Investment Property: How to Calculate the Cash Flow?

Hey everybody,

I was just wondering what things to consider when purchasing a property that’s said to be cash flow positive. How would you trust that a property advertised as cash flow positive is actually going to be cash flow positive? Aren’t there lots of things to consider like stamp duty, solicitor’s fees and many other fees when you first buy a house? So how do you know the property is cash flow positive even when you deduct these initial expenses?

I appreciate your help on this!

Hello there,

I think the best way to figure out whether a property is going to be cash flow positive is by doing a chart analysis.

My husband and I have been considering buying another property for a while and we’ve been doing a fair bit of research lately. He’s found out all the initial costs and things to consider and has made an Excel spreadsheet calculating those costs, putting in the expected rent from the property to figure out how much cash flow we might expect to get.

From looking at the chart, the initial expenses appear to be: property cost, stamp duty (in NSW this can be ignored for properties under $600K for this year), conveyancer fee ($1500), lawyer and strata report (for units), mortgage insurance (only if you borrow over 80% of the purchase price), paint and cleaning (just say $1000), total extra costs (he’s put down $17,140. I’m not sure what all these costs would be) and when you add all of these up and subtract equity (the amount you contribute in the beginning) you get the total property cost.

As we are looking to rent out a property, we’ve also taken into account recurring expenses like agent fee, strata, water, maintenance and insurance. In terms of yearly costs, the agent fee is say, about $1056, strata is roughly $1517, water is $800, maintenance is $500 and insurance is $1040 and you have to calculate your insurance on debt. So this gives you your recurring outgoings.

Hey,

Thanks for the advice on this! It looks like there are many outgoing expenses!

How does the rent cover all this? What would be the capital growth on a rental?

Is this like when they say there’s 6% growth in Sydney property. Does that mean for rents or for capital growth?

I’m very new to this and very confused. Do you know how I could find some sample charts to see where I stand on some of the property I’m considering to buy?

Cheers,

Here, I am mentioning a basic formula for calculating the cash flow of a property-
Cash Flow= Total taxable income or loss from the property- (Tax Savings + operating expenses + mortgage payments)

Gather all documents showing cash transactions for a specific period, including cash coming into the business and cashing leaving the business.

Hi otea,

Good response but what do you mean exactly when you said,

otea wrote:

stamp duty (in NSW this can be ignored for properties under $600K for this year),

?

Are you saying there is no government stamp duty to be paid at all in NSW this year for properties under 600k? Honestly I have no idea but I do not think this would be right.