The purchase and valuation
This Elsternwick apartment was purchased for $335,000, with a bank valuation of $400,000 recorded in my case study.
That gives a $65,000 difference between the reported valuation and the purchase price, before acquisition costs.
The valuation is a lender's opinion at a point in time, with a realised outcome depending on a later sale and its costs.
Keeping the rent assumption clear
The rental appraisal supplied for the property was $450 to $490 a week.
The deal sheet used $440 a week, so I've kept that figure throughout this model.
At 52 weeks, that produces $22,880 in annual rent and a 6.83% gross yield on the purchase price, before costs.
The $440 figure is a modelling assumption rather than a claim about achieved rent.
How to read this example
This historical model uses the figures in my purchase case study, including estimates for costs and finance.
It assumes 52 weeks of rent and a loan at 80% of the purchase price, with interest calculated at 6.5% a year.
The model includes only the listed outgoings and loan interest, with principal repayments, vacancy, repairs and other costs requiring a separate allowance.
Your accountant and finance adviser can assess the costs, tax treatment and lending terms for your circumstances.
Estimated annual outgoings
| Item | Amount |
|---|---|
| Council rates | $1,032 |
| Water | $960 |
| Landlord insurance | $400 |
| Land tax allowance | $975 |
| Owners corporation | $1,875 |
| Property management at 6.6% | $1,510 |
| Total estimated outgoings | $6,752 |
These are the historical case-study allowances, with land tax dependent on the owner's circumstances and total Victorian holdings.
Illustrative annual cashflow before tax
| Item | Amount |
|---|---|
| Assumed rent: $440 x 52 weeks | $22,880 |
| Less estimated outgoings | -$6,752 |
| Interest: $268,000 loan at 6.5% | -$17,420 |
| Modelled annual shortfall | -$1,292 |
Approximately $25 a week before tax, based on the assumptions above.
Estimated cash required at purchase
| Item | Amount |
|---|---|
| 20% deposit | $67,000 |
| Victorian stamp duty allowance | $15,170 |
| Legal, building and pest allowance | $2,500 |
| Rental compliance and upgrades allowance | $1,000 |
| Total of listed cash requirements | $85,670 |
The table totals the listed items only, with the buyer's agent fee agreed separately.
These historical allowances are estimates for this example; current transaction costs need to be confirmed for each purchase.
General information only, not financial advice.
Each search, property and buyer's circumstances are different.
For general guidance, read MoneySmart's explanation of investment property costs and interest-only home loans.