Investment Property Calculator

Investment Property Calculator

Investing in property brings with it the need for calculations other than affordability. You need to calculate your mortgage payments, cash flow, rental yield, and more, as influenced by different scenarios. This can be useful when comparing different properties or investment strategies, allowing you to decide on the most financially viable option.

The iBuyNew Investment Property Calculator is designed to help property investors like you make informed decisions when buying off the plan properties. In addition to the calculator below, we also explore key financial terms and considerations related to property investment.

Investment Property Affordability

As suggested earlier, one of the first steps—before you get to any other calculations—is affordability. Can you afford an investment property? This means looking at your current income, along with your regular expenses and savings. More than that, you also need to consider your ability to accommodate unexpected changes; interest rates could increase, or your own personal circumstances could shift. Think of calculating affordability as a way of understanding your financial readiness.

The Concept of Borrowing Power

While you assess affordability, lenders evaluate your borrowing power, deciding the loan amount based on your income, existing debts, and regular living expenses. Like affordability, borrowing power influences the type of property you can afford.

Investment Property Deposit Requirements

Australian lenders typically require a deposit of at least 20 percent of the property's value. However, lenders do also understand that it can be challenging to save the required 20 percent. To accommodate this, some lenders are willing to accept a smaller deposit, though this does require Lenders Mortgage Insurance (LMI), with the cost of this added to your loan.

Ongoing Property Costs

No property, whether it is a personal use property or an investment, comes without ongoing expenses. It is vital that you factor these in to avoid affecting your financial planning and return on investment. A few you should expect include:

• Mortgage repayments: Probably your most significant monthly expense, the amount will depend on the amount you borrowed, the interest rate, and the loan term.
• Property management fees: If you hire a property management company to oversee tenant issues, maintenance, rent collection, etc., they typically charge a percentage of the rental income.
• Repair and maintenance costs: Routine maintenance is essential in keeping your property appealing and retaining its value.
• Council rates, body corporate and strata fees: Council rates need no explaining. However, you do need to factor in strata or body corporate fees if your property is part of either.
• Insurance premiums: Insurance costs could include building insurance, landlord insurance, contents insurance etc., and is essential for protection against damages and certain rental issues.
• Land tax: In most Australian states you pay land tax if the combined unimproved value of all taxable land you own exceeds a certain threshold.

Understanding Investment Property Cashflow

Cash flow on an investment property is quite simply the net amount you are left with after deducting all paid expenses from the total income generated by the property. Depending on the property, it won’t always be possible for the weekly rent to cover all costs. A small negative cash flow isn't necessarily bad if you've planned for it, with some chance of your annual tax return offsetting this.

Rental Yield as a Performance Measure

Rental yield is a metric that allows you to see the potential return on investment (ROI) for different properties. The calculation is simply:

Gross Rental Yield

Annual rental income (weekly rental income x 52) / property value x 100

Net Rental Yield

(Annual rental income - annual property costs) / property value x 100

You can use this to not only compare how different properties could perform before buying one, but also after the purchase to monitor how your investment is performing.

Understanding Tax and Rental Income

Any income earned from renting out your property must be declared on your annual income tax return. However, you should remember that certain expenses related to managing and maintaining the property can be claimed as deductions.

At iBuyNew, we're committed to making your property investment journey as smooth and rewarding as possible. From helping you find great off the plan investment properties, through to expert advice at every stage of the transaction. Start by scheduling a free consultation today.