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How much rent are you really left with after costs.

Discussion in 'Property Management' started by justine77, 24th Sep, 2015.

  1. justine77

    justine77 Well-Known Member

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    If i would rent out a flat for 350 a week
    or a house for 600 a week
    how much would i really be left with after all costs
    and how can i maximise what i'm left with while still of course doing any necesary repairs and whats necesary.
    what bills should i be prepared to deduct from any total rent
    and i was told to only work on 50 weeks rent a year to leave room for times a property could be vacant or other costs.
    Thank you.
     
  2. TMNT

    TMNT Well-Known Member

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    easy,
    if you want to get really pedantic about it
    here it goes !!

    PM fees %
    Leasing fee
    monthly statement fee
    EOFY statement fee (if applicable)
    Lease Prep fee (if applicable)
    vacancy period (assume 1-2 weeks)
    Home and contents Insurance
    Landlord Insurance
    Maintenance (oh and it will happen!!!)
    Council rates
    Bodycorp ((if applicable)
    Water Rates ((if applicable)

    it all adds up unfortunately!!!
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Oh. It'll be negative. Moreso when you take interest into account.
     
  4. Perthguy

    Perthguy Well-Known Member

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    Not so. Negative or positive depends on the amount of your loan. So if you only borrow half the cost of buying an IP, it should theoretically be cashflow positive, depending of course on lots of things.
     
  5. D.T.

    D.T. Adelaide Property Manager Business Member

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    The loan amount is irrelevant due to the cost of pulling the deposit out of either equity or offset where it incurs interest either way.
     
  6. Jeffb

    Jeffb Active Member

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    Charges everywhere. People assume that landlords are made of money.

    I just got charged $17 for the property agent to produce an end of year statement.
     
  7. Perthguy

    Perthguy Well-Known Member

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    Not really. You are assuming the deposit comes out of either equity or offset, which may not be the case with the OP. The money could have been won, inherited or part of a legal settlement. For example, lets say the amount is $600,000 in cash, not coming from equity or an offset account.

    You could buy a house for $600,000 and rent it out for $500 pw. Or buy 2 houses at $600,000 (borrow 50% for each) and rent both out for $500 pw. Or 3 houses at $600,000 (borrow 67% for each) and rent all 3 for $500 pw... the numbers (rent and interest only) look like this:
    1 house @ $600k is nominally $25k cash flow positive.
    2 houses @ $600k (50% borrowing, rent $50k, interest $30k) is nominally $20k cash flow positive.
    3 houses @ $600k (67% borrowing, rent $75k, interest $60k) is nominally $15k cash flow positive.

    After management fees, rates and other expenses, options 1 and 2 are likley still cf+ but there is a good chance that option 3 would be cf-.
     
  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    Even if it's cash, it still has the same cost mate. Refer Terry's tips.
     
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  9. Perthguy

    Perthguy Well-Known Member

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    :confused:
     
  10. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi @justine77

    It depends on a lot of things, such as how steep your council rates, insurance and water rates are.

    A rough guide, assuming that the mortgage is paid off, about 27% goes in costs which leaves you with 73%.

    Costs are, as mentioned above, things like Council rates, Water rates, Insurance, Property management fees, Maintenance allowance, and Vacancy allowance.

    If the mortgage is not paid off, then that's a whole other story.
     
  11. D.T.

    D.T. Adelaide Property Manager Business Member

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  12. Perthguy

    Perthguy Well-Known Member

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    So there is not such thing as a cashflow positive property because all cash has the same cost? So if I pay off my IP and rent it out or I have a 105% loan on the same IP, it's really the same thing? This doesn't make any sense to me.
     
  13. D.T.

    D.T. Adelaide Property Manager Business Member

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    How do you figure that? Many people's are cashflow positive with 105% loans, including my own.
     
  14. Perthguy

    Perthguy Well-Known Member

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    Go figure.
     
  15. D.T.

    D.T. Adelaide Property Manager Business Member

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    The thread I linked explains it fairly well.
     
  16. The Y-man

    The Y-man Moderator Staff Member

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    Depends on how much you pay for the house.

    In melb, if you buy a house for $900k (inner suburb) with 20% deposit and 80% loan, you will annually
    receive $30,000 in rent (50 x 600)
    allow $3,500 for rates, insurance etc
    $3,000 management fees
    $36,000 in interest

    So before any tax benefits, you will have a SHORTFALL of $13,490

    The Y-man
     
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  17. Perthguy

    Perthguy Well-Known Member

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    Yep. Had a quick read but it does not appear to address the OPs situation. But it did make me realise that this statement is demonstrably incorrect:
    Example 1: A person with $300k in an offset account against a main residence uses the $300k to invest in property.
    Example 2: A person with $300k in an offset account against an investment property uses the $300k to invest in property.
    Example 3: A person with no debt inherits $300k and invests the money in property.

    The cost of the cash in example 1, 2 and 3 is not the same. The cost of the cash in each example is different.
     
  18. See Change

    See Change Timing Lord Premium Member

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    I just had a look at a property returning around 8.5 % . Assuming everything borrowed , it was just about breaking even , so something bought at around 6 % will not be cash flow positive .

    In the previous cycle with rates around 6-7 % we needed over 10 % gross return to break even .

    Cliff
     
  19. mcarthur

    mcarthur Well-Known Member

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    I find that a quick estimate is pretty close for houses:
    - interest payments = based on loan not rent,
    - everything else = 40% of rent
    + neg gearing, assuming CF- = 25% of rent (worked so far for me but probably doesn't if you're closer to neutral and not me :D).

    "Everything else" covers management fees (8.5% of rent), rates (9%), water if any (6% MBRC), house insurance (3.5%), landlord insurance (1.5%), repairs/maintenance (10.5%).
     
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  20. mcarthur

    mcarthur Well-Known Member

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    Cliff,
    I agree, but the result of this is something I'm not quite getting - how can an exit strategy of LOR in a medium time succeed if things are CF- or near-neutral?

    Assuming IO loan, and a 10 year timeframe, a 6% yield that is CF- now won't grow nearly enough in rent (forgetting entirely about CG) to support a living off rent exit strategy in 10 years. Assuming rent is growing at an average of 2.5% p.a. and another 1% on the interest rate over 10 years, the property barely gets CF+ let alone being able to greatly support LOR.

    Perhaps it should be a new thread though... I need to search out some of the old LOR threads.