Property Investment - How to Calculate Rental Returns

Before buying an investing property for rental intents it’s always a good thought to cipher whether it will be cash flow positive or cash flow negative. That is, will the property generate an income (positive) or will it necessitate a monthly cash injection (negative)?

This article will sketch and briefly depict many of the chief Buying and Annual Retention Costs incurred when purchasing a rental property. Please maintain in head that these points will change from country to country and they make not take into account personal tax implications.

Purchasing Costs

Purchase price – the agreed terms for which the property will exchange hands.

Renovation Costs – money budgeted for redevelopments prior to the property been made available for rental.

Agents Fees – in some states it is common pattern for the buyer to pay some or all of the existent estate agent’s selling fees/commission. However, in most cases these fees are paid by the vendor.

Stamp duty – a duty placed on the purchase of a property charged by the local authorities for the registration of the property into the new owner’s name.

Mortgage Application Fees – charged by lenders upon application to secure a loan to purchase the property.

Travel Expenses – flights, car hire, and hotel costs incurred when travelling to personally inspect a property.

Solicitors Fees – collectible to the canvasser for all of the relevant legal work for the transfer of the property.

Research – books, local suburban reports purchased to research a suburb.

Accountants Fees – the property may be purchased in the name of a Trust or Company. There may also be a crossover here with the solicitor’s fees.

Council Rates Cutover – Type A seller may have got paid rates up to a clip after the transfer of the property. The amount is then divide between the buyer and seller on a pro-rata basis.

Independent evaluation / Engineers Report – a seller may take to pay for their ain independent evaluation or engineers report to highlight countries of concern.

Miscellaneous – this will include postage, telephone phone calls etc. It’s also worthwhile to include a contingency should some of the above costs be more than than anticipated.

Annual Retention Costs

Mortgage Repayment – collectible to the mortgage lender to refund the loan used to purchase the property.

Property Management Fees – if a professional property manager is appointed they will either charge a percentage of rent or a monthly level fee.

Council/Municipal Rates – charged for aggregation of waste material and care of local services. Sometimes these are paid by the tenant.

Maintenance – costs for repairs and care on the property and it’s fixtures and fittings.

Bank Fees – account keeping fees charged by the bank.

Landlord Insurance – protection against theft, damage, non-payment of rent, legal costs.

Letting Fees – some property managers May charge a letting fee for determination new tenants.

Pest Control – protection against blighters and termites.

Cleaning – the property may necessitate a thorough professional clean in readying for new tenants.

Travel Expenses – incurred when visiting the property at modern times such as as showing it to possible tenants or collecting rent.

Local Income Tax – may be charged by some local authorities for the rental net income after any allowable deductions.

Land Tax – Associate in Nursing annual tax on the value of the land on which the rental property is built.

Accountants Fees – collectible for the disposal of legal constructions if a property is owned by a Trusts or Company.

Miscellaneous – again, this volition include a contingency should some of the above costs be more than than anticipated.

Once all of these costs have got been factored into your computations you will be able to determine whether a property will be cash flow positive or not.

In closing, it is imperative that you seek professional legal advice before you do any investment. This volition clear up the procedure according to your ain personal state of affairs and the county you are investment in.

Happy investing!