Yong-Long Lai

This is a real life example that happened over the weekend, 8th July 2007. This is not my purchase, but I have been given permission to post the transaction for people to have a look. Just a breif overview:

• The property was listing “From $285,000″
• It is a 2×1 villa in a small group of 10
• Owners are keen to sell it and agent is even more keen to sell because the property has been on market for more than 6 weeks (most probably end of listing period – ie no commission for agent. Plus previous person pull their offer out)
• Agent mentioned that the owners are happy to sell for 280-285, below listing price
• Property is within 2-10km radius from the CBD
• Property is unrenovated and requires a bit of work
• Plenty of comparable sales near by with lots of expensive cars on the street
• Freshly painted property in this area sell for $300,000 – $320,000

Offer was written and accepted a few hours later. So how does this all work??
Firstly, Finance has already been pre-approved with a lender for 97%, interest only, fixed rates for 5 years

The Trade

• Purchase Price: $280,000
• Lenders Mortgage Insurance (~2%): $5,600
• Stamp Duty: $9,700
• Loan Value (97%): $271,600 (2% for Lenders Mortgage Insurance)
• Cash Needed: 14,000 (5% deposit) + 9,700 (stamp duty) + 2,000 (closing cost)
• FREE MONEY RECEIVED: $2,000 ( Home Buyer Assistance Account) + $7,000 ( First Home Owner’s Grant) + $9,700 ( Stamp Duty Rebate)
• Real Cash Needed: $7,000 ($14,000+$9,700+$2,000-$2,000-$7,000-$9,700)

Sold! This is the easiest way to buy a property for less than $10,000

Some of you must be thinking, “how do I pay for the mortgage”…

• Loan Amount: $271,600
• Interest Payment (7.75%): $21,049 per year
• Rates: $1,200 per year
• Strata: $1,000 per year
• Cost Per Year: $23,249 ($447.10 per week)

What you need to do is find a friend to stay with you and charge them $100-$150 a week!

Lets say in one year time you decide to be smart and rent your place out for $200 a week

• Loan Amount: $271,600
• Interest Payment (7.75%): $21,049 per year
• Rates: $1,200 per year
• Strata: $1,000 per year
• Cost Per Year: $23,249 ($447.10 per week)
• Rent: $10,400 (200×52)
• Management Fee (9%): $936
• Depreciation: $2,000

Net Cashflow: 10,400 – $936 – $21,049 – $1,200 – $1,000 = -$13,785
Tax Break From ATO (assuming 30% tax bracket): ($13,785 + $2,000) x 30% = $4,735.5 (cash back)
Net Cashflow: -$13,785 + $4,735.5 = -$9,049.5 ($174 per week)

This is a real life example of a property I purchased in Elwood, Victoria
Settlement was on 25th January 2007 (One day before my sister’s wedding)

The Views

The Balcony

The Kitchen

The Living Room

Purchase Price: $370,500
Stamp Duty: $17,890
Finder’s Fee: $5,995
Loan Amount: $358,572.35
Other Fees: $4,000 (approximately)
Cash Required: $39,812.65 (From Line of Equity)

Interest Expense: $30,476.45 ($39,812.65 + $358,572.35) @ 7.65%

Rental Income: $15,600 (300pw)
Management Fee: $1,201.2 (7.7%)
Net Income: $14,398.80

Depreciation: $2,129 (Drops to $877 over 10 year period using Diminishing value)

Net Loss: $13,948.65
Tax Deduction 30%: $4,184.59 ($638.70 paper deduction)
Tax Deduction 40%: $5,579.46 ($815.60 paper deduction)

After Tax Actual Cash Flow @ 30%: $10,615.66 ($204 pw)
After Tax Actual Cash Flow @ 40%: $8,794.99 ($169 pw)

Note: If you have $39,812.65 cash required to settle this property you will save $3,045.67 ($58.57 pw)

Break-even Analysis:
@ 30% tax rate – The above property will need to grow at least 2.85% ($10,615.66/$370,500) to break-even
@ 40% tax rate – The above property will need to grow at least 2.37% ($8,794.99/$370,500) to break-even

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