This year was not good for property. Interest rates continue to a pain, and the value of my investment property also suffered.
Warning: there is maths ahead!
Initial value: 430,000
Stamp duty: 23,000
Settlement fees: 2,400
Current value: 587,000
Growth: 131,600 — or 29% over 6 years, an average of 4.8% per year
But wait! There are other factors to consider. If I sold this property right now, what would be my actual gains? We need to take into account a few more expenses and also deductions and income.
Initial costs: 430,000 + 23,000 + 2,400 = 455,400
Ongoing costs (interest, agent, maintenance etc): 110,088
Principal paid on loan: 116,228
Depreciation claimed: 40,350
Rental income: 114,100
Tax return on deductible costs: 14,000
Loan balance remaining: 319770
Current valuation: 587,000
So:
Capital gains = 587,000 – 455,400 + 40,350 = 171,950
After tax (45%, with CGT discount) = 38,688
So total received = 587,000 – 38,688 = 548,312
Cash remaining after loan paid = 228,542
Profits over period of ownership = 114,100 + 14,000 – 110,088 = 18,012
Total profit: 246,554
What does this mean in terms of actual returns?
Amount I actually spent = 19,400 cash + 116,228 loan principal = 135,628
Returns therefore = 246,544 – 135,628 = 110,916 = 82%
Averaged over 6 years = 13% per year
Looks less attractive this year! But it was definitely a bad year for property, and the rising interest rates haven’t helped. Not a good time to sell, for sure. It should smooth out again going forwards though.
Chasing FIRE Down Under 