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What does it cost to buy an investment property?
Updated 31 May 2012
We previously had an example based on a Melbourne project that we sold back in 2009, a one bedroom apartment with a purchase price of $450,000, current interest rates at the time, investor borrowing the full amount etc and that example showed the net cost to hold the property was around $54 per week.
We thought it was about time to update our example, so this one is based on a Sydney property that we are currently selling, a one bedroom apartment priced at $475,000.
Not too much as changed, as in this example the we show how an investor can buy a property for around $50 per week.
Here it is:
Sample Cash Flow – For Local Australian Investor
Purchasing a typical 1 bedroom apartment in our current St Ives Sydney project $450,000 (due to complete in 2014)
Local Investor, currently earning an income of $120,000 with no other tax deductions.
Investor has existing equity in another property, so will borrow all required funds for this purchase.
Capital growth 6%pa, Inflation 4%pa, mortgage interest 5.99%pa (current 3 year fixed rate) Interest Only Loan.
Loan required, including all costs $479,020
As you can see from the cash flow above, After Tax cash Flow in year one is -$2,517 (or $48 per week)
Ie your net cost in year one after you receive rent, pay all the property costs and receive your tax deduction (which can be received throughout the year) your total cash cost in year one is $2,517, or $48 per week
Who pays for your property in year one:
Your tenant has contributed 70% of the holding cost of Your Property
The Australian Tax Offfice has contributed 23% of the holding cost of Your Property
You have contributed just 7% of the holding cost of Your Property
If Sold after 10 Years:
Total Cash Invested: $19,724
Total Income tax refunded $49,942
Property Value: $850,653
Selling costs & Capital Gains Tax $121,906
Your equity once sold and loan repaid $249,747 (ie your cash in hand after tax)
Your total cash investment of $19,724 over the 10 years has grown to $249,747, so a return of $230,023. Not a bad return given the security that property investment traditionally offers over other forms of investment.
If you would like a copy of the full projections and assumptions for the above cash flow model please send us an enquiry , with your request and we will forward a pdf file with a comprehensive report illustrating the above projections.
Disclaimer: Please note that the projections listed above simply illustrate the outcome calculated from the input values and the assumptions contained in the model. Hence the figures can be varied as required and are in no way intended to be a guarantee of future performance.