– This is Basic Guide Only –
How to work out a Percentage (%) return on your Property Investment.
You will need a calculator.
When working out a percentage (%) return, work your return from your rental income on 48 weeks per year occupancy – any more is a ‘bonus’ – this is conservative
Cost of Rental Investment: i.e $360,000 at 100% borrowing.
Rental Income of $380 per week = $18,240 (48 weeks).
Divide Rental income ($18,240) by Cost of Rental ($360,000) and press the % button on your calculator.
These figures give a 5% return less costs. Costs include Interest/Principal, Rates, Insurances and maintenance.
If you personally have to ‘top up’ the rental income to cover costs – the property is called ‘negatively geared’.
|Cost of Rental Investment:||i.e: $360,000|
|Less 20% deposit:||– $72,000|
|Equals a Borrowing of:||= $288,000|
Rental Income of $380 per week = $18,240 (48 Weeks)
Divide $18,240 by $288,000 and press % button on calculator
These figures give a 6.3% return less costs. Costs include Interest, Principal, Rates, Insurance and maintenance.
If you don’t personally have to add income to cover costs – the property is called ‘positively geared’.
There are advantages and disadvantages to both examples: This is where you, as a property investor need a good Accountant and Financial Advisor – an essential part of managing your Property Investment Portfolio. A lot of property investors pay interest only and rely on capital growth for a return. Capital growth varies greatly in different parts of New Zealand.
Property Investment is never a short term, get rich quick scheme (unless you are very lucky with your Property Investment – i.e. Mortgagee Sales – even then there are some Fish-hooks’).
Talk to your advisors!
Most property investment is controlled by the interest rate ratio to the property investment and value to rental return… less costs