Mortgaginator

By Slow Dad - November 15, 2016

Use my property evaluation spreadsheet to analyse the viability of prospective investment property deals. Get your free copy from Cantankerous.Life.

Run the numbers

My property evaluation spreadsheet has evolved over the years to allow the analysis of prospective deals. Below it is populated with figures from a recent opportunity, and demonstrates how the viability of a mediocre deal would be quickly threatened by shocks such as rising interest rates or tax rule changes.



Gross Yield: A quick and dirty calculation to allow you to compare returns before expenses offered by similar properties.
Annual Rental Income / Property Valuation

Net Yield / Cap Rate: Measures the property’s cash flow relative to its value. The dividend yield of the global stock market is about 2%, so if the result is less than that there is easier money to be made elsewhere.
Annual Net Income / Property Valuation

Cash on Cash Return: Measures the rate of return on the cash you are putting into the deal.
Annual Net Cashflow after financing / Investor’s cash contribution

Self Funding Period: The number of years it would take for the property to pay the investor back their initial cash contribution.
100 / Cash on Cash Return

Debt to Equity Ratio: Reports the proportion of the property’s value that has been financed by borrowings. The higher the number the more heavily leveraged the property is.
Mortgage Amount / (Property Valuation – Mortgage Amount)

Fair Value Test: A very rough assessment of the property’s rental income versus its market value. A value of less than 100 is expensive, greater than 100 is cheap.
Annual Rental Income / (52 Weeks in the year * 1000) / Property Valuation

One Percent Rule: Under this rule of thumb the monthly rent should be 1% or more of the property’s market value, providing an annual gross yield of 12%. When applied alongside another rule of thumb, that the cost of operating a rental property is roughly 50% of the rental income it commands, reduces that annual yield to 6%.
If a property doesn’t meet this threshold the investor would likely get a better return, with less hassle, investing in a low cost index tracker fund instead.
I treat this rule of thumb a little bit sceptically as I think the “50% rule” overstates the running costs of a property, while underplaying the realistic financing costs. It can be a good triage tool though, to help filter out really rubbish deals.
Monthly Rental Income / Property Valuation

Investor Accumulated Equity: Reports the amount of equity the investor has accumulated in the property.
Property Valuation – Mortgage Amount

Maximum Permissible Mortgage: The maximum amount a lender will lend against a property, as determined by the Loan to Valuation Ratio.

Maximum Supported Repayment Mortgage: The highest mortgage value the property’s net income can service, given the supplied loan interest rate, term and repayment frequency. Exceed this and you’ll be subsidising your tenant’s living costs!

Maximum Supported Interest Only Mortgage: The highest mortgage value the property’s net income can service, given the supplied loan interest rate, term and repayment frequency. Exceed this and you’ll be subsidising your tenant’s living costs!

You still need to have a way to repay the principle at some point, regardless of how many times you may refinance along the way.

Mortgaginator - Property Purchase Calculator
Mortgaginator - Property Purchase Calculator

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