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Before making what is most likely one of the biggest decisions of your life, it is prudent to complete a cash flow analysis. This will give you a clear idea of the exact expenses involved with owning a home.

 
Here’s an example:
Ryan and Meg have been saving for a couple of years and have around $200,000 in the bank. They have determined with their broker a borrowing capacity for a property up to $800,000 at 80% Loan to Value Ratio (LVR).
 
They are eyeing a strata property in the suburb of Baulkham Hills which has been listed for $750,000. They require $182,000 for a 20% deposit, stamp duty and purchasing costs.
 
Initial Outlay
With a 20% deposit + stamp duty + Legal / Building and Pest (B&P) costs, Ryan and Meg require $182,013 cash outlay to complete the deal. A breakdown is included in the table attached.
As well as calculating what funds Ryan and Meg will require to secure their purchase, as part of their cash flow analysis they need to determine what owning the property will actually cost them each month.

What the Property Will Cost You – Weekly, Monthly, Yearly

Apart from the mortgage repayments, the typical costs to hold a property include council rates, water rates, Strata OR Building Insurance (depending on whether you buy a strata title unit or a house), contents insurance and annual borrowing costs from the lender. As per the calculations in the table 2 attached, it will cost Ryan and Meg $543 on a weekly basis to hold this property.
 
Note: the calculations are based on Interest Only repayments for simplicity and the rates used are the rates available in the market at the time of writing. For Principal & Interest Repayments add another 45% approximately.
Doing your cash flow analysis in a spreadsheet like the one above will help you feel confident that the financial commitment you are about to make is within your means. This will allow you to pay off your mortgage while sustaining a good quality of life.
 
Wondering how much it would cost you to pay off the principal of your loan as well as the interest so that you can one day own your home outright?
Take a look via an online repayments calculator.
 
Before putting in an offer, make sure you do your numbers!
Working with the Property Twins will give you access to our personal cash flow spreadsheet. This will help you get a clear picture of whether or not you can afford the properties you are considering.
 
Don’t forget – there is more than one way to skin a cat! If your cash flow spreadsheet doesn’t make it look like you can afford the holding costs, we can discuss alternatives with you.

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Note: Please ensure you always seek specific specific credit, tax, financial, legal or investment advice. Property Twins' Blogs are not a substitute for personal and specific, taxation, financial, legal or investment advice

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