How to calculate rental cashflow for IP?

Discussion in 'Investment Strategy' started by skriker, 12th May, 2020.

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  1. skriker

    skriker Member

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    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
     
  2. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Use a spreadsheet
     
  3. TMNT

    TMNT Well-Known Member

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    your rental cashflow wont change when the value of the prop increases
     
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  4. skater

    skater Well-Known Member

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    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.
     
  5. mr_alex

    mr_alex Well-Known Member

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    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.
     
  6. Biggbird

    Biggbird Well-Known Member

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    @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!
     
  7. Archaon

    Archaon Well-Known Member

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    Are you asking about yield?

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

    skriker Member

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

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    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.
     
  10. skater

    skater Well-Known Member

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    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.

     
  11. skriker

    skriker Member

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    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?
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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

    Beano Well-Known Member

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    It will when the land value goes up and you need to pay land tax :)
     
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  14. TMNT

    TMNT Well-Known Member

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

    but I dont think OP was being that specific
     
  15. skater

    skater Well-Known Member

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    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.
     
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  16. skriker

    skriker Member

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    Oh cool great, thanks and sorry for the misunderstanding.
     
  17. David Shih

    David Shih Mortgage Broker Business Member

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    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
     
  18. Sakura

    Sakura Active Member

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    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?
     
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  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Yes
     
  20. Sakura

    Sakura Active Member

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    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+