Search
Close this search box.

Use This Investment Property Calculator

Written by Kris Wrenn

Hudsons Property Cashflow Guide

Whether you own an investment property or are considering purchasing one, you can use this calculator (in Excel format) to generate some estimates regarding the cost of holding the property and also how successful you need the property to be to break-even/profit.

Here’s how it works:

Any figures in red potentially need to be adjusted. I’ve put some figures in to start you off, but the more information you have the more you can adjust the figures to make the overall outcome more accurate. The things you’ll need to change are in red:

1/ The purchase price of the property. You may wish to increase the value by the costs of purchase (Stamp duty etc), in order to make the calculator even more accurate. I’ve already put some examples in columns D through G – $500,000, $750,000 etc, but you can use the last column to put a more exact figure in depending on what property you’re looking at.

2/ Rental income. I have used 4.5% in column B as a starting point. However, if you know what the rent is, or if you think you know (perhaps you had a real estate agent estimate), then you can enter the amount in $ terms manually in row 6 in the column that corresponds with the purchase price.

3/ Interest expense. I’ve used an example of 7.5%. Anyone paying over 6% needs to speak with our finance team! But I’ve used 7.5% to be conservative and also to allow for a few more rate increases. If you paid a deposit or have some of the loan offset, you can change the $ amount manually in row 7 – just remember it needs to be a negative figure!

4/ Property expenses. I have used 1.5% of property value, as I find this often rings about true. However, all properties are different and this is where you can really improve the accuracy of the estimates. If you know the various expenses (rates/water/body corp/insurance/agent fees) you can enter a $ amount manually in Row 8 and in the column that relates to your purchase price. Again, make sure you put it in as a negative figure.

5/ Finally, you can add a depreciation amount. I have used 2%, but if you have a depreciation schedule drawn up you can put the exact $ amounts in. If you don’t want to include depreciation you can always set the % to Zero. Some people don’t like to include it as it has an effect on the capital gains payable (see comments section at the end of this article).

Once you’ve got the above figures in, everything gets calculated for you, and FOUR MAIN estimates are provided. These are:

1/ The upfront net cost to you of holding the property, shown in rows 11 and 12. Row 11 is the annual upfront cost and row 12 the monthly upfront cost. Note – this is not the TRUE cost of holding as it does not take into account your tax refund.

2/ Your tax refund (section 3). For this you’re going to need to look at the row that relates to your marginal tax rate. Row 20 (tax rate 21%) is for those earning up to $45,000 p/a. Row 21 (34.5%) is for those earning between $45,000 and $120,000. Row 22 (39%) is for those earning between $120,000 and $180,000. Row 23 (49%) is for those who earn above $180,000 p/a.

3/ The actual cost to hold the property (section 4). This now takes into account the tax refund and deducts it from the upfront cost. If you lodge a tax variation with the ATO, you could even have the refund effectively spread out across the year.

4/ The annualized cost in % terms. This figure is REALLY important. It’s the real cost of holding the property as a % of the value of the property. It’s important because in effect what this figure is, is the % by which the property needs to go up in value in order to make the whole thing profitable for you. i.e. If a $1 million property is costing you 1% ($10,000) each year to hold, you need the value of the property to rise by at least $10,000 p/a. If the property doesn’t end up rising by this much in the long-term, then the whole process has been for nothing. That is why property selection is so crucial.

AN EXAMPLE

Using all my assumptions in column B (7.5% interest rate, etc), then a person who earns $75,000 a year and purchases a $600,000 property would have:

  • Upfront costs of $2,250 a month to contend with.
  • A tax refund of $13,455 p/a.
  • Actual costs of $1,129 a month.
  • Annualised cost of 2.3% (or $13,545) each year. i.e. the investor would need the property to rise by more than 2.3% each year to make the investment profitable.

Using the same example above but opting NOT to claim any depreciation:

  • Upfront costs of $2,250 a month to contend with.
  • A tax refund of $9,315 p/a.
  • Actual costs of $1,474 a month.
  • Annualised cost of 2.9% (or $17,685) each year.

Assumptions and additional comments:

  • The calculator assumes you have borrowed 100% of the cost of the property, e.g. using equity in your home. If you are putting a deposit down you’ll need to reduce the interest expense manually.
  • The calculator doesn’t take into account the costs of buying or selling the property, nor does it take into account capital gains tax upon sale. Furthermore, you should be aware that depreciation claimed over the years reduces the cost base of the investment and as such increases capital gains tax payable.

Final note – As stated, the calculator and the above estimates don’t take into account the costs of buying/selling or the capital gains tax paid. The cost of buying/selling is significant and should not be overlooked, however that said, if you HOLD the property for the long-term (10+ years), these costs become increasingly less significant. As for tax, there are worse things in life than paying tax on a profitable investment, and besides, your Hudson adviser can discuss a range of ways to minimise this tax when the time comes. This may include waiting until retirement before you sell and/or contributing to Super in the financial year you sell.

Hudsons Property Cashflow Guide

Book a FREE 15 minute meeting

Plant a tree with us today, to sit in the shade in the future.

More From Hudson Financial

Annual Update – How Much Does the Average Person Require $ Per Annum to Live a Comfortable Retirement?

I have provided an update on the estimated annual cost to live a comfortable or modest standard of living in retirement for singles and couples....

SMSF Pros and Cons

Self-Managed Superannuation Funds (SMSFs) have been dominating my conversations with clients of late.  I have one and my main motivation in doing so was to...

Transitioning From an Accumulator to a Retiree

Transitioning from the accumulation phase to the retirement phase represents not only a change in financial strategy but also a complete psychological shift, one that...
Scroll to Top