These 3 numbers will tell you whether you can afford your next property investment

So you have saved a bit of money but you're not sure whether you can invest in property. Well I'm about to show you a quick calculation so that you can work out how much it's going to cost you to get into the marketplace today.

Property investing is one of the most lucrative wealth building activities you can pursue.

But it's also not cheap, and you've got to put a lot of money upfront in order to get into the game.

But how much money does it actually take?

Well I'm going to show you a quick calculation so you can work out, based off your savings whether you've got enough to invest in a property.

This will also work if you've got equity in the bank, and you're using that to invest in something as well and you need to work out how much your potential purchase price could be.

How much does it cost on a day to day basis to hold a property?

The first two calculations are a percentage, and you probably know them as the deposit and stamp duty.

Now, the deposit is around 10% let's say.

Stamp duty on average is going to be around 4%.

Now this will change depending on the value of the property. Stamp Duty figures are a moving scale, and it changes between States as well; but we're going to use 4% for this case.

That's a total of 14% on the outlay of the purchase price.

Then we've got other little things that we need to add on, and these are dollar figures. I include things like solicitor's fees which are around $2,000.

I also include due diligence reports like building reports and valuations, which is probably another $2,000. And then you have sundries like loan disbursements and things like that to come up and that's around $1,000.

So if we leave around $5,000 outside of that, that will usually take care of that. If you're using buyer's agent, this needs to be taken into account as well in these extra costs.

If we look at all of these in sum, and we're looking to buy say a $500,000 property, let's work out how much it's going to cost us.

The 10% is going to be around $50,000, the 4% is going to be around $20,000, and then we add the extra $5,000 on for the extras. That takes us to a total of $75,000.

Purchase Price:                  $500,000

Deposit     @ 10%:            - $50,000

Stamp Duty @ 4%:           - $20,000

Extras:                               - $5,000

Total Costs                       - $75,000

As you can see, if we want to get a new property of $500,000, it's going to cost us around $75,000 out-of-pocket to invest.

We can reverse-engineer this to work out what you can afford based on how much money you actually have.

For example, if you have $100,000 and you want to invest in property, what's the property price that you can afford?

Let's work this out. Remember we have $100,000.

We take $5,000 off for sundries, that leaves us with around $95,000.

Now we have to divide by the remaining percentage because this is going to deposit and stamp duty, and that's 14%; so we divide by .14.

And it brings us a total figure of around $678,000.

Savings:                              $100,000

Less Extras:                        - $5,000

Total remaining:                $95,000

Divided by 14%:           = $678,000

So that means that if you have $100,000 in savings or in equity, then that will give you, provided you can service a loan, the ability to buy a property around that $680,000 mark.

So the next time you’re wondering whether that next property purchase is within reach, this quick calculation should give you an understanding of what dollar commitments you’ll be facing.