Confused and don't know what to do next?

So debt in 2.5yrs will effectively be zero ?

 

Yes.

 

I'm probably incorrect in saying this, but we pay no tax on the portfolio. My husband has a tax variation in place where his take home pay is more than without it, and at tax return time, he is even. In my situation, no tax variation, and generally get most back at tax time.

 

Take gross rentals
Remove
Rates
Insurance
Management
Body corporate (if any)
Repairs
Allowance for vacancy
Land tax if any
Plus each year
1/10th of the cost of painting inside and outside
1/30th roof replacement
1/9th stove, dishwasher etc
1/40th re plumbing and electrical wiring
1/100th of building replacement
1/15th kitchen and bathroom replacement
This makes the net rental
Divide this by purchase price incl legal and stamp duty
Makes the net yield
Eg 6pc
Funding cost 4pc
Makes net profit 1/3 of rental
Tax depreciation, interest and tax are nit part of the net yield

 

But in 2.5yrs with all debt paid off there will be tax?

 

Ok thanks.
Net Yield for the properties - see at the end of each line below:

1) $545,000 in 2011, Current Valuation $650,000, Rent $565/wk Net yield = -0.33%
2) $465,000 in 2013, Current Valuation $660,000, Rent $560/wk Net yield = 0.92%
3) $400,000 in 2015, Current Valuation $465,000, Rent $380/wk Net yield = 1.14%
4) $499,000 in 2016, Current Valuation $525,000, Rent $450/wk Net yield = 0.38%

I don't know if I've done the right thing here
eg if the property had an initial cost/loan of 500K, but money in offset means I'm paying interest on the 400K, do I subtract the lower level of interest paid at 400k for the calculation or do I calculate it using the full loan amount?

 

Only for the group of loans that go P&I at that time.

 

Sorry, I got lost! What will your net cash flow be in the 2.5 ys. I'm confused with the comment re debt being zero but loans going to P&I.

 

You do know that it is likely that your loans could very well go p&i at some stage in the near enough future.

You have a good portfolio for now, but due to its size it moves so much with the market.

If cg goes up, you make a lot.
If it goes down, you lose a lot.

Same with interest rates.

Despite the advice that has been given, you still want to buy, in these uncertain times and put yourself under pressure as you come to your retiring years.

No on is as deaf as those who don't want to hear.

Here is a quick worst case scenario for you, if you were in a position where u had to refi, and could only get p&i for a 1.7 mil loan at 4% (which is a cheap loan) your mortgage payments alone would be almost $1900 per week without every other expense.

You need to get this buy buy buy mentality and open your mind to the risks of your portfolio before you put yourself under undue pressure

 

The net rental stays the same regardless of when you purchased
But when you first purchase you calculate the net yield based on the purchase price so you basically know how much money you are making (calculated on 100pc borrowing as there is opportunity cost if the deposit came from low or interest source)
Eg my aim is 6.3pc net yield plus
My mate goes for 10pc rising to 11pc after purchase
This gives him 60pc of the net rental profit
I go for a lot safer investments that have zero vacancies (for the next 100 plus years) and hopefully CG so my profit is only a third of the net rental (hence my total income is relatively low compared to my mate ....but i can manage a larger portfolio safely standing on my head where as my mate can buy a $6m + personal principle resident but runs around every day like a blue arsed fly)

Later you look at the net yield on market price and you may well say to yourself ...oh heck i am making so little on this place i may as well swap it for a higher yielder! ....I need more income!

 

A safety margin i like to work on is being able to pay a dollar of debt for each dollar of interest i pay.

 

6.3pc net yield plus is not common with residential property.

 

I think @Beano is all commercial!

 

That is correct in some cities.
This extract is from a Real Estate Agent regarding a residential that I was looking at selling (swapping for a commercial property but I never had my tender accepted)
The location is in a capital city 8 houses down from a Embassy and across the road from million dollar properties
Its been a busy 2 months for me and the team , our stock levels are majorly down on last year. As everything is selling rapidly. My last 3 investment units have sold within 72 hours of being publically launched.


The market is moving rapidly. However one thing remains clear for investment property , it must show a 6.5% + NETT return or else it will sit dormant on the market. Ive appraised a couple of 5% nett properties recently and declined them or advised to hold.

Yes you can still buy 6 to 6.5pc NET yields in great location

I’ve attached our latest market report , outlining many trends across our city.

 

Yes bulk of my income is commercial (91pc)
Only have 38 residentials

 

Doesn't sound like Australia

 

Yup !
The last Australian purchase was a 3br house in Enoggera Brisbane
Net yield on purchase 4.6pc ...yields too low for me
This is in Wellington NZ ...pleased I did as the currency movement added another 20pc to the property income/CG
Happy to buy anywhere there is a good return!

 

Oh mate!

 

Yes only 9pc in residential. ..i am just tadpole in a pond...many more experienced and larger than I. I am really a commercial player but when you walk through the CBD of any capital city you realise your whole portfolio is a flea on dogs back!

 

There will be a day when i say that! "...Only 38...."
I think you should write a book about your journey! I know i would buy or even better a collection of your posts on commercial!
I'm curious to hear about your humble beginnings....