How to calculate rental cashflow for IP?

Hi guys, just a little confused on how you would go abouts calculating the rental cashflow for a property. For example if I bought a property worth $500,000 and had a 20% deposit how would you calculate a margin for the rate?

I suspect that during the first few years you will be in negative until the value of the property goes up. So I was wondering what the best way to do this would be? Sorry if this question is quite vague

 

Use a spreadsheet

 

your rental cashflow wont change when the value of the prop increases

 

I'm not really sure what you are talking about.

This.

And this.

Your cashflow is income minus expenses. Your income, nor your expenses change if/when property value changes.

 

A spreadsheet outlining all your expenses and rental income will help. Then you can work out your cashflow from that, the value or capital growth doesn't really affect it.

 

@David Shih (I think it was him anyway) has a good one somewhere in one of his posts on this site which I have been using. Cheers David!

 

Are you asking about yield?

Your yield increases as your LVR decreases and rent remains the same or increases.

 

What is it exactly you don't understand so I can re clarify for you?

 

CASHFLOW = RENT - COST

Here costs would be
- item paid for
- principal of loans
- tax paid (or credited)

Note there may be non-cash deductions too which are things you can claim without having to actually pay for them each year such as depreciation or LMI expenses.

 

Ummm....I thought it was obvious. I don't understand why you think costs would change when the property value changes, as per my previous reply to you.

 

Right...I had made a couple of points so I wasn't sure which point you were referring to without any context. But too answer your question. I should have said, Shouldn't your rental cashflow increase when the value of the property goes up? Say if you buy a property at 500k and you are charging $350 a week for rent and your property value goes up in value over 2 years to 650k wouldn't you want to be charging more for rent?

 

You would want to but whether you could would depend on the market rates.

 

It will when the land value goes up and you need to pay land tax

 

true, your council rates will also go up as well,

but I dont think OP was being that specific

 

Ah, no, it doesn't work that way. You might WANT to charge more, but as rents are based on supply and demand, you may not be able to. When there's high demand, rents go up. When demand is low, rents go down.

 

Oh cool great, thanks and sorry for the misunderstanding.

 

You're welcome - glad it helped

For anyone who needs a copy of the cashflow claculator can just download it from my post attachment here:
What I learnt out of buying 7 properties

Cheers,
David

 

Could someone please confirm whether I'm calculating post-tax cashflow correctly?

Example below with tax bracket of 39%.

Income: $22000
Expenses: $20000
Depreciation: $3000

Pre-tax: $2000 cf+

After applying depreciation it would be a net negative $1000

Calculating tax refund:
$1000 * 0.39 = $390

Is Post-tax cashflow simply now $2000 + $390?

 

Yes

 

Thanks Terry,

If for example after depreciation it is net positive, would you be paying tax in this case?

Income: $25000
Expenses: $20000
Depreciation: $3000

Pre-tax: $5000 cf+

After applying depreciation it would be a net positive $2000

Calculating tax payable:
$2000 * 0.39 = $780

$5000 - $780

Post-tax = $4220 cf+