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PIA User Guide - Somerset Financial Services

1. 3 To generate a comprehensive cash flow report of your entire current property portfolio This report Fig 26 Help Topics In addition to the on line Help Topics this information is available in a comprehensive PIA Users Guide as a separate file This is a PDF file which can be read using Adobe Acrobat Reader available as freeware at www adobe com products acrobat readstep2 html The PIA Users Guide is accessed via its icon in the PIA group PIAPro or PIAFpu under the All Program item in the Windows Start Menu PIA Quick Start Guide Page 43 Additional sources of information There are many sources of information that will help you understand the PIA software and the financial model on which it is based Much of this informa tion is available in books and on the Internet Building Wealth books The two books by Jan Somers currently in print are a valuable source of essential background information on the principles of property investment e Building Wealth Story by Story 1998 e More Wealth from Residential Property 2001 Somerset website www somersoft com au This site has the latest news and information about our company its products and its activities Check out the following e The news page for information on any upcoming property investment workshops e The Property Investor Forum to see what other property investors are up to e The Downloads section for a list of all the latest changes to the PI
2. 00000000000 38 What will the investment cost them after tax cccccccceeeeeeeeees 38 How much tax will they Save cccccseeccccccseeeeeeecaeeeeeeesaeeeeeeesaaees 39 canmthey alord asian Gu tengune asaaeeeancketaeeudentaceeees 40 Can they afford more investment properties ccccsecceeeeeeees 40 Print Generating a report 41 But will the bank lend them the MONEY ccccseecceeeeeeeeeeeeeees 41 What about their next investment property 42 Where to from here 43 Additional sources of information 44 Page iv PIA Quick Start Guide Welcome to PIA Welcome to PIA Property Investment Analysis a powerful program designed to make it easy for investors to analyse and evaluate prospective property investments PIA helps you analyse the capital growth cash flows and rates of return on investment properties taking tax implications into account It is simple to use and as a decision tool provides the answers to a long list of What ifs on property investment PIA is an analysis tool it is not an accounting tool On the market since 1989 PIA has become an industry standard in Australia and New Zealand used extensively by leading real estate groups property marketers banks lenders and accountants and by thousands of property investors PIA was developed to complement the bestselling books on property investment by Jan Somers The latest books in this series are e Building Wealth Story by
3. Net rent yr 1 13 862 Net yield Cash neutral investment 243 140 Cash positive by Fig 24 The spreadsheet showing the data entered in the example gt The spreadsheet is really the main interface in PIA and provides direct access to all of the menus dialogs and supporting analytical tools The window can be resized and or scrolled to view the entire contents of the spreadsheet The coordinates of the spreadsheet window are saved on exit and reinstated when the program is restarted Let s take a look at the elements of the Investment Analysis spreadsheet Page 34 PIA Quick Start Guide Menu bar File Edit Report Graphics Investor Calculator wiew Settings Help At the top of the screen is the menu bar File Edit Report etc The individual items within the menus may differ depending on the version of the software The menus function in the normal way providing access to all the powerful functions of the software Tool bar New Open Save Print Check List Dele oje ZJE nuli ldo lt l gt lo ee Beneath the Menu bar is the Tool bar consisting of a series of icons each of which provides quick access to commonly used functions If you position the mouse pointer over an icon a tool tip appears telling you the meaning of 7 the icon For example you can click the Check List icon shown on EJ left if you wish to return to the Data Entry Check List Item names The left hand column of the spreadsheet Investment Analys
4. Taxable Income Year 1 Investor Partner Total Assessable Income 75 000 35 000 170 000 Allowable Deductions 0 0 0 Curent Taxable Income 5000 35 000 110 000 Taxable Income Projections i Auto indesxed fram year Tyr at a rate of 400 Advanced 7 year Tyr gt gt OK Cancel Fig 22 Tax Credits dialog PIA Quick Start Guide Page 29 Investor Page With the Investor page now complete you have just one more page of variables to enter before you start playing What If on the spreadsheet that you are creating First check to see that the variables on the Investor page agree with those shown below and that all are ticked Data Entry Check List 9 Property Finance Investor What iF Joint Work Income Joint Work Deductions Principal Residence Amount Owing Home Loan Repayments Living Expenses Parttolio Properties Portfolio Value Taxable Income Joint Investor T ot tt tT Use these values as the new defaults Fig 23 Data Entry Check List Investor Page It is now time to click on the What If tab at the top of the Data Entry Check List This displays a page of variables used to determine annual projections These are divided into two Data Entry Check List n groups a group that Property Finance Investor What I historically has been closely What If2 am a a aM aa aligned with the rate of Infiation Rate CP 4 00 inflation and another the Ren
5. against the example Data Entry Check List Property Finance investor What iF Property 74 Laybum Rd Qeveland Gld 4163 Sbedroom lowset brick on lange block Use these values as the new defaults Property Details Property Value Purchase Costs Rental Income Rental Expenses Depreciation of Building Depreciation of Fittings Fig 13 Data Entry Check List Property Page It is now time to enter the data for financing the investment To do this click the Finance tab at the top of the Data Entry Check List While there are man y variables shown on this page they are divided into three groups and are dealt with in three dialogs The first of these encompasses variables that relate to the loan amount the second to those that relate to the loan type and rate of interest and the third to those that relate to costs in setting up the loan Page 20 Data Entry Check List Property Finance investor What if Finance I Use these values as the new defaults Loan Amount 420 342 Cash Invested 40 000 Amount Required 460 342 Loan Type 1 0 Yrs 1 40 Interest Rate 8 00 Loan Repayments 33 627 Loan Costs 5 267 Tax Write Off Period Syr PIA Quick Start Guide Loan Amount Click on Loan Amount in the Finance page of the Data Entry Check List The Loan Amount dialog opens Cash Invested has a default value of 40 000 as a deposit toward the property cost However as John and
6. or refurbishing an existing investment property The Additional Loan variable would be used where you want to borrow additional funds to assist with the investment for example to provide a cash flow buffer in the first year PIA Quick Start Guide Page 21 Loan Interest and Type Next we have to specify the loan type and interest rate Click on Loan Type or Interest Rate in the Check List to open the Loan Interest amp Type dialog First we have to change the loan type to Principal amp Interest Click on the radio button next to Principal amp Interest at the top of the box Then enter the value 7 0 into the nterest Rate Average field The default value for the period of the loan is 25 years shown under the Principal amp Interest radio button As we want a 30 year term change the 25 to 30 as shown below Loan Interest amp Type Loan A Loan Interest C Interest Principal C Capitalize C Credit Amount Fate Only amp Interest Interest Line Average From To From To From To From To ea rox a Loan B Loan Interest C Interest C Principal C Capitalize C Credit Amount Rate Only amp Interest Interest Line Average From To From To From To From To Loan Summary 1t year Loan Type Capitalized Interest TotalLoar 460 673 Split rate Capitalized component tax deductible Interest 32 099 eee Payment 36 778 Specify Annual Rates i OK Cancel Fig 15 Loan Interest amp Typ
7. 2 620 T X Y oS S Tax Write Of Period Use these values as the new defaults Fig 17 Data Entry Check List Finance Page It is now time to enter the information that is specific to the investor To do this click the Investor tab at the top of the Data Entry Check List Data Entry Check List 99 ws fe The Investor page like the Finance page is divided into Property Finance Investor What If groups five in this case of Investor TEE variables These include Joint Work Income details of personal income i 4 A alas armas home loan living expenses ae K caer any existing investment R on portfolio and last but not E i Portfolio Properties least their taxable income Use these values as the new defaults Page 24 PIA Quick Start Guide Investor s Personal Details Click on Investor Details in the Data Entry Check List to display the Investor s Personal Details dialog Investor Details you enter here can be used in later reports These customized reports are useful if you are presenting an investment proposal to lenders or simply want to have your figures checked by an accountant The information below is for our example but you can enter your own here if you do not wish to change it later The Investor Type and the Work Related Income amp Deductions will be used to determine precise tax benefits from the investment John earns 75 000 per year Anthea 35 000 Change the default
8. Story e More Wealth from Residential Property This PIA Quick Start Guide is based on PIA Version 7 5 edition 01 What PIA can do for you Briefly PIA can help you make objective decisions about a potential property investment You can quickly estimate your rate of return tax savings true after tax cost and affordability Furthermore you can very easily test the sensitivity of your results i e playing What if by making changes to the variables like growth inflation and interest rates Finally you can print outa professionally structured report to help you present your investment proposal to your accountant or bank manager Two different versions PIA is a standalone Windows program XP Vista Win 7 Win 8 available in two different versions to suit property investors and industry professionals PIA Investor P AFpu Fpu for personal use is suited to investors as it has a single user license and is for personal use only PIA Professional P APro Pro professional is better suited to industry professionals who want to use PIA in a consulting capacity to show investors the benefits and implications of property investment It has all the features of the PIA Investor as well as a site license and additional client related features such as client fields and professional disclaimers in reports PIA Quick Start Guide Page 1 About this book This Quick Start Guide is designed to help first time users get sta
9. We have already seen from the bottom line of the soreadsheet what the cost to John and Anthea will be The 440 000 property with the help of rent from the tenant and tax savings as a result of the investment will cost them just 277 per week But the question they must ask themselves is Can they afford this amount To answer this we will examine their total annual income including the rental income from the property and their total annual expenditure taking account of their reduced tax liabilities Open the Investment Capacity item in the Investor menu John and Anthea s total income for the year including rental income is itemised in the left hand column while their total expenses including the new rental expenses and investment loan interest is shown on the right With a projected net surplus of 23 005 John and Anthea are satisfied that they can afford the investment Investment Capacity Income 1st year Expenses 1st Year Total non property income 110 000 New tas investor 12 037 Curent rental income 0 New tax partner 0 Curent assessable income 110 000 Rental expenses Daan Non basable income U Inv loan interest 31 591 less Curent cash expenses j Inv loan principal 4 649 Current net income 110 000 Home loan payments 17 280 Hew rental income 19 419 Living expenses 45 000 Total income 129 419 Total expenses 106 415 Ownership Capacity Proportional ownership Investment properties 1 Single nam
10. purchase of their original software www somersoft com au PIA Quick Start Guide Page 5 Before we start Plug n Play n Print The next section takes you step by step through entries to complete your first property investment analysis You can then look at the results and make changes in the spreadsheet and once you are satisfied print out a report Data Entry Check List Property Finance Investor What If Plug in the data with the Data Entry Check List This is the most intuitive way for new users to enter data Use these values as the new defaults Play ail Untitied Somerset PIA e 3 ERS Sa File Edt Report Graphics Investor Calculator View Settings Help with the sehen on the osas je naule ela ela io eie Sprea S a ee A Piana orr oma ha i This is where experienced chan E A Aca T investments 40 000 users spend most of their time Leen cee Soes aasia mooss o7et 186095 996 088 apital groth rate 6 00 600 6 00 6 00 6 00 600 Enter changes and see the Sessio ioa aom aoe somo aam ao Gross rent wBek 350 17 836 18 549 19 291 20 866 25 386 impact on the fly E 8 00 30 348 30 348 30 348 30 348 30 348 Renta expenses 30 52 5621 5 846 6 080 6576 8 001 Print SUMMARY your results in the form of Assumptions Projected results over 10 yrs t _ mwa os 206 983 a report sross il MS Afertaxretumn ns p Nayeld 3 05 _ Net present value 128 137 This is a
11. see at the bottom right of the screen that various values can be linked to the property price This means that the default values for these variables are automatically determined by the property price If the price is changed then the variable is also changed Page 14 PIA Quick Start Guide Purchase Costs Click on Purchase Costs in the Check List to display the Purchase Costs dialog The Purchase Costs dialog shows the property price of 440 000 you entered a moment ago Purchase costs include conveyancing costs and stamp duty and may also include other costs such as interstate travel to select the property Conveyancing costs vary considerably and it may be worthwhile shopping around In our example the solicitor has quoted 1 250 Overwrite the default value of 2 000 with 1 250 and press the Enter key Purchase Costs Purchase Costs Purchase price 440 000 Stamp Duty 13 625 Conveyancing costs 1 250 Other costs 0 Total purchase costs 15 075 Tas Status Stamp Duty Scales f Capital cost w Uses Old C Revenue cost eg in A C T Reset Scales 0K Cancel As we saw in the previous dialog stamp duty was linked to the property price and is hence calculated automatically according to the State entered on initial start up but this can be changed at any time If you selected Qld for example Uses Qld is shown under Stamp Duty Scales If not you will have to change it for the tutorial no problem Click on Res
12. 751 516 666 545 063 575062 Growth rates 5 904 5 5904 5 904 5 5904 5 5904 5 904 l gt OF cancel Fig 25 Investment Property Growth dialog Choosing an accurate average future rate of capital growth is another case of crystal balling It is the main reason these are referred to as What If variables We recommend the approach of choosing a reasonable starting value and once you have completed the analysis choose values above and below the starting value to assess the impact on your investment decision A general guide to choosing a reasonable starting value for capital growth might be to take the average inflation rate you have chosen and add between 2 to 3 nour example our fictitious couple experienced a doubling in value of their own home over the previous ten years This is equivalent to just over 7 average annual compound growth Based on this and the fact that the land is the major value component of this investment property and that land generally increases in value at a faster rate than the building they are hoping for an average annual growth rate for this property over the next 10 years of between 5 and 6 Page 32 PIA Quick Start Guide What If Page Congratulations With the What If page now complete you have now finished the initial data entry and are ready to see the results of your work in a spreadsheet format The next figure shows what the What If page of your check lis
13. A software e The Support section for lists of FAQs on both PIA and investment property copies of the latest User and Quick Start Guides and opportunities for user feedback Australian Taxation Office website www ato gov au This is the definitive source of tax advice in relation to property investment in Australia There are many free publications available In particular we recommend the following e Rental Properties e Guide to Capital Gains Tax e Guide to Depreciation Australian Taxpayers Association website www taxpayer com au The association is an excellent source of up to date tax advice and puts out a plain English tax guide each year Real Estate Institute of Australia www rela com au A good source of up to date information on property related issues New Zealand Inland Revenue website www ird govt nz This is the definitive source of tax advice in relation to property investment in new Zealand A free publication called Rental income IR 264 explains tax rules for people who own rental property Page 44 PIA Quick Start Guide
14. Anthea are borrowing all costs set Cash Invested in the Property Cost row to 0 and press Enter Click OK to return to the Data Entry Check List The total Loan Amount and Amount Required are both shown as 460 673 while the Cash Invested is shown as zero Note that all three variables have red ticks to the right indicating that all three have been specified in the dialog Loan Amount At 2013 Cash Invested Equity Invested Loan Costs o soo 440 000 a 15 075 a 0 Property cost Renovation casts Purchase coasts Furniture package TL Holding costs Loan costs Ade Additional loan N Totals 0 460 673 460 673 To be used where you already have equity in the property Loan Type Fig 14 Loan Amount dialog ee Ok Cancel Note that we have yet to specify the loan costs which are shown as a default of 5 598 Once the actual costs are entered the loan amount is adjusted automatically It is also possible to specify the individual loan costs from this dialog by clicking on the Loan costs button and to specify the loan interest and type by clicking on the Loan Type button However in this example we will access these dialogs via the Check List buttons The Equity Invested variable would only be used where you already have equity in the property and simply wish to analyse the cash flows from this point in time for example when you are evaluating the impact of renovating
15. Click OK to return to the Check List Inflation Rate Year Average Tyr 2yr dpr Ayr dpr CFI Rate 3 504 3 5304 3 5304 3 5304 3 504 3 504 Indesed Y arnables Indexed From Average Linked fear Rate to CPI Rental income Tyr 3 50 Rental expenses Tyr 3 50 Taxable income Tur 4 FOX Living expenses Tyr 4 FOX A lt gt OF cancel Fig 24 Inflation Rate dialog Choosing a rate of inflation is easy You can simply use the current rate issued by the Australian Bureau of Statistics However choosing accurate rates of inflation to cover increases in rents expenses etc over the life of your investment requires a crystal ball something that does not come with the software We suggest that you use the current published rate unless you have sound reasons to do otherwise PIA Quick Start Guide Page 31 Capital Growth Rate Click on Capital Growth Rate in the Check List The Investment Property Growth dialog appears Here you can enter the expected long term growth rate for the value of the property Overwriting the average annual rate sets that growth rate for all years but each year can also be entered separately Changes to any year are adopted for subsequent years Change the value for the first year 1yr to 5 5 and click OK to return to the Data Entry Check List The Capital Growth Rate is now shown as 5 5 End of year Average yr eiT dyr dur Fi Property value 440000 464200 465
16. Holiday letting Gross yield C Gross yield Holiday Letting 1st Year Seaton Weeks Rent wk Occupancy rate Total rent Peak Zz p Shoulder Off season OF Totals Ae Advanced Annual Rent Fig 9 Rental Income dialog Cancel The Rental Income dialog offers other options including a subdialog for specifying how the projected annual rents are to be determined We will skip this for the moment Click OK to return to the Data Entry Check List The Rental Income is shown as 19 419 Page 16 PIA Quick Start Guide Rental Expenses Click on Rental Expenses in the Data Entry Check List to display the Rental Expenses dialog This dialog allows you to enter the expenses associated with the property Agent s Commission is the management fee paid to the agent Here the agent has quoted 8 25 Click on the Agent s Commission button and enter 8 25 in the Agents Commission dialog Click OK to return to the Rental Expenses dialog Alternatively you can enter an annual amount directly in the Agent s Commission field in the Rental Expenses dialog You can move from field to field with Tab or the arrow keys You can update the dialog by pressing the Enter key after each entry Enter the following values Letting fee 385 Maintenance 800 Council rates 1 600 Pest control 120 Insurance 800 Other expenses 250 The Rental Expenses dialog should now look like this Rental Expenses Normal Expenses 1st pear Indicators Age
17. Ss Somersoft PIA Quick Start Guide Property Investment Analysis software The essential analytical tool for property investors Bernie Williams amp Ian Somers PIA Quick Start Guide Property Investment Analysis software The essential analytical tool for property investors by Bernie Williams amp lan Somers Somerset Financial Services Pty Ltd ai i Please note that the latest most up to date version of this guide will be installed with the software as an Acrobat pdf document A copy will also be available from the Support section of the Somersoft website www somersoft com au Publisher Somerset Financial Services Pty Ltd ABN 25 623 732 311 P O Box 615 Cleveland QLD 4163 Phone 07 3286 4368 Website www somersoft com au Fax 07 3821 2005 Technical support support somersoft com au Please note that the domain name is somersoft not somerset First Edition May 2001 Twelfth Edition May 2013 ISBN 0 9585672 1 2 Printer Print Today Pty Ltd Cleveland Copyright This publication is Copyright 2001 2013 Somerset Financial Services Pty Ltd All rights reserved No part of this publication may be reproduced stored in any retrieval system or transmitted in any form or by any means electronic mechanical photo copying recording or otherwise without the prior written permission of Somerset Financial Services Pty Ltd Disclaimer This publication is designed to provide authoritative educatio
18. al income 9 710 9 710 19 419 Total income 64 710 44 710 129 419 Rental deductions 24 175 24 175 48 349 m Property Ownership Single name Joint names m Tax Options New taxable income 60 535 20 535 81 070 Quarantine losses Present tax 17 047 3 272 20 319 NRAS New tax 12 037 0 12 037 Paeon use oo Tax credits 3 272 8 282 Report Cancel Fig 26 The Tax Benefits dialog Under the 2012 13 tax scales John and Anthea would collectively pay a total of 20 319 in tax on a taxable income of 110 000 With rental income of 19 419 and rental deductions of 48 349 interest expenses depreciation and loan costs their taxable income would drop to 81 070 and their tax payable would then be 12 037 The tax savings individual and total are shown at the bottom of the screen Because John is on a higher income his tax savings 5 010 are higher than Anthea s 3 272 under the graduated Australian tax scales Their total projected tax savings amount to 8 282 In this case the tax saving would have been greater if the property had been purchased in the name of the highest income earner only To see for yourself switch the Property Ownership radio button to Single name John s tax saving jumps to 10 145 Anthea s drops to zero but the total saving is 1 863 more than in joint names Reselect Joint names and click OK to return to the spreadsheet PIA Quick Start Guide Page 39 Can they afford it
19. ame after tax return on their investment from a bank deposit it would have to earn 27 64 as such interest would be taxed at their marginal rates At this point it is worth playing What If to appreciate the power of the software Select the 5 5 capital growth rate in the Input column and change it to 7 The IRR should change to 23 24 Then change it to 4 and note that the IRR changes to 12 28 Clearly the growth rate is an important factor in determining the return on investment in this example Change the growth rate back to the original 5 5 and note the effect on the After tax cash flow none Capital growth affects the equity and the IRR but does not affect the cash flows Rather than manually re entering 5 5 in the capital growth field you could have clicked on the Undo icon on the toolbar shown on the right hand side to revert to the previous value As you have made two changes 7 then 4 you would need to click Undo twice What will the investment cost them after tax Here John and Anthea have to look at the After tax cash flow projections and the Cost per week When the loan is substantial the after tax cash flows are usually negative negatively geared but gradually become positive as rents rise with inflation and in our example when the loan is repaid In our example the after tax cash flow in the first year of the investment is 14 396 or 277 per week This will be their after tax cost Note t
20. and copyright details and allows you to select which file you want to open Your icon will show the version of the PIA software you have installed Page 4 PIA Quick Start Guide When the PIA Welcome screen appears you have the choice of opening the latest property file you saved opening any previously saved file or creating a new property file If you are using PIA for the first time select the Create a new property file radio button and click on OK Welcome to PIAFpu Investor Version 7 501 Property Investment Analysis al somerset Financial Services _______ SEEB Financial Services _ Copyright 1989 2013 Somerset Financial Services P O Box 615 Cleveland Qid 4163 Web site www somersoft com au This program is licensed for use on one computer by John Dough for personal use only C Open pour latest property file a r Open an existing property file Create a new property file Fig 2 PIA Welcome screen Note that the Version number in the Welcome screen is given as four digits e g 7 501 The first two digits 7 5 represent the actual version number while the last two 01 represent the edition number Updated editions will be released on our web site from time to time as new features are added tax laws and State taxes change and when changes are needed to improve the program These updates are available free of charge to registered users for at least two years from the date of
21. are displayed The house in our example costs 440 000 Overwrite the default entry of 400 000 with 440 000 and press the Enter key Property Value Property Value End of year 2013 Tur 2yr yr Aur Fyr Property Price 440 000 Renovations 0 0 0 O 0 0 Book value 440 000 Market value 440 000 466 400 494 384 Fed 04r 555 490 Rel 9 Holding costs 0 Furniture package 0 Property Details Linked to Property Price i Value of Fitti Address 74 Layburn Ad Cleveland Old 4163 eee W Construction cost Descriptor 3 bedroom lowset brick on large block i Stamp duty Annual Growth Rates gt gt OF Cancel Fig 7 Property Value dialog As you can see the increase in market value of the property has been automatically calculated based on a default increase in value of 6 0 per year Later you will learn how to change this default value Pressing the Enter key sometimes called the Return key before clicking OK allows us to make changes to several variables and see their immediate impact before returning to the Check List Click OK to return to the Data Entry Check List The value 440 000 appears in the Check List and a red tick again appears on the right to indicate that an entry has been made As you can see the Property Value dialog allows you to enter other values such as renovations furniture packages and the address and description of the property Also you can
22. bed in the PIA User Guide PIA Quick Start Guide Page 41 What about their next investment property Let s assume that John and Anthea found a very smart banker who also used the PIA software and who showed them how by clever use of credit lines and the refinancing of their existing 50 000 home loan debt they would easily qualify for the investment loan and might even qualify for a second investment loan They purchase the property and are so happy with their investment that they are immediately on the lookout for another property Apart from all of the details on the new property one of the personal items that will be different for the next property will be the taxable income used in assessing any tax credits As we have already noted in Fig 26 John s new taxable income will have dropped from 75 000 to 60 556 while Anthea s will have dropped from 35 000 to 20 556 These would then become the new taxable income figures showing in the Tax Credits dialog Fig 22 for the new analysis One of the features of PIA that helps automate this process is the Current Investment Portfolio dialog shown in Fig 21 available in the Investor menu item and the Data Entry Check List Clicking the dialog s Create button opens the Select Portfolio Files dialog Fig 29 which in turn makes it easy to select the files making up your current investment property portfolio Select Current Portfolio Files Directory C UserslansMy PIA Files Pro
23. e however to satisfy ATO requirements at tax time it is common to have a quantity surveyor certify the estimated original construction costs Depreciation of building is often referred to as a Capital or Building Allowance Depreciation of Building Capital Costs Capital Allowance Property price 440 000 Renovation costs 0 Building costs 200 000 Total capital cost 200 000 Link costs to property price Depreciation rate 2 50 Building costs as a E E Z of property price 45 45 Depreciation of building 3 000 Depreciation Method M2 Diminishing value Straight line 1 OK Cancel Fig 11 Depreciation of Building dialog Click on OK to return to the Data Entry Check List The Depreciation of Building is now shown as 5 000 Page 18 PIA Quick Start Guide Depreciation of Fittings Click on Depreciation of Fittings in the Check List to display the Depreciation of Fittings dialog Change the default value of General Fittings to 0 and insert the value of 6 000 for Curtains 8 000 for Carpets and change the value of Low value pool items costing less than 1 000 to 11 000 pressing the Enter key after each entry We will use the default values for the effective lives of these assets shown in the Life yrs column and the default Diminishing value method for calculating depreciation claims You can enter k as a shortcut for thousands for example 6k for 6 000 or 6 5k for 6 500 Depreciation of Fi
24. e Investor 50 00 Total income 129 419 Joint names Partner 50 00 Total expenses 106 415 Net surplus 23 005 Total initial outlay j Cancel Quarantine losses P Full Report Brief Report Fig 27 The Investment Capacity dialog Can they afford more investment properties With their confidence growing they ask themselves how many properties like this they can afford To answer this it is simply a matter of increasing the number of properties in the Capacity section of the dialog until there is no longer a cash surplus Change the 1 to 2 and press the Enter key The surplus is reduced to a 5 461 So at this stage they may even be able to afford two properties Change nvestment properties back to 1 and click OK Page 40 PIA Quick Start Guide Print Generating a report But will the bank lend them the money The figures look good for John and Anthea and they decide to approach the bank for the money to finance their investment Good figures professionally presented will make a great impression so their next move is to print out a report of their analysis and take it first to their accountant to cross check their work and then to their bank manager The Report menu contains a number of options for displaying reports Each report can be viewed and printed Experiment with the reports in the Report menu To return to the spreadsheet choose Investment Analysis under the View menu John and Anthea choose to pr
25. e dialog The loan type we have chosen in this example is a relatively simple one principal amp interest over 30 years However as the dialog indicates it is possible to simulate a variety and even a combination of loan types For example it is possible to specify two separate loans a combination of interest only and principal amp interest with varying terms The default loan type is Interest Only from 1 to 40 years In fact the term is indefinite but PIA calculates projections to a maximum of 40 years Click OK to return to the Data Entry Check List The Loan Type shows P amp l Yrs 1 30 the new Interest Rate is 7 00 and the annual Loan Repayments variable is 36 778 Page 22 PIA Quick Start Guide Loan Costs Click on Loan Costs in the Check List The Loan Costs dialog opens Loan costs are the costs associated with setting up a loan Some of these costs may be a percentage of the loan amount others are a flat fee gt if you enter a dollar amount in the Cost column the Flat fee tick appears It disappears if you enter a percentage in the column of Loan Note the first three items tend to be percentages no tick the remainder tend to be flat fees ticked As a guide loan costs generally fall somewhere between 0 5 and 2 5 of the total loan In our example the establishment fee is a fixed amount 800 mortgage stamp duty no longer applies and because we have sufficient collateral there is no mort
26. e new defaults Fig 4 Data Entry Check List showing the Property page with its original default values As you can see the Data Entry Check List is divided into four pages of variables covering the key components of a property analysis e Property e Finance e Investor e What If Each page is accessed by clicking on the corresponding tab at the top of the dialog The variables in the first two pages relate to the investment property Property tab and how it is to be financed Finance tab The Investor variables record personal details needed to determine specific tax benefits as well as the investor s borrowing and investment capacities The What If variables allow you to see what might happen over time with different inflation and growth rates Already you can see some of the power of PIA it allows you to play with the variables and see what happens Page 10 PIA Quick Start Guide If you move the mouse pointer over the item names in the central column for example Property Value the item changes colour and the mouse pointer changes to a hand This indicates that the item is a button that if clicked on opens a dialog to view and edit the variables that make up or determine the item s value In fact the dialog opens if you click on either the variable name button or its current value which is shown on the right To help keep track during data entry a red tick Y is shown on the right when you have viewed the co
27. e of return you might anticipate for the data you have entered The Home Loan Analysis Spreadsheet is used to describe the status of your home loan i e how much is still owing and what your repayments are You can use it to analyse ways of repaying your home loan faster e g by way of additional payments fortnightly payments or a credit line or even to consolidate and refinance several non deductible loans into one The Wealth Builder Spreadsheet helps you interactively plan a portfolio of investment properties based on projected multiples of the property under review in the nvestment Analysis Spreadsheet At each step that is each year you can see whether you would have the necessary funds cash savings and whether the banks would be likely to lend you the finance loan value ratio and debt service ratio This soreadsheet integrates data from the investment property under review your home and any existing investment property portfolio The Linked Loans Spreadsheet allows you to explore methods of repaying non deductible loans faster using surplus cash flows from an investment property Where a credit line is the preferred method for repaying a home loan the Linked Loans Spreadsheet also allows you to take account of the after tax cost of an investment property though this can also be explored in the Wealth Builder Page 8 PIA Quick Start Guide Getting started This section guides you throu
28. eir next investment property later in this guide Page 28 PIA Quick Start Guide Taxable Income Click on Taxable Income in the Check List The Tax Credits dialog opens This dialog allows you to specify the method for calculating tax credits from negative gearing and whether the property is to be purchased in single or joint names Your taxable income is calculated from your assessable income minus your allowable deductions As Anthea amp John currently have no income and deductions from any existing property portfolio their taxable incomes will be the same as we entered earlier for their respective work related taxable incomes Make sure that the Use taxable income radio button is selected and uses the default Australian tax scale Using taxable income if known is more accurate than using marginal rate as it does not assume all tax credits accrue at the same marginal rate of tax In this example the property is to be registered in joint names with a 50 50 split Click on the Joint names radio button the Proportional Ownership changes to the default of 50 for the Investor and Partner Click on OK to return to the Data Entry Check List The item Taxable Income Single is renamed Taxable Income Joint and shows 110 000 Tax Credits Tax Credit Calculation Ownership f Use marginal rate Single name Propertional Ownership f Use taxable income Investor AO 00 Tax Scale Australia Tax Benefits Partner Ad O0
29. es to variables to explore What if scenarios and instantly see the impact on the bottom line wail Untitled Somerset PIA File Edit Report Graphics Investor Calculator View Settings Help WOCE fie A ks SJR lt lt L John Dough for personal use only Investment Analysis Projections over 10 years End of year 1yr 3yr Syr 10yr Property value 440 000 464 200 i 516 666 575 062 751 584 Purchase costs Investments principal 4649 5 346 6 147 8 714 Loan amount 453 046 442 714 430 836 392 759 Equity i 11 154 73 952 144 227 358 825 Capital growth rate i 550 i 5 50 5 50 5 50 Inflation rate CPI l 350 3 50 3 50 3 50 Gross rent week 19 419 i 20 803 22 284 26 467 Cash deductions Interest P amp l i 31 891 31 195 30 394 27 827 Rental expenses 5557 5 953 6 377 7 574 Pre tax cash flow 22 678 22 193 21 691 20 633 17 648 Non cash deductions Deprec of building 5 000 5 000 5 000 5 000 5 000 Deprec of fittings 5 377 5 856 3 993 1 920 1 152 Loan costs 1 524 524 524 524 Total deductions 48 349 48 687 46 665 44 215 41 553 Tax credit joint 8 282 7 829 7 317 T12 5 582 After tax cash flow 14 396 14 364 14 374 13 521 12 066 Rate of return IRR Your cost income per week Pre tax equivalent 277 276 276 260 232 Property Details Address 74 Layburn Rd Cleveland Qld 4163 Description 3 bedroom lowset brick on large block Property cost 440 000 Total cost Gross rent yr 1 19 419 Gross yield
30. et Scales The Stamp Duty Scales dialog appears Click on the Qld radio button to set the Queensland scale Click on OK Uses Qld now appears under Stamp Duty Scales in the Purchase Costs dialog Fig 8 Purchase Costs dialog PIA calculates the stamp duty based on the purchase price and the specified scale The value now shown is 13 825 Click OK to save the values and return to the Check List The Purchase Costs are now shown as 15 075 PIA Quick Start Guide Page 15 Rental Income Click on Rental Income in the Check List to display the Rental Income dialog This dialog is divided into sections one of which relates to holiday letting only The property we are analysing is to be permanently let with an anticipated rent of 385 per week Overwrite the default value with 385 and press the Enter key The values for Potential annual rent and Actual annual rent change accordingly The difference between the Potential annual rent and the Actual annual rent is determined by the Annual vacancy rate The default of 2 may be a realistic value for this suburb at this time but John wants to play it safe and is basing his calculation on 3 Change the default value of 2 to 3 and press the Enter key PIA calculates the Actual annual rent and displays the new value 19 419 Rental Income Rental Income 1st Year Preferences Rent per week Per week Potential annual rent C Per month Annual vacancy rate 0 Per year Actual annual rert C
31. g the PIA software They see a property advertised for sale for 440 000 and their research has shown 385 per week to be a reasonable rent They want to use PIA to find the answers to the following questions What return on investment can they anticipate What will the investment cost them after tax How much tax will they save Can they afford it Can they afford more investment properties Will the bank lend them the money They decide to use the equity in their own home as collateral and borrow enough to cover all costs including purchase and loan costs The prevailing interest rates are around 7 0 and they are most comfortable with the idea of a principal amp interest loan to be repaid over 30 years Because they both work they want to use an agent to manage the property on their behalf Other key data most of which they will estimate based on the experience with their own property is introduced during the example PIA Quick Start Guide Page 9 Data Entry Check List When you select Create a new property file in the Welcome screen and click OK the Data Entry Check List is displayed This dialog is a quick easy and intuitive way for new users to enter all the basic data for a new property file Data Entry Check List Property Finance Investor What iF Proper poooz Property Value Purchase Costs Rental Income Rental Eqpenses Depreciation of Building Depreciation of Fittings Use these values as th
32. gage insurance involved Enter the other costs flat rates as shown in the figure below Loan Costs Cost Component of Loan Cost Flat Fee Establishment fees 0 17 v Mortgagee stamp duty 00d Mortgage insurance 0 00 Valuation tees 00r Registration of mortgage 0 05 Registration of title 0 03 0 04 0 00 als a x 5 ro bo ot a 5 xl x x Search fees x Other loan costs B j oz e Smrt ej a Dren oo a 2 620 o mn oe Total costs Total loan including costs Loan cost write off period k Cancel Fig 16 Loan Costs dialog Loan costs are written off over 5 years or over the term of the loan whichever is shorter We will leave the Loan cost write off period unchanged and click OK to return to the Data Entry Check List Loan Costs are now shown as 2 620 and because these form part of the loan the Loan Amount is now 457 695 PIA Quick Start Guide Page 23 Finance Page You have now completed the entries for the Finance page and the Data Entry Check List should appear as shown in the Figure below with all variables ticked If there are any differences with the values on your page check back to the corresponding dialog to see if you have missed any step Data Entry Check List 999 Property Finance Investor What If Cash Invested 0 Amount Required 457 695 Loan Type Pal Yrs 1 30 Interest Rate 700 Loan Repayments 36 541 Loan Costs
33. gh the entries you need to make in order to complete your first property investment analysis You can either use the data given in the example or your own data If you use the example data shown here the dialogs and screens you see should be identical to those shown in this guide allowing you to confirm your progress This section takes about 40 minutes to complete We strongly recommend that you first work through the steps with the data shown here in our fictitious example and then repeat the procedure using your own data Step by step to your first analysis This section takes you through the Data Entry Check List to build your spreadsheets Each item in the Check List is required for the initial analysis When you have made all the entries you can click Spreadsheet to go to the main Investment Analysis Spreadsheet Once in the spreadsheet you can return to the Data Entry Check List at any time by choosing the Data Entry Check List item under the View menu Our example John earns 75 000 per year as a journalist His wife Anthea earns 35 000 per year working part time They have a family home worth about 480 000 on which they still have 80 000 outstanding They have just read the book More Wealth from Residential Property by Jan Somers and while it made a lot of sense it all sounded too good to be true To help them better understand how negative gearing works they decide to evaluate a typical investment property for themselves usin
34. great way to convince ination rate 400 Selingcoss amp CCT 07 052 Interest rate 8 00 Equi 239 931 lenders that you have done Taxable income 65 000 aula 10 26 your homework Fig 3 The PIA Plug n Play n Print procedure When you are more experienced with PIA you may choose to enter data Straight into the spreadsheet and skip the Data Entry Check List altogether Page 6 PIA Quick Start Guide PIA overview In fact PIA has four separate spreadsheets a multitude of dialogs anda whole suite of property related calculators that together fulfil a wide variety of investment and financial functions While it may have spreadsheet like screens PIA is a stand alone program written in a language called C However in many ways it behaves like other spreadsheet programs e If you make a change to one variable the change is automatically reflected throughout e PIA stores data on each of your investment properties in separate files To analyse the cash flows on your entire portfolio of investment properties Portfolio Analysis you simply specify which files you wish to include and PIA does all the synchronisation and collation for you e A new file always opens with a template of default values These values can then be tailored to the property being reviewed and the new set of variables can even be saved as the new default template If you are using PIA for your own use only it is recommended that once you modify pers
35. hat a significant part of this cost 4 649 in the first year is made up of principal loan payments see Investments principal row If John and Anthea had chosen an interest only loan their after tax cost would have been just 190 per week You can test this yourself by clicking on the Interest row title and changing the loan type to Interest only but don t forget to switch it back or use Undo to Principal amp interest to follow the rest of this example Page 38 PIA Quick Start Guide How much tax will they save From the Tax credit row we can see that the total tax credits amount to 8 282 The term tax credit is another way of saying tax saved as a result of the investment In this case the tax saved is assumed to be a reduction in the tax paid rather than a tax refund at the end of the year For PAYG taxpayers formerly PAYE to have their regular tax payments reduced because of negatively geared investments they must complete the appropriate form as specified by the tax authorities While the details may have changed from time to time the principle remains the same see www ato gov au or www ird govt nz for more information To see where the tax credit comes from we have to open the Tax Benefits item in the Investor menu The following dialog appears Tax Benefits i Investor Partner Total Properties Property ownership 50 00 50 00 100 00 Number 1 Present taxable income 75 000 35 000 110 000 i Rent
36. int the five page Investment Analysis report r wail Quick Start 7 501 pia Somerset PIA File Edit Report Graphics Investor Calculator View Settings Help Cael taS Ol Bete lato efi lt gt 2 d aa John Dough for personal use only PROPERTY INVESTMENT ANALYSIS 05 Apr 2013 Property 74 Layburn Rd Cleveland Qld 4163 Description 3 bedroom lowset brick on large block Assum ptions Projected results over 10 yrs Property value 440 000 Property value 751 584 Initial investment 0 Equity 358 825 Gross rental yield 4 41 After tax return yr 18 25 Net rental yield 3 15 Net present value 144 897 Cap growh rate 5 50 IF SOLD Inflation rate 3 50 Selling costs amp CGT 91 191 Interest rate 7 00 Equity 267 634 Taxable income 110 000 After tax return yr 12 91 Fig 28 Excerpt from the Investment Analysis report on screen While the report will effectively present a business plan of their investment proposal to the bank manager there is no guarantee that the loan will be forthcoming even though they have convinced themselves that they can afford it Banks have their own criteria for assessing the risk in lending you money loan to value ratios debt service ratios etc which are beyond the scope of this Quick Start Guide Powerful PIA tools that can help in this regard including loan eligibility and borrowing capacity calculators as well as the Wealth Builder Spreadsheet are descri
37. io Analysis mag PIA allows you to collate the projected rental income and l expenses from a specified set of property files portfolio Data Entry Check List to calculate the combined cash flows and the rate of Investment Analysis Spread return for the portfolio In PIA you may want to create a Home Loan Analysis Spreac portfolio for any or all of the following reasons Wealth Builder Spreadsheet Linked Loan Spreadsheet 1 To help calculate your current taxable income a Menus when analysing the tax benefits of yet another Y investment property i e the one shown in the 3 Q Bs ae Investment Analysis spreadsheet To do this PIA i must extract all of the income and tax deductions Investment Capacity Commi from any current investment properties and collate it with your work related income and deductions 221D Variation of PAYE Trouble Shooting 2 To take account of your current investment equity Tutorials and cash flows when planning the accumulation of Toolbar items further investment properties in the Wealth Builder spreadsheet The acquisition of further properties is limited by your ability to borrow the necessary funds which in turn is determined by your total loan value ratio and debt service ratio PIA needs this information from any current investment properties to provide accurate indices for total loan value ratio debt service ratio and cash savings fe e
38. is contains the names of the items rows in the End of year spreadsheet You will recognize many of these Property value from the Check List Other items such as After tax cash flow show values calculated by PIA PLE zie l based on your entries or on default values If you Nvestments principal position the mouse pointer over an item the Loan amount pointer turns to the familiar pointing hana indicating that you can click to open the associated dialog Input column The second column of the spreadsheet is referred to as the Input column It contains a set of initial values associated with the row items Most of these values can 440 000 be selected with the mouse pointer and overwritten 15 075 Three colours are used on screen in the spreadsheet cells Blue values can be selected and overwritten directly Double clicking on them opens the corresponding dialog Clicking once on black values opens a dialog immediately as these values are calculated and cannot be directly overwritten Calculated values are shown in red if the value is negative PIA Quick Start Guide Page 35 Projected values The five remaining columns show the projections for lt e lt gt w future years The icons in the Tool bar shown on right allow you to scroll through the years While PIA calculates projections up to 40 years only 5 years are shown at a time By default these are the years 1 2 3 5 and 10 You can display whichever years you
39. itional parameter values that describe the investment These parameters include the property and total cost including purchase and loan costs gross rent and gross yield and net rent net of rental expenses and net yield Two other useful parameters shown are an estimate of the initial cash investment required for the investment to break even in the first year Cash neutral investment and an estimate of the year by which the investment would break even Cash positive by for the specified initial investment gt lian image of the property has been loaded into PIA it is displayed on the left hand side of the Property Details area and is displayed in reports Page 36 PIA Quick Start Guide Time to save the file From the File menu choose Save tied Somerset PIA Edit Report Graphics The Save As dialog opens gt itis recommended but not critical that you create a folder specifically to hold your PIA files If this is independent of the folder containing the PIA program itself it makes it easier and more efficient Save for backing up your own data In this case you will create a folder called My PIA Files within the My Documents folder To create a new folder first choose the My Documents folder in the Save in field Next click the er symbol on the right hand side type in the name My PIA Files instead of the New Folder text then click Open The Save As dialog is displayed as shown below m wai
40. k and easy to enter the basic data for a new property file The variables are divided into four groups 1 Those that describe the property 2 Those that describe the loan 3 Those that describe the investor 4 Those that determine the annual projections To change the value of any of the varnables click on the variable name to bring up a dialog in which you can enter the appropriate value s Mote that some of the variables may be the sum of a number of components each of which is accessible within the dialog A red tick beside a variable on the Check List indicates that you have opened the yvarable s input dialog and clicked OK Once you have checked all the variables click Spreadsheet to view a spreadsheet which shows the variables their projected values and projected cash flows and 4 corresponding internal rate of return Fig 5 Options from the Check List Clicking on the button displays help for the current screen You can make your current values in the Check List the default values by checking the Use these values as the new defaults check box New files then open with these values set The values will only be adopted if you click Spreadsheet to exit the Check List Clicking on Spreadsheet takes you to the spreadsheet we will be doing that when we have entered all four pages of data for our example Page 12 PIA Quick Start Guide Property Details The first of our four Data Entry Check List pages is the P
41. l Save As Savein My PIA Fies e cf Ear A Name _ Date modified Type This folder is empty m ni Quick Start Example z Save as type PIA Files pia z Type in the name Quick Start Example in the File name field and click the Save button For simplicity PIA uses individual files rather than a central database to store the information on all the individual investment properties Each PIA file has a suffix PIA and contains both the data you enter as well as the projections you make However to avoid entering all of your personal information repeatedly you can choose to make any document the default template for any new files that you create To do this choose Save Default Template under the Settings menu or tick the Use these values as the new defaults check box at the bottom of the Data Entry Check List PIA Quick Start Guide Page 37 Answering the questions At the beginning of the example John and Anthea had a list of questions that we wanted the software to help answer Let s now take a look at the results Tax credit joint 110 000 6282 After tax cash flow o 14 396 Rate of retum IRR 18 25 Pre tax equivalent 2f 64 off Fig 25 The bottom line of the spreadsheet What return on investment can they anticipate The Rate of return IRR field shows 18 25 Again recall that this is after tax the return is not taxed as the equity remains invested To achieve the s
42. n and training in the use of Property Investment Analysis software While Somerset Financial Services Pty Ltd has taken all reasonable care in the preparation of this publication it may contain typographical errors or technical inaccuracies Furthermore as tax laws are constantly changing the accuracy of this information cannot be guaranteed Changes will be made periodically and without notice to both the software and the information herein and these changes will be incorporated into later editions Materials and examples contained herein do not constitute financial advice as there may be many issues outside the realm of this software and publication that should be considered in making or modifying an investment Warranty Somerset warrants that the medium on which this software is furnished to be free from defects for a period of 90 days after delivery Somerset does not warrant that the functions contained in the software will meet your requirements or that the software operation will be error free In no event will Somerset be liable to you for any damages including any lost profits lost savings or other incidental or consequential damages arising out of the use or inability to use this program or for any claim by any other party The entire risk as to the results and performance of the program and Quick Start Guide is assumed by you Help Before contacting technical support please review this guide as it covers the main application of the
43. n of FittingS ccceeeeeeeeeeeeeees Property Page cccsssceccseseecesseeeeeeeeesseeeeeees LOAN AMOUNT cosets seeds sato aE Loan Interest and Type cccccecsesseeeeeeeeees Loan COSS enai ttn scncesueds Finance Pagerie eierniie PIA Quick Start Guide Page iii Investor s Personal Details c ccccecececececececececececeeaeeeanenanes 25 Home Loan Dela liSs ascikscedictelectes een a eis ale 26 LIVING EXDCNSCS areia ketene 27 Current Investment PortfOliO ccccceccceseseeeceeeeeeeeeeeeeeeeeneees 28 Taxable lINCOMS si o accu ct tinieast ices eects etic atadaiere cient 29 INVESIOL IPAQ scare cue cet eee eae ee 30 lation Rate GP Drese 31 Capital Growth Rates cs sieteetas seed asia ase edneieeasieeiadaeauas 32 Whati PAGS sniene a shares stead 33 Play Using the spreadsheet 34 WE AU DAN retn tant snteabecanmetoeieta tia daccatres 35 MEO OU DAN Sider catti te cise sites dea chenal tine ch te iciae treater at ane keene es 35 OMAN GUNG S saea2ccacc ova ieiscvascnatesve ea Aa 35 IS UT COMM essuie senaneaeceuesohasanenscnecesaenedoaeen 35 Projected valt S exes aiiein as eren eane tute EA EAA EE 36 TE DOO MIMIC esm EA 36 Propeny DEIAUS c icsussquace i snateatneletendd asteacteacececdeactastecseccetecacteaene 36 Time to save Ie TG eee eecessenealee de vee ceesneneacnis ns 37 Answering the QUCSUOMS cscri erectetieceithacctvavedceerieeeecret 38 What return on investment can they anticipate
44. nt s commission 1 60 Annual Rent Total i DJ mm cn Expenses rert Net rent Net yield l co m fam 5l amp m m D J dd Advanced Annual amp Special Expenses ey 3 OF Cancel k g or on Pi 2 Fig 10 Rental Expenses dialog There are many other options in the dialog but we will skip them for the moment clicking OK to return to the Data Entry Check List which now shows Rental Expenses of 5 557 PIA Quick Start Guide Page 17 Depreciation of Building Click on Depreciation of Building in the Check List to display the Depreciation of Building dialog As you can see our property price of 440 000 has been adopted here The default Building Cost is calculated at 50 of the value of the property here 220 000 Our building has an estimated original construction cost of 200 000 so enter this figure in the Building costs box and press Enter Note that the Building costs as a of property price is recalculated 45 45 as is the Depreciation of building 5 000 The default depreciation rate is 2 5 which is the figure we want because the property was built after 1987 so no change is needed gt If you tick the box next to Link costs to property price the Building costs automatically change if you change the Property price always remaining the same percentage of the property price nour example our couple simply estimates the value of the building In practic
45. nual living costs excluding your home loan repayments and how they might change over time In order for PIA to help you estimate your capacity to invest it needs to know how much money you need to set aside to live on In our example our couple have estimated that apart from their annual home loan repayments 17 280 their annual living expenses would amount to about 35 000 Change the default value in the first year to 35 000 and press the Enter key gt The figures for later years are indexed at a rate of 4 as defined in the Living Expense Projections area below You could vary this assumption if necessary As you will see later you can specify how all key parameters change over time Click OK to return to the Check List The Living Expenses item is now 35 000 and is ticked Annual Living Expenses fear qor ZiT ST dur Fit Annual expenses 35 000 36 400 37 956 39 370 40 945 Living Expense Projections W Inflation indexed from year lyr oat arate of 4 00 lt gt gt OF cancel Fig 20 The Annual Living Expenses dialog PIA has an alternative dialog Annual Living Expense Budget for estimating your current annual living expenses by working through a weekly monthly and or quarterly budget template If you change the total expenses for the first year this total amount is reapportioned pro rata over all the items in the budget template This alternative dialog is accessible under the Inves
46. oft com au A good option is to use the Support On Line feature under the Help menu which generates an email to technical support with a copy of your file as an attachment User feedback We welcome feedback from users it helps us to give you what you want So please do not hesitate to make comments or suggestions You can use the Feedback email function under the Help menu or feedback form in the Support section of the website www somersoft com au to submit your comments Page 2 PIA Quick Start Guide Installing the software What you need To run PIA Version 7 5 you will need a personal computer with at least 4 MB of free disk space and Windows XP Vista Win 7 or Win 8 Installation is very simple and takes just a few minutes Please follow the steps described below 1 8 Insert the CD ROM into your CD ROM drive f you do not have a CD ROM drive you can install the demonstration version of the software from the website and unlock it using your licensee name and registration code see the Register item under the Help menu If you have Autorun switched on installation starts automatically go to step 3 If nothing happens open the Start menu and click on Run In the dialog type D Launch exe where D is the drive letter of your CD ROM drive and click on OK You are presented with a menu of options listing a variety of useful resources that you can explore at your leisure These include more detailed information
47. on the use of the PIA software PIA User Guide as well as information for property investors from the Australian Tax Office Information Booklets To install the PIA software choose the first item in the main menu nstall PIA Read the Setup Welcome dialog It is recommended that you close all Windows applications before continuing Click on Next gt to continue Read the Readme File information for the latest news on PIA then click Next gt to continue with the installation In the Destination Location dialog click Next gt to confirm the default location You may select a different location using the Browse button but this is not recommended as it may cause later problems with Upgrading and support The Start Installation dialog appears Check the details and click Next to start the installation or click on Back to go back to make changes The Setup Complete dialog appears Click Finish to complete setup Installation is now complete and PIA opens Normally you will start PIA by clicking on the desktop icon or by using the Windows Start menu and selecting Programs then PIA In this Guide the name PIA is used to refer to the two versions of PIA PIAFpu or PIAPro as described on page 1 PIA Quick Start Guide Page 3 Using PIA Starting PIA the first time ever The first time you ever use PIA on a particular computer you will be prompted to enter your specific licensee name and corresponding registration code see your
48. onal variables e g home loan status living expenses etc you should save them as part of the default template Settings menu The screens that you will soend most of your time interacting with PIA are the Data Entry Check List and the four spreadsheets nvestment Analysis Home Loan Analysis Wealth Builder amp Linked Loans While this booklet focuses mainly on the Data Entry Check List and the Investment Analysis Spreadsheet the roles of each of the screens are described below The Data Entry Check List Data Entry Check List provides an intuitive interface Property Finance Investor What If for entering data about an investment property how it is Property Property Details to be financed how tax Property Value 400 000 credits are to be calculated Purchase Costs 14 425 and how these variables are SEA E to change over time This SETAN oe would normally be the first EEPE Pena aoe step in analysing any Sere en en prospective property as it helps construct an Investment Analysis spreadsheet with all of the Use these values as the new defaults appropriate starting values PIA Quick Start Guide Page 7 The Investment Analysis Spreadsheet is the main focus of PIA and of this Quick Start Guide You will find that you spend most of your time within this spreadsheet as it gives you instant answers on how much a prospective investment property is likely to cost you after tax and what rat
49. ount you still owe the interest rate you are currently being charged and the repayments you are currently making can also be used to determine the remaining term of the home loan In our example John and Anthea estimate that their own home has a market value of 480 000 and have an outstanding debt of 80 000 on it They are paying interest on the loan of 7 0 and are making monthly repayments of 1 440 Make the changes to the default values as shown below and click OK to return to the Data Entry Check List The three items Principal Residence 480 000 Amount Owing 80 000 and Home Loan Repayments 17 280 per year are now ticked Home Loan Details Amount owing Loan Interest Loan Payments 1 440 mth Annual total 17 280 year OK Cancel Fig 19 Home Loan Details dialog Itis also possible to specify projected changes to the home value and home loan interest rates over time by clicking the respective buttons Where the monthly loan payments are not know it is possible to calculate them from a knowledge of the original loan term and interest rate PIA has a Loan Payment calculator and a Loan Consolidation dialog in which these can be calculated Clicking the Loan Payments button shown above opens the Loan Consolidation dialog Page 26 PIA Quick Start Guide Living Expenses Click on Living Expenses in the Check List The Annual Living Expenses dialog opens This dialog allows you to specify your estimated an
50. perty Files Quick Start Example pia Add All Remove All Fig 29 Selecting files that make up the investment property portfolio When you choose the files that make up the existing portfolio in this case just the one file that we have saved and click Done PIA extracts all of the property related income and deductions automatically updates the taxable income and makes it all available to the rest of the program You can check this by opening the Tax Credits dialog click on the Tax Credit row title in the spreadsheet By the time you have several investment properties you will probably find this feature essential See the Help Topics item under the Help menu and look for Portfolio Analysis in the Special Topics Page 42 PIA Quick Start Guide Where to from here The aim of the Quick Start Guide was to help you install the software and run through your first investment analysis to plug in the data play with the parameters and print out the results But at this stage you have just scratched the surface of the software They say that the best way to learn how to use the full potential of any program is to play with it And when all else fails consult the manual Well help is close at hand The Help topics item in the Help menu provides on line access to information on all of the software s features r Hide Back Contents Index Search Portfolio Analysis Q Introduction What is a Property Portfol
51. receipt or the back of your CD case If you enter the correct name and code the confirmation message Welcome to the World of Property Investment is displayed r Congratulations Welcome to the World of Property Investment Analysis Fig 1 The Congratulations screen Congratulations You have then successfully installed the software f the number you enter is incorrect the program will run in demonstration mode only To access the full version of the software you will need to re enter the licensee name and registration number either by re running the software or by accessing the Register item under the Help Menu You will then be asked to specify your location Australia or New Zealand this sets the default tax scales for the calculation of tax credits Click OK If you have chosen Australia you will then be asked to specify which State QLD NSW VIC etc for the correct stamp duty and sales commission scales Select the state in which your property is located You can of course change the scales used at any time Click OK PIA saves all of these changes and will continue to use them until you change them again PIA will then open with the Welcome screen Starting PIA Normally to start PIA you need only double click on the PIA icon on the desktop and the Welcome screen appears immediately see Fig 2 This is the screen you will see whenever you start PIA It gives version license
52. roperty page Fig 4 and the first item on this page is Property Details Click on Property Details The Property Details dialog opens This allows you to load an image jpeg format of the property as well as enter its address and a brief description These items are saved in the file you are creating and appear in the relevant fields in any reports you generate You could also record extensive notes about the property in the Notes area These would also be saved in the file but would not appear in any report Property Details Address Brief Description 74 Layburn Ad Cleveland Old 4163 3 bedroom lowset brick on large block Notes Load Image OF Cancel Fig 6 Property Details dialog In our example we will simply enter the address 74 Layburn Rd Cleveland Qld 4163 and a brief description 3 bedroom lowset brick on large block as shown above then click OK The address and brief description will now appear below the property image on the Data Entry Check List and a red tick is displayed to the right of the Property Details button to indicate that these particular variables have now been checked As you will see in the next step for convenience some variables can be entered in more than one dialog and can later be changed in the spreadsheet that we create PIA Quick Start Guide Page 13 Property Value Click on Property Value The Property Value dialog opens Note that the address and description
53. rresponding dialog and clicked OK to exit whether or not you have made changes in that dialog Many of the items in the Data Entry Check List are actually made up of or are the function of a number of other variables In fact PIA uses over 100 variables in analysing a property investment Instead of having to enter all of them each time PIA uses default values when the file is created The Data Entry Check List is a useful but not a critical step in analysing a property investment As you will see later all of the variables in the Check List can be entered directly from the main spreadsheet This has the advantage of showing instant feedback but is less intuitive and does not show which variables have yet to be changed However once you become familiar with the program and all of the variables you may well choose to bypass the Check List altogether See the Display tab in the Preferences item of the Settings menu PIA Quick Start Guide Page 11 Plug Using the Data Entry Check List In this example we will run through all the items page by page and from top to bottom entering data for each one When we have done that we will then go to the main spreadsheet of the program to see the results Use these values as the new defaults Spreadsheet i Sets current values as Accesses Takes you to the defaults for new files Help spreadsheet Information on Data Entry Check List ii The Data Entry Check List makes it quic
54. rted with PIA It assumes that you are acquainted with the basic concepts of your computer and the Windows user interface To ensure a smooth start the book guides you through installing your software starting it and entering your first set of data You can either enter the data shown in the example in this guide treating the whole description as a tutorial or enter your own data By the end of the book you will be able to use the spreadsheet to answer simple questions like e What return can anticipate on my investment e What will it cost me after tax e How much tax will save But there is a lot more to PIA than can be covered in this Quick Start Guide Details are given towards the back of this guide on where to find out more information to help you become even more adept with the program If you get stuck First please read this Quick Start Guide It guides you through the basic steps of an investment analysis Secondly use the online help You can access this from anywhere in the main part of the program by pressing F1 or by accessing Help via the Help menu Tool tips are available for the icons in the toolbar of the spreadsheet and for the buttons in the Data Entry Check List These appear if you position the mouse pointer over the icon or button You can get context sensitive help by clicking on the button in most dialogs If all else fails you can obtain technical support by sending an email to support somers
55. s if necessary as shown below They have no other significant income or deductions so their total taxable work related income is 110 000 Click OK to return to the Data Entry Check List and note that both Joint Work Income and Joint Work Deductions are also updated and ticked Investor s Personal Details oS a lt _ Investor Type Investor Details f Persor s Investor John Dough eon Address i o Bayside Drive Cleveland Gld 4163 Phone OF 3206 4368 Email johndough somersoft com au Work Related Income amp Deductions C Company Assessable Income Investor Total Salary Aw ages 500 170 000 Other income I Total Income 1 j 110 000 Allowable Deductions Work related Other deductions Total Deductions Tasable Work Income Motes Fig 18 Investor Details dialog You do not enter any income or deductions for existing investment properties in this dialog As you will see this is more easily entered in PIA s Current Investment Portfolio or Current Taxable Income dialogs PIA Quick Start Guide Page 25 Home Loan Details Click on Principal Residence or Amount Owing in the Data Entry Check List The Home Loan Details dialog opens This dialog allows you to specify the current market value of your home as well as describing the current status of your home loan Your home s market value and remaining loan is used by PIA to assess your ability to borrow funds for investment The am
56. software More comprehensive help information is available under the Help Menu from within the program The Somersoft website provides access to PIA Frequently Asked Questions FAQs with answers Latest versions of the PIA Quick Start and PIA User Guides PIA updates when they are released Property FAQs with answers Property Investors Forum www somersoft com au Page ii PIA Quick Start Guide Contents Welcome to PIA What PIA can do for you c cceeeeeeeeeneeeeees Two different versions c ccccceeeeeeeeeeeeeeeeeees About this BOOK ccccceeecceeeeeeeeeeeeneeeeeesaness you gets UCK ir ter teer eee earn en mene ate User teedbaCkK orisii tected Installing the software What YOU need ccccsececcesseeccseeeceeseeeseaees Using PIA Starting PIA the first time ever ccceeeeee Staring PlA ecse A Before we start Plug n Play n PYint ccccsseeeeeseeeeeeeeeeeees PIA OVEIVICW ccccccceseeeceeseecceseeeceseesseeeeees Getting started Step by step to your first analysis OUP OKA LC 4x5 database tet exteb hee en peace tee ertese Data Entry Check List scccsidcccevcicst cee cittecewsieeieces Plug Using the Data Entry Check List Property Detall zesarea Property Vala csere ea a EE Purchase CoStar a a a Rental INCOME cance enews Rental Expenses ccccseeeeceeeeeeeeeeeesseneeeees Depreciation of Building cccseseeesseeeeees Depreciatio
57. t should look like if you have entered the correct values Data Entry Check List Property Finance Investor What If What If enc g Rental Income Rate Rental Expense Rate Taxable Income Rate Living Eepenses Rate Capital Growth Rate Use these values as the new defaults Fig 26 Data Entry Check List What If Page if you have different values you can go back to the relevant dialog and check your entries against the example Before we click Spreadsheet to go to the spreadsheet tick the Use these values as the defaults check box All the values you have entered will now become the default values for new files you open Click Spreadsheet This takes you to the Investment Analysis spreadsheet where you will see all of the results of your data entry You can return to the Data Entry Check List at any time and continue to make changes if you wish or you can access the same data entry dialogs directly from the spreadsheet To return to the Data Entry Check List from the spreadsheet click the Check List icon shown on the left in the Tool bar or select Data Entry Check List from the View menu PIA Quick Start Guide Page 33 Play Using the spreadsheet You made it You have now arrived at the Investment Analysis spreadsheet the place you will soend most of your time in PIA Here you can see the data you entered and projections based on that data or on default values if not changed Here you can make and undo chang
58. tal Income Rate 4 00 capital growth rate which oy eee ee has consistently exceeded Peeanctnee Nee the rate of inflation Capital Growth Rate 6 00 i i UA Living Expenses Rate 4 00 4 i i Use these values as the new defaults Page 30 PIA Quick Start Guide Inflation Rate CPI Click on Inflation Rate CPI in the Data Entry Check List to open the Inflation Rate dialog This dialog allows you to enter values for inflation to be used to index rental income rental expenses taxable income and living expenses The convention used in this program is that a change in the overall consumer price index rate CPI rate results in a corresponding change in the inflation rate of all variables that are linked to it Changing the inflation rate for a variable automatically removes the CPI link for that variable Our couple select an average CPI rate of 3 5 based on official economic forecasts However they feel that with John confident of several work promotions over the next 10 years a higher rate say 4 5 should apply to their taxable income They also feel that their living expenses are likely to increase at the same rate in line with their disposable income First change the Average CPI Rate to 3 5 and press Enter Note that the rates for all variables change to 3 5 Now change the Average Rate for both Taxable income and Living expenses to 4 5 and press Enter Neither of these variables is now linked to CPI
59. tor menu PIA Quick Start Guide Page 27 Current Investment Portfolio Click on Portfolio Properties or Portfolio Value in the Check List The Current Investment Portfolio dialog opens As this is our couple s first investment property there is no portfolio information to include in this example So click Close to return to the Data Entry Check List and confirm that the Portfolio Properties and Portfolio Value are both zero wW Current Investment Portfolio gt oS amulets m Properties Year Properties Value Loans Equity Rentz Expenses Interest Loan payments Fre tax cash flows Non cash deductions Total deductions Tas credits Aftertas cash Fow New taxable income 75 000 78 000 81 120 67 739 106 748 Include piopi P Create Remove Repor E gt gt 2 i under review A Fig 21 Current Investment Portfolio dialog This dialog is used if you have existing investment properties and want to take account of their cash flows in relation to the property being analysed You would need to have previously used PIA to enter the data for each property in turn saving each to a file as you will see later You would then click the Create button and choose the PIA files that make up your existing investment portfolio All the portfolio information would then be displayed in this dialog and be available for PIA to use in the current analysis see What about th
60. ttings ltemised Depreciation Schedule lherns Value Furniture package General fittings Curtains 1 224 ar55 arpets 1 280 1 024 ot water sys Motor mower efrigerator Laars c TEE TE A E tove Low value pool 2 063 3 352 2 095 1 309 als Total 25 000 Barr 5 056 3 993 2 r53 1 920 Depreciation Preferences Method General f Diminishing value Link value to property price 0 Prime cost W Use effective life rules 200 00 Annual claim Lowevalue pool rate halved in year 1 aed lela alelalalelal alala Fig 12 Depreciation of Fittings dialog As you press the Enter key or click away from a field with a changed value the values in the table are recalculated Also when you enter a value for an item the projected depreciation schedule is shown on the right of the dialog The total value is now 25 000 Click on OK to return to the Check List Depreciation of Fittings is now shown in the Check List as 5 377 Here our couple estimate the value of the fittings which is acceptable to the ATO However a quantity surveyor may well pick up additional claims PIA Quick Start Guide Page 19 Property Page Congratulations you have now completed the entries for the investment property The Property page of the Data Entry Check List now displays all of the new values and all of the items are ticked as shown below If any of your values do not agree go back to the item s dialog and check your entries
61. wish The bottom line After tax cash flow 0 14 396 14 364 14 374 13 521 12 066 Rate of return IRR 18 25 Your cost income per week Pretax equivalent 27 64 27T 2r 276 260 232 The bottom three rows of the spreadsheet collectively represent your bottom line The After tax cash flow is the cash flowing into or out of your pocket each year Negative values in red represent your investments in the property The Internal Rate of return IRR is a measure of the return on these investments and is determined by the series of after tax cash flows and the resultant equity built up in the property It represents the interest equivalent of your investment if it had been invested in a bank account with the important difference that because the equity remains invested it is NOT taxed The Pre tax equivalent shows the equivalent pre tax rate of return using the marginal tax rate Your cost income per week shows you the projected weekly net cost or income resulting from the investment the real bottom line Property Details Property Details Address T4 Laybum Rd Cleveland Qld 4163 Description 3 bedroom lowset brick on large block Property cost 440 000 Total cost Gross rent yr 1 19 419 Gross yield Net rent yr 1 13 862 Net yield Cash neutral investment 243 140 Cash positive by The Property Details area below the spreadsheet provides a visual reminder of the property being analysed as well as add

PIA User Guide - Somerset Financial Services

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