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Can someone help me with some calculation?

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  • Can someone help me with some calculation?

    Hi all,

    Can someone help me please?

    If I buy a NZ$250,000 property in christchurch, cash (no mortgage) and a tenant pays NZ$300 per week for a period of a year.
    How much pure profits will I make at the end of the year if we subtract:

    * property management fees
    * property rates (who usually pays this, tenant or owner? is electricity included too?)
    * property insurance (is it so necessary?)
    * income tax (is it 12.5% or 21% ?)

    Is there anything else to subtract?

    I don't need absolute exactness, I need your guessing numbers and only approximate results please! Thanks.

  • #2

    This allows 4 weeks vacancy - tax rate of 30% - management at 8% - rates of $1500 (Tenant pays power) - insurance at $600 and 2k for maintenance.

    No depreciation has been calculated.

    So your looking at a 2.56% net return.

    You could also take accountants fee off that.


    • #3
      * income tax (is it 12.5% or 21% ?)
      Tax rate will depend on whether it's in your own name, or in a Trust or LAQC. It could be up to 39%.

      * property insurance (is it so necessary?)
      Are you kidding? You can forego insurance only if you are happy to lose your $250,000 when the house goes up in smoke! Search on 'fire' in this forum - you will find stories. At a cost of $400-500/year (give or take) it's a cheap way to allow yourself to sleep at night.

      * property rates (who usually pays this, tenant or owner? is electricity included too?)
      Owner needs to pay property rates (and water treatment rates, if in South Auckland). Tenant pays water rates. Tenant also pays power and phone.

      * property management fees
      Assume 8% of your rental income.

      Is there anything else to subtract?
      Omad mentioned maintenance costs of $2k. This would depend on the type of house. If it is a near-new brick home, you may get away with less. If it's an older, weatherboard home, assume more (maybe double).


      • #4
        Hey if you are asking questions like that

        Stay away from property investment. Put your money in the bank.


        • #5
          Property would be under own name, does that mean 12.5% ?
          Thanks anyway!


          • #6
            Originally posted by Viridistori View Post
            Property would be under own name, does that mean 12.5% ?
            Thanks anyway!
            If that is your only income yes. NZ has a graduated system ranging from 12.5 to 38%.


            • #7
              Rough calc and breakdown

              300 x 48 weeks (4 weeks vacancy)
              14 400
              less 1152 management at 8%
              1200 Rates (approx, depends on property)
              500 Insurance (upper limit, normally around 400)
              2500 maintenance (1% of value per year)

              9048 pre tax
              30% tax is 6333.60

              This is a bit conservative. A good Property manager should have an vacancy of less than 4 weeks .


              • #8
                There is also depreciation (say 4% on 100,000 = $4k which is conservative) which means tax bill will be lower.


                • #9
                  The tax rate will depend on your total NZ income. I have presumed you have other NZ income, therefore your tax rate would be approximately 20%.

                  As mentioned above, repairs depends on the property, so without knowing the property we can only guess.

                  Depreciation can be higher if there is a lot of chattels, but for the purchase price I"m guessing a chattels valuation won't be worth while.

                  You might also incur advertising costs.


                  Expected Rental Return
                  Less Deposit$250,000
                  Total Borrowed$0
                  Income:Rent - 50 weeks at $300 per week15000
                  As a % of total house6.00%
                  Less Expenses:
                  Bank fees50
                  Interest - at 6.5%0
                  Property Management - at 8.5% + GST1,434
                  Repairs and Maintenance1000
                  Total Expenses5034.38
                  NET CASH SURPLUS (DEFICIT)9965.63
                  Less Depreciation4500.00
                  NET TAXABLE PROFIT (LOSS)$5,465.63
                  Tax to pay at say 20%$1,093.13
                  Overall Cash surplus =Taxation refund less cash deficit$8,872.50
                  As percentage return on deposit3.55%after tax
                  Last edited by Rosco; 21-04-2009, 08:48 AM. Reason: to tidy excel formating
                  Book a free chat here
                  Ross Barnett - Property Accountant


                  • #10
                    The rate of return cash wise will not be much, but it might safe guard your cash from inflation in the long run.
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