The purchase and valuation
This Melbourne apartment was purchased for $355,000.
My case-study record reports a bank valuation of $440,000 and achieved rent of $470 a week.
The $85,000 difference between valuation and price is a comparison before acquisition costs.
A bank valuation is a lender's opinion at a point in time, and any realised result depends on a later sale and its costs.
Gross yield and the holding budget
At $470 a week for 52 weeks, annual rent is $24,440.
Dividing that by the $355,000 purchase price gives a 6.88% gross yield before costs.
The holding model below shows an annual shortfall of $1,072 before tax, using the listed outgoings and interest assumptions.
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 |
|---|---|
| Water | $704 |
| Council rates | $1,000 |
| Owners corporation | $2,360 |
| Property management at 6.6% | $1,613 |
| Landlord insurance | $400 |
| Land tax allowance | $975 |
| Total estimated outgoings | $7,052 |
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 |
|---|---|
| Rent: $470 x 52 weeks | $24,440 |
| Less estimated outgoings | -$7,052 |
| Interest: $284,000 loan at 6.5% | -$18,460 |
| Modelled annual shortfall | -$1,072 |
Approximately $21 a week before tax, based on the assumptions above.
Estimated cash required at purchase
| Item | Amount |
|---|---|
| 20% deposit | $71,000 |
| Victorian stamp duty allowance | $16,370 |
| Legal, building and pest allowance | $3,000 |
| Rental compliance and upgrades allowance | $3,000 |
| Total of listed cash requirements | $93,370 |
The buyer's agent fee is additional.
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.