FEASIBILITY CALCULATOR
The Buy To Let feasibility calculator allows you to project your income, costs and potential capital gains, for a period of 10 years, based on the specific details of the property you are considering buying. Using the value of the property concerned as a basis, the calculator will determine what transfer duty, conveyancing costs and bond registration costs will be payable. The calculator has two modes – a standard mode and an advanced mode. The advanced mode allows you to adjust any assumptions such as interest rates, expected property market growth, rental and expense escalations, on a periodic basis, depending on the outlook for the market. Output options include monthly and yearly cash flow statements and a projected income statement and balance sheet as well as a summary sheet showing graphically your projected equity, returns and annual cash flow. INPUT SCREEN The primary screen in the feasibility calculator is the input screen. This screen prompts you to enter all the details relating to a particular investment property. The input screen also provides you with advanced tools that enable you to predict future escalation and inflation figures. The effect of these figures on the performance of an investment is reflected in the financial statements and graphs. Please note: • Only cells that are white can be edited. All other cells are locked and any information displayed in these cells is calculated automatically. • All date fields should be entered in the format dd/mm/yyyy. You may need to check your computer regional settings. th • If the commencement date is after the 20 of the month, the information relating to the investment starts being recorded in the month following the date of commencement. • All the output options are calculated to coincide with the tax year, ie starting in March and ending in February the following year. Instructions 1. Enter the following information relating to the investment property: • Name and/or address • Purchase price • Deposit amount • Contract term of the loan in years (maximum is 30 years) • Commencement date. (This is the date of registration, and all transactions will be recorded from this date onwards.) • Expected date of sale. (This field is not mandatory and, if you are not sure of a sale date, then it should be left blank.) • Additional monthly payments. (This field allows you to enter an additional amount that you may want to pay off every month. This field is not mandatory and can be left blank.) • Interest rate applicable to the loan Enter the projected values and escalation percentages applicable to: • The property escalation per annum – the percentage amount by which you expect your property value to grow each year. • The expected monthly rental. • The rental escalation per annum – the percentage amount by which you expect your monthly rental amount to grow each year. • The expected number of months vacant per year – the number of months your investment property could be standing unoccupied each year. (This field is not mandatory and can be left blank. If you do fill in this field, the number of vacant months will be reflected in the financial statements each year.)
2.
• • 3.
The expected monthly expenses – the levy, insurance and managing-agent fees as well as water and electricity, etc. The annual expenses escalation per annum – the percentage amount by which you expect your monthly expenses to grow each year.
Indicate the following: • Whether or not transfer duty is payable. • Whether or not transfer conveyancing costs are payable • Whether the applicant is a natural person or not. (This field is mandatory, as it will affect the calculation of the transfer costs.) • The applicable tax rate. (This is a mandatory field.)
After entering the above information, your loan amount, loan to value (LTV), repayment amount and initial outlay are calculated and shown in the input screen. The financial statements, graphs and advanced forecasting options can be accessed by selecting the output options listed on the right-hand side of the screen. To select an output option, simply click on the button next to the required option. The input screen has a command button that allows you to clear all the fields and a button that allows you to view the amortisation schedule. The amortisation schedule will give you a detailed view of all the calculations relating to the investment property. Summary sheet The summary sheet groups together some of the primary information into one table to show you the net cash flow of the investment. The internal rate of return is also shown. All the information displayed in this sheet is automatically calculated and no user-input is required. A ‘Return to input menu’ button is provided to take you back to the main input screen. Monthly cash flow statement The monthly cash flow statement shows a breakdown of all the projected cash inflows and outflows each month as well as the net cash surplus or shortfall for the property investment. Yearly cash flow statements The yearly cash flow statement shows a breakdown of all the projected cash inflows and outflows each year as well as the net cash surplus or shortfall for the property investment. The yearly cash flow statement also shows the opening and closing cash balances. Income statement The income statement shows the projected income, expenses and net income before and after tax at the end of each tax year. The projected pre- and after-tax return on equity and investment as well as the cumulative return on investment percentages for each year are displayed below the statement. Balance sheet The balance sheet shows the total assets, liabilities and reserves of the investment at the end of each tax year.
Equity graph The equity graph is a bar graph that illustrates the estimated property value, amount owing and equity value for each year. The equity value is the estimated property value less the amount owing on the property. A ‘Return to input menu' button is provided to take you back to the main input screen. Cash flow graph The cash flow graph illustrates the rental income, annual repayments, lump-sum payments, renovation costs, annual expenses, cash surplus or shortfall, initial outlay and sale proceeds for each year, all on one graph. A ‘Return to input menu' button is provided to take you back to the main input screen. Return graph The return graph illustrates the pre- and after-tax return on investment for each year. A ‘Return to input menu' button is provided to take you back to the main input screen. Cash flow return graph The cash flow return graph illustrates the cash flow return on investment for each year. The cash flow return on investment is your annual cash flow generated as a percentage of your personal investment in the property, including the initial outlay. A ‘Return to input menu' button is provided to take you back to the main input screen. ADVANCED FORECASTING OPTIONS Lump-sum payments The lump-sum payment option illustrates the effect of a future once-off cash payment on the term of the investment. The larger the lump-sum amount, the shorter the loan term will be. A graph showing the effect of the lump-sum payment is displayed below the table. Instructions: • Select the payment date by selecting the particular year and month from the drop-down menus. • Type in the lump-sum amount in the ‘Amount’ column. (The changes will automatically be updated in the calculator and can be seen in the graph below the table.) • Use the ‘Return to input menu’ button to take you back to the main input screen and then select the relevant output option to analyse the impact of the lump-sum payment on the projected results of the investment. Note: The lump-sum payment is assumed to be coming from an external source and not from the cash that is generated from the investment. Interest rates The interest rate option illustrates the effect of changes in interest rates on your monthly repayment. An increase in interest rates will lead to an increase in monthly repayments. Conversely, a decrease in interest rates will lead to a decrease in monthly repayments. A graph showing the interest rate levels for the period of the loan is displayed below the table.
Instructions: • Select the date on which the interest rate changes by selecting the particular year and month from the drop-down menus. • Type in the new projected interest rate in the ‘Forecast rate’ column. (The changes will automatically be updated in the calculator and can be seen in the graph below the table.) • Use the ‘Return to input menu’ button to take you back to the main input screen and then select the relevant output option to analyse the impact of the change in interest rates on the projected results of the investment. Property escalations The property escalation option illustrates the increasing value of your property each year given the projected growth rates. The increasing property value increases the unrealised gain amount, thus increasing your overall return. A graph showing the property escalation forecast rates for the period of the loan is displayed below the table. Instructions: • Select a property escalation rate change date by selecting the particular year and month from the drop-down menus. • Type in the new projected property escalation rate in the ‘Forecast rate’ column. (The changes will automatically be updated in the calculator and can be seen in the graph below the table.) • Use the ‘Return to input menu’ button to take you back to the main input screen and then select the relevant output option to analyse the impact of the change in property escalation rates on the projected results of the investment. Rental and expense escalations The rental and expense escalation option illustrates how changes in escalation rates affect your property income and expenses each year. A graph showing the rental and expense escalation rates for the period of the loan is displayed below the table. Instructions: • Select the rental and expense escalation rate change date by selecting the particular year from the drop-down menu. • Type in the new projected rental escalation rate in the ‘Rental forecast rate’ column and type in the new projected expense escalation rate in the ‘Expense forecast rate’ column. (The changes will automatically be updated in the calculator and can be seen in the graph below the table.) • Use the ‘Return to input menu’ button to take you back to the main input screen and then select the relevant output option to analyse the impact of the change in rental and expense escalation rates on the projected results of the investment. Renovation expenses The renovation expenses option illustrates the effect of future renovation costs on your investment. The impact of these expenses on the value of your investment can be evaluated in the output options on the input screen as well as in the property valuation graph that is displayed below the table. Instructions: • Select a date for renovation expenses by selecting the particular year and month from the drop-down menus.
• Type in the projected renovation expenses in the ‘Amount’ column. (The changes will automatically be updated in the calculator and can be seen in the graph below the table.) • Use the ‘Return to input menu’ button to take you back to the main input screen and then select the relevant output option to analyse the impact of the renovation expenses on the projected results of the investment. Vacant months The vacant months option caters for the period of time where the investment property may stand empty. For example, you may be refurbishing or extending the house and it needs to remain unoccupied for three months. This option assists you in determining how the projected performance of your investment is affected by a vacancy period. A graph displaying your actual rental income for the term of your investment is displayed below the table. Instructions: • Select a date for a future vacancy by selecting the particular year from the drop-down menu. • Type in the projected number of vacant months in the next column. (The changes will automatically be updated in the calculator and can be seen in the graph below the table.) • Use the ‘Return to input menu’ button to take you back to the main input screen and then select the relevant output option to analyse the impact of the vacant months on the projected results of the investment.