RSS Feed

Deal Or No Deal?

Friday, February 01, 2013

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? 

*Note that we are assuming that there are no improvements to the property value, no insurance costs and no property management costs.  In real life this will most likely not be the case but we do hope this quiz serves as a good example for how to work out your return. 

Recent Posts


Guest blog skill shortage CoreLogic Question and answer Holler travel bubble house prices termination worksafe property apprentice retaliatory notice cash-flow Tribunal case study damage investor education first home buying boarding house DTI gluckman report LIM initio structure property principal and interest warm up new zealand apia letting fee winz property management income rta brightline Landlording Market report anti-social behaviour auckland council building interest deductibility robert kiyosaki sublease capital gain re agent quiet enjoyment How to partners heating buying inspection buying rules will airbnb mortgage Investment tip shower dome subdivision property value sale and purchase clnz trademe Q&A legal heat pump parry v inglis productivity watercare bad tenant tenancy issues smoke alarm insurance kiwibuild Investor story minor dwelling development Property (Relationships) Act reserve bank ask an expert heater bankruptcy interest only Case study debt to income positive cash flow meth daikin finance ocr lockdown privacy warren buffett cat tenancy services off the plan election 2017 commerce commission insulation business speculator property cycle wins rent banking equity housing bubble bond HHS Editor's Choice extractor fan Jeff Bezos beginner investor maintenance return housing package personal growth lvr tenancy tribunal Zodiak Management buyer's agent rent increase market rent sale and purchas tenant rental wof short term rental Kris Pedersen Mortgages and Insurance early termination Sponsored post interest rates twg report rta reform covid-19 relationship Gluckman nzpif HHGA television rental market market khh data security RBNZ ventilation legal cost recycling equity HSWA auckland TCIT inflation tax ring-fencing unitary plan Standards New Zealand property maintenance negotiation trespass rent arrears anz financial advisers act Level 4 renovation wealth creation ird RTAA 2019 letting shortland chartered accountants election2020 CCC holiday house Must know investment strategy interest limitation advice scotney williams meth contamination p lab government Keith Hay Homes debt enforcement fixed-term tenancy mindset water bill asbestos Must knows short-term rental yield cgt rent control bond form landlord barfoot and thompson trust rtaa2020 opes partners housing affordability management


Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo