I’ve seen a couple of postings on PT showing ‘great’ deals for trading. But after a quick look they seem hopeless. So I was wondering if everyone understands how to calculate the profit on a Trade?
Also how much profit should you make (before tax) on a trade. Obviously if you are assigning you incur no costs and limited risks, so any profit/fee is great. But is it worth buying a house for $250,000 and selling to only make $5,000 before tax? Do you need $10,000, or $20,000 or is there a certain percentage return?
Tips on calculating Profit!
1) All figures should be GST exclusive (just like in a normal business) – I use divide by 1.125. Interest, loan fees, bank fees don’t have GST, so they are already GST exclusive
2) I work on the worst case, so for example I always put real estate commission as a cost.
3) Set up a simple excel spreadsheet so that you can quickly put in the numbers and calculate the profit.
4) Remember to include holding costs being mainly interest, but also rates, insurance etc. It may take you a month to sell the property (once settled) and then another month or more for them to settle.
So, buy at $200,000 and sell at $270,000, what is the true profit.
a) Selling price $270,000 less GST = $240,000 excluding GST
b) Costs that include GST
Purchase Price $200,000
Legal fees to buy $1,000
Renovation costs $10,000
Legal fees to sell $1,000
Advertising $1,000
Insurance $100
Rates $300
Other $1,000
Commission on sale at 4% + GST = $12,150
Total costs that include GST = $226,550
Then less GST = $201,378 excluding GST
c) Costs with no GST
Bank fees $50
Loan fee $500
Interest $200,000 at 9.5% for 3 months = $4,750
Total costs with no GST = $5,300
Total all costs excluding GST = $206,678
Net profit before tax = $240,000 - $206,678 = $33,322
Tax at 33% = $10,996.26
Net profit after tax (cash in your hand) = $22,325.74
Lastly for each trade you then need to review is this profit worth the risk, hassle etc. In this case I would say yes, but if it was only $5,000 left at the end I probably won’t bother? What about other investors?
Ross
Also how much profit should you make (before tax) on a trade. Obviously if you are assigning you incur no costs and limited risks, so any profit/fee is great. But is it worth buying a house for $250,000 and selling to only make $5,000 before tax? Do you need $10,000, or $20,000 or is there a certain percentage return?
Tips on calculating Profit!
1) All figures should be GST exclusive (just like in a normal business) – I use divide by 1.125. Interest, loan fees, bank fees don’t have GST, so they are already GST exclusive
2) I work on the worst case, so for example I always put real estate commission as a cost.
3) Set up a simple excel spreadsheet so that you can quickly put in the numbers and calculate the profit.
4) Remember to include holding costs being mainly interest, but also rates, insurance etc. It may take you a month to sell the property (once settled) and then another month or more for them to settle.
So, buy at $200,000 and sell at $270,000, what is the true profit.
a) Selling price $270,000 less GST = $240,000 excluding GST
b) Costs that include GST
Purchase Price $200,000
Legal fees to buy $1,000
Renovation costs $10,000
Legal fees to sell $1,000
Advertising $1,000
Insurance $100
Rates $300
Other $1,000
Commission on sale at 4% + GST = $12,150
Total costs that include GST = $226,550
Then less GST = $201,378 excluding GST
c) Costs with no GST
Bank fees $50
Loan fee $500
Interest $200,000 at 9.5% for 3 months = $4,750
Total costs with no GST = $5,300
Total all costs excluding GST = $206,678
Net profit before tax = $240,000 - $206,678 = $33,322
Tax at 33% = $10,996.26
Net profit after tax (cash in your hand) = $22,325.74
Lastly for each trade you then need to review is this profit worth the risk, hassle etc. In this case I would say yes, but if it was only $5,000 left at the end I probably won’t bother? What about other investors?
Ross
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