Setting Borrowing Assumptions
Start by entering your borrowing assumptions, including the annual interest rate, loan-to-value ratio, and any applicable loan setup fees. Adjust exit fees based on your loan terms.
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Choosing Loan Terms
Set the loan term, typically 30 years for residential properties, and specify any interest-only periods. This will influence your monthly payment calculations.
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Entering Rental Income
Input the rental income, either as a weekly or monthly amount. Ensure you select one option to avoid errors, and estimate the annual rent escalation.
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Adding Vacancy and Credit Allowance
Include a vacancy and credit allowance, typically around 3%, to account for potential rental income fluctuations. Adjust the discount rate as needed.
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Understanding Discounted Cash Flow (DCF)
Learn about the DCF method for valuing a property, which discounts future cash flows to present value based on a discount rate.
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Calculating Operating Expenses
Set your operating expense escalation rate, typically in line with inflation or CPI, to project future expenses accurately.
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Incorporating Equity Dividend
Factor in the equity dividend, which accounts for the risk of the interest rate and helps calculate the weighted average cost of capital for the project.
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Finalizing Borrowing and Income Assumptions
Review and adjust all assumptions to ensure accurate projections of net present value, discounted cash flow, and overall project feasibility.
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