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Few things in life can speak as clearly as a mathematical formula. Even if you hate math, you can’t deny that the right formula can help you forecast your financial future. Consider the following formulas. These examples show how a well-executed strategy can deliver a positive impact on both yields and cash flow, using math!
Pay particular attention to the different results that were created on the part of the investor. A change of ½ of a percent may not seem like much, but over time the difference can be substantial.
|Purchase Price||Rental Yield|
|$300,000||$15,600 / $300K = 5%|
|$280,000 (Discount)||$300pw x 52 weeks = $15,600
$15,600 / $280K = 5.5%
Savings of $20,000
Renovation of $5,000
|$330pw x 52 weeks = 17,160
$17,160 / $280K = 6.1%
A good rule of thumb is that a property valued at $300,000 with rent of $300 per week, the yield will be 5%. The same holds true for a property valued at $400,000 with a $400 per week rent.
Obviously if the rent is lower than $300 or $400 per week you’d know that the yield is below 5%.
These figures are important because the more we can drive up the yield, the better the chance that we won’t have to come out of pocket for the property every month.
Consider this purchase in terms of equity. When we negotiate a discount of $20,000 below value we automatically pick up $20,000 in equity right from the start.
Add to this the idea that we could conservatively gain growth of 5% (off of $300K) over the next year, giving us another $15,000 in capital growth.
A valuation after improvements (which cost us $5,000) delivers an increase in value of an additional $30,000 that is just a 10% increase.
So add it up:
See what I mean by formulas? Now that you know this formula, go on out there and duplicate it yourself! Imagine the state of your portfolio if you used this strategy many times over!
The math speaks for itself. The more strategies you’ve got in your pocket, the better! Two of our favourites’ here at Positive Real Estate are discount and renovation.
These are among some of the first strategies you’ll learn about as a Mentoring Client. If you like the idea of $60K in passive income – and let’s face it, who wouldn’t? – come along to our next Property Investor Night.
These popular events are free and packed full of information that you can use – right away – to grow your property investing portfolio.
You’ll also get the chance to meet a property coach one-on-one to discuss what you can do to achieve the results you’re after.