I did a video and article a little while ago on understanding how to buy a house from start to finish.
Today I wanted to do a little bit of an offshoot and really drill down on the importance of understanding your numbers, so that when you're buying a property and it's for an investment, you know your numbers BEFORE you transact on that property.
It can save a whole lot of heartache.
What you don't want to happen is to get to your settlement period and be thinking, "Hang on a tick, this property is going to cost me $500 or $1,000 or $1,500 a month and I actually can't afford it."
A frightening and disappointing thought.
But it happens.
So bottom line, if you know your numbers on the way IN, know your strategy, know your yield, know your purchase price, know your location, but more importantly exactly how much this property going to cost you on a monthly basis, you'll be sweet.
My Property Analyser Calculator has helped hundreds of Australian Property Investors know and understand their numbers and eliminate the fear of the unknown. I use this tool for my own personal property investing, it’s absolute gold! It includes everything you need and I encourage every first home buyer and property investor to get a hold of this. No more guessing, no more mistakes, no more fear – you’ll be working with clear and concise data!
John Pidgeon Co-host of My Millennial Money and Director, Solvere
Other things to consider are is it cash flow positive before tax? Is it cash flow negative before tax? What's the rent coming in times by 52 divided by our purchase price in order to get a gross yield.
That's a starting point, higher level can be done in 10 seconds. So once we know that and we may need to speak to a property manager or an agent, as to get a reasonable appraisal on that particular property we're looking at. We can then see this is the interest we're going to be paying on this particular loan, because we've spoken to the mortgage broker about that, and they've given us an understanding of what it'll cost per month. Marry that up against the rental income coming in, and that's your gross comparison.
We also know when we're buying a property investment that we're going to have other costs associated. So rates, insurance, property management fees, any maintenance required on the property, etc.
Now if we're paying principal on the on the loan as well as the interest then we need to factor that in as well. So all this needs to be all done prior to putting in offers, prior to the cooling off period ending so we've got some certainty around the numbers so we might be factoring in two weeks or three weeks or four weeks of vacancy depending on our risk levels and the areas that we're buying into. We might be factoring in a quarter of a percent, half a percent, one percent, two percent interest rate rise, so if we get those it's no surprise to us.
All sounds a bit confusing and you're property thinking how on earth am I going to gather all this information in a format that I can calculate and understand easily.
I've created a Property analyser Calculator that absolutely does all of that from start to finish, you know your exact numbers before tax and after tax. You can run them past your accountant, and ensure that you're all on the same page before you transact on that property.
People never come to me and say, "I should have sold that property sooner", they always come to me and say, "I should have held on to that property, but I just couldn't afford to hold it". I don't want you to be that person who has to sell, because you're ruining your lifestyle because your investment property/properties are costing too much to hold.
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