A week ago we posted a Deal Or No Deal pop quiz on our Facebook page.
Auckland CBD freehold apartment selling at $300,000 with an assessed market rent of $400 p.w. Body corp fee of $2,800 p.a. and rates of 850 p.a. Assume 2 weeks vacancy which is when you will be carrying out major repairs and maintenance (budgeted at $800 p.a.). Fully financed at today’s ANZ New Zealand floating rate of 5.74% p.a. minus your APIA home loan discount. Assume no further costs.
What is the actual return as a percentage? Will this apartment give you a positive or negative cashflow? Finally, tell me, Deal Or No Deal?
Well, the answers are in, and we are pleased to announce the winner – Q.J. Lee who correctly stated: 5.18%, negative compared to the interest rate 5.49% you get. (-0.31%), no deal.
Working on the return on investment is a skill all investors should know inside out. By analysing the deal before you jump in, you strip away the emotion and look answer the very basic question: Should I or shouldn’t I invest.
A while ago we talked about how to work out your return. For this particular example:
The net return being 5.18% compared to the interest rate of 5.74% means that this particular investment will give you a negative cashflow and would mostly likely be a dud for many investors.*
Back when we were young and carefree, we posted a video explaining how to work out investment return. Have you seen it yet?
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