Can I predict the cash flow of my investment property?
Can I predict the cash flow of my investment property?
Hi, I have been headhunting to find a property to invest in. But before I buy one I want to know if the investment will be profitable or not. I am not even sure about the expenses that need to be included in order to find out the cash flow of the property. Can you tell me if there is any way that I can predict the cash flow of the investment property?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Can I predict the cash flow of my investment property?
Hi and welcome to the forums florence,
You can use the Property Investment Cashflow Calculator to find out whether your investment will have a negative or a positive cashflow. You will need to know the purchase price of the property which should include the deposit as well as the income you receive (including rental income from the property) to find out the weekly cash flow. While calculating the cash flow some of the expenses that should be considered are:
Otto
You can use the Property Investment Cashflow Calculator to find out whether your investment will have a negative or a positive cashflow. You will need to know the purchase price of the property which should include the deposit as well as the income you receive (including rental income from the property) to find out the weekly cash flow. While calculating the cash flow some of the expenses that should be considered are:
- Council rates
- Water rates
- Building insurance
- Property management fees
- Maintenance
- Home loan repayments
- Gardening
- Landlords insurance
- Contents insurance
- Renovations
- Bank fees such as an annual package fee
- Changes in interest rates
- Purchasing costs such as legal fees, lenders mortgage insurance and stamp duty
Otto
Re: Can I predict the cash flow of my investment property?
Oh okay, I’ll try out the calculator. And what is going to happen if the property turns out to make a loss? If this does happen will the bank decline my loan?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Can I predict the cash flow of my investment property?
Hi florence,
When you make a loss on the cash flow, you can claim this loss to be deducted from your taxable income and you will receive a tax refund for the part of the loss. Negative gearing can significantly improve the cash flow of your property if you have a high taxable income which is why so many investors choose to invest in properties with a negative gearing.
Let’s suppose you earn an annual income of $100,000 and your annual expenses amount to $110,000. This means your property has made a loss of $10,000 per annum and as a result your taxable income would only be $90,000. If the tax rate at the time was 30% then you would receive $3,000 as an additional tax refund.
As for the depreciation, the decline in value of the building can be deducted for tax purposes. Depreciation is a non-cash expense and it is not an actual expense that you need to pay. This means that you can save tax from depreciation without actually having any cost affecting your weekly cash flow.
If you want to buy an investment property then you can apply for a investment loan. Lenders usually look at the following criteria to determine whether to approve your loan or not.
Cheers,
Otto
When you make a loss on the cash flow, you can claim this loss to be deducted from your taxable income and you will receive a tax refund for the part of the loss. Negative gearing can significantly improve the cash flow of your property if you have a high taxable income which is why so many investors choose to invest in properties with a negative gearing.
Let’s suppose you earn an annual income of $100,000 and your annual expenses amount to $110,000. This means your property has made a loss of $10,000 per annum and as a result your taxable income would only be $90,000. If the tax rate at the time was 30% then you would receive $3,000 as an additional tax refund.
As for the depreciation, the decline in value of the building can be deducted for tax purposes. Depreciation is a non-cash expense and it is not an actual expense that you need to pay. This means that you can save tax from depreciation without actually having any cost affecting your weekly cash flow.
If you want to buy an investment property then you can apply for a investment loan. Lenders usually look at the following criteria to determine whether to approve your loan or not.
- There should be at least 5% to 10% in genuine savings.
- You need to have equity in other properties if you are planning to borrow more than 90% of the property value. This means it should be second or third investment property if you want to borrow higher amount.
- A good credit history.
- An above average credit score.
- Stable employment
Cheers,
Otto
Re: Can I predict the cash flow of my investment property?
Ok, I didn’t know about that. Well, I have just filled in the form and now I am waiting to get an email from you guys.
Re: Can I predict the cash flow of my investment property?
Hi there Otto, I am also planning to buy an investment property. I was just going over the posts and one thing I am still not sure about. How much rent do I enter in the calculator if I am not sure about the amount I will be receiving from the investment property in the future?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Can I predict the cash flow of my investment property?
Hi mrtom,
The calculator needs to know your taxable income so that it can then work out the benefits you will receive from depreciation and negative gearing.
If you are not sure how much rent you will be receiving from your property then you can normally use around 4% of the value for a house or 5% for a unit or townhouse. This amount will give your annual rent income which you can then divide by 52 to find out the weekly rent income.
Hope this answers your question.
Cheers,
Otto
The calculator needs to know your taxable income so that it can then work out the benefits you will receive from depreciation and negative gearing.
If you are not sure how much rent you will be receiving from your property then you can normally use around 4% of the value for a house or 5% for a unit or townhouse. This amount will give your annual rent income which you can then divide by 52 to find out the weekly rent income.
Hope this answers your question.
Cheers,
Otto
Re: Can I predict the cash flow of my investment property?
Oh okay that sounds fair. Thanks for this information.