Making the right investment choice between property and shares can be challenging, especially with the many variables influencing each option. We found this cash flow analysis tool, that you can download from here
Providing you with a structured framework to compare cash flow and growth potential in a straightforward manner.
Here’s a step-by-step guide on how to use this tool effectively.
Step 1: Understand the Input Categories
The tool begins with several input sections that reflect essential aspects of property investments. Here’s an overview of the categories and what they mean:
1. Initial Costs and Purchase Information
- Purchase Price: Enter the total purchase cost of the property.
- Deposit (%): Specify the percentage of the deposit. This figure helps to calculate the loan amount.
- Initial Purchase Cost: This includes any additional purchase costs, typically expressed as a percentage of the purchase price, such as fees, stamp duties, or legal charges.
2. Growth and Maintenance Factors
- Capital Growth: The estimated annual property value increase, usually based on historical or market trends.
- Repair & Maintenance: Expected annual maintenance costs as a percentage of the property value.
- Inflation: Enter the general inflation rate here, which influences costs and potential income from property over time.
3. Loan and Interest Information
- Loan Amount: Based on the purchase price and deposit, this figure calculates how much you’ll need to borrow.
- Interest Rate: Input the interest rate for the loan. This rate will be applied to calculate annual interest expenses, impacting overall cash flow.
4. Annual Insurance Costs
- Insurance Year 1: Add the insurance premium for the first year. This will be factored into your annual property expenses, which affects overall profitability.
Each of these fields provides essential data points that influence the financial performance of a property investment over time.
Step 2: Input Data to Reflect Your Scenario
With an understanding of each field, input data relevant to your investment scenario. For instance, if you’re considering a $400,000 property with a 5% deposit and expect a 4% annual growth rate, input these values in the respective fields. You can adjust other fields like maintenance, inflation, and interest rates to reflect realistic expectations based on your research or market conditions.
Pro Tip: Be conservative with estimates for growth and low with maintenance costs for a more cautious view of potential returns.
Step 3: Analyzing Cash Flow Over Time
Once the data is entered, the tool calculates various cash flow projections for you.
- Net Cash Flow: Based on rental income, expenses, loan repayments, and property maintenance.
- Cumulative Cash Flow: This shows how cash flow compounds year by year, giving insight into long-term profitability.
- Return on Investment (ROI): A critical metric that compares the returns relative to your initial investment.
Step 4: Compare with Alternative Investment in Shares
To compare with an investment in shares, this approach allows you to see side-by-side which option might yield better results over time.
Step 5: Adjust and Re-evaluate
This tool also functions as a what-if analysis model. Adjust factors like interest rates, inflation, or growth rates to see how your investment performance might change under different conditions. This flexibility is especially useful for understanding potential risks and returns in changing market conditions.
Conclusion
The "Investment Property vs Shares" tool provides a structured way to evaluate property versus shares, giving you clarity on cash flow, ROI, and cumulative growth potential. By following these steps, you can make informed decisions based on detailed financial projections, helping you choose the best path for your financial goals.
Don’t use the calculator
If you are intention is to flip properties every few years as tool’s base assumption is that you are paying out your investment property in 30 years
For making a decision to invest or not invest, this should be the starting point and not the end of your analysis
For arriving at any tax calculations
Once you have used and analysed, you can shorten your search, and get 5 properties delivered straight to your inbox every week, just hit