insurance, repairs = $28760
$28760 - $18400 = $10,360
$10,360 / $116,000 = 8.9% ROC (no tax on net rental income included in calculations which would reduce ROC)
This can easily be applied for capital city purchases and results can be acceptable as perhaps only 10% deposit + LMI is required for the purchase.
I am interested to see if any others use similar calculations when growing their portfolio???. Perhaps people include anticipated CG in their calculations??. What is an acceptable ROC - 10%, 15%??.
The above example is actually slightly depressing as it makes me realise some quality blue chip shares (including big banks) are very good value as they are yielding 6 or 7% (after 5% interest for borrowing) fully franked. IF they hold their dividends then I will be buying a few.
But my love is property and hence most of my dollars will ultimately go into the property market.
Thoughts or other variations / calculations from others would be apreciated.
Cheers,
Bluegoose
