How to use the Property Investment Calculator

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How to use the Property Investment Calculator

Or How I saved $28,000 on my first investment property in NZ

property investment calculatorWell, OK, this was not the first property that I bought in NZ. But is is the first that I put in an offer on!

To be truthful, I had seen a few on my first trip and this was the second week. I was a little slow out of the blocks, not wanting to rush into anything silly.

I was quite conservative and was resigned to thinking I might just have to head home and keep looking online rather than just buy for the sake of it.

Anyway, I think the agent was a little sceptical that I’d actually put any offers to her in writing at all despite looking at several houses. I think she had me pegged as a “tyre kicker”

I had to work out a few things:

  1. What were the fixed inputs I couldn’t control?
  2. What return was I willing to accept?
  3. How much could I afford to offer?

Add the regular fixed inputs to the property investment calculator

Well first things first. What are the outgoings that are pretty much fixed that I can’t control.

Rates, agent fees and Insurance could be estimated with reasonable accuracy.

I obtained a verbal appraisal of the potential rental from the property manager onsite at the agency. Do NOT ask for a rental appraisal from a sales agent! I’m not saying that they are going to want to mislead you, but it’s not their area of expertise. Yes, ask them for sales data, but always ask for rental data from the rental management team. They are the ones that will know where the local gang HQ is situated and what properties they do NOT want to manage!

Whilst there is a potential conflict of interest I’ve found from experience that most professional rental managers pride themselves on their independence and are not beholden to the sales agents in their office.

In this case the current rental was $175 and the property had been badly managed and in need of a tidy up. I was advised that I could expect $220 per week if I removed the tenant, cleaned the property and advertised.

 

property investment calculator

Determine your return using the property investment calculator

The next thing to do was to set my limit of what return I needed to justify the purchase! I settled on wanting a greater return that the bank would charge in interest.

So I wanted a 7% return on my cash!

property investment calculator

 

So how much was I willing to offer for this property. Well if you do your maths you’ve probably guessed.

Set your Price using the property investment calculator

 

property investment calculator

Yes, that’s right. I decided to offer $112,000

I have to tell you, the sales agent was not overly excited! Anyway it wasn’t my job to make her day, it was my job to not spend too much on an investment.

I also wasn’t overly excited about my offer. It was a fair bit away from the asking price and I was hesitant as I thought it might be considered a bit cheeky. Some people are happy to make low-ball offers with a straight face. I’m not one of them!

The shocking truth was I had NOT even visited the property when I put in my written offer!

I was no emotionally attached to the property in any way. I had sat down with one of the guys from Results Mentoring and worked through the numbers. I’d also had to ask another member of the team what the property was actually like and would they consider it themselves!

The fact that I had written a specific due diligence clause in my offer made me confident to commence the process, which in fact means to put pen to paper and write out a cheque.

So although this was the first property in NZ I had seriously looked at it was not until some time later that the vendor came back and accepted the offer! I had not expected to get the property at that price, but it was the price I had decided was the only one I was prepared to pay.

That’s how the property investment calculator saved me $28,000.

How to use the power of the property Investment Calculator?

The investment property calculator allows to to prepare several scenarios in my mind before I set forth on NZ soil. I can compute what values are likely to work for me to help me reach my own personal goals. Everyone’s goals will be different. There is no right or wrong.

The point is to have a objective measure of what you want! That way you can describe to the agents exactly what you’re looking for and how much you’ll pay.

In my case I ran some numbers and decided I could also have look for homes at around the $200k mark returning approx. $300 per week, but at that time I was after the cheaper homes that had a slightly higher yield. It is very helpful to a listing agent if they know exactly what it is that you DO and DO NOT want. They can often bring you listings before going to the broader market if you have a history of making reasonable offers and following through on them!

The next thing I would do is set a search criteria on my real estate marketing search site. Popular sites like realestate.com.au and realestate.co.nz allow you to set search criteria when new properties are listed.

In the town I was looking I set a mental equation. I wanted the yield to be 10% or greater! So If the property cost $100k, I wants $10k rental per year.
To make it easier for me to calculate I would simply say this was about $200 per week over 50 weeks. This makes allowance for vacancy etc.
So, whatever the asking price was, I would ask myself, could I get twice than in weekly rental?

Yes or No?

Or to put it another way,  if the realistic rental was going to be $220 per week. I would simply tell the agent I thought the property was worth $110k to me given my own calculations.
It made it nice and simple for them and made it easy for me to narrow down my focus and save everyone’s time.

In my next article I’ll show you a tool I used to help me find and value my cashflow positive deals.

Until next time,

property investment calculator

property investment calculator

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5 Comments

  • This is such a great tool!
    Wish I had something like this when I first started out investing in property.

    Now I don’t make a purchase with out first running it through the property investment calculator.

    Brett C

  • Hi Dwight,

    I noticed that your calculator does not consider the post-tax cash flow result (ie. depreciation and the tax refund based on negative geared property held in Australia).

    Regards

  • Hi Dwight,

    I noticed that your calculator does not consider the post-tax cash flow result (ie. depreciation and the tax refund based on negative geared property held in Australia).

    Regards

  • HI Dwight,
    I was wondering why you focus on NZ market rather than in Australia?

  • Hi Tom,

    I initially looked at NZ as the AUD was quite high compared to the NZD late in 2011. Also the costs for entry into the market are lower than here in Australia. The stamp duty rate for example is 0%. This means that you can buy a smaller, higher yielding property without as many of the costs.

    Now the dollar has retreated to more “normal” levels at around 1.10 the buying is not as cheap, but the lower entry costs still exist making it an attractive proposition for investors.

    I have subsequently bought in QLD as well, so I do look closer to home.

    Cheers,

    Dwight

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