NSW BOARDING ACCOMODATION CALCULATOR USER GUIDELINES - PREPARED FOR NSW DEPARTMENT OF HOUSING
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NSW BOARDING
ACCOMODATION CALCULATOR
USER GUIDELINES
PREPARED FOR
NSW DEPARTMENT OF HOUSING
MAY 2007CONTENTS
1. INTRODUCTION TO THE CALCULATOR................................................... 4
1.1 WHAT IS THE BOARDING ACCOMMODATION CALCULATOR? ................ 4
1.2 WHY CALCULATE DEVELOPMENT YIELD? ...................................... 4
1.3 WHAT INPUTS CAN THE CALCULATOR TEST? ................................. 5
1.4 USEFUL DEFINITIONS............................................................. 5
2. HOW TO USE THE CALCULATOR .......................................................... 6
2.1 SECTION 1: INTRODUCTION ...................................................... 6
2.2 SECTION 2: ACQUISITION......................................................... 6
2.3 SECTION 3: REVENUE............................................................. 7
2.4 SECTION 4: CAPITAL COST UPGRADE & DEVELOPMENT ..................... 8
2.5 SECTION 5: OPERATING COSTS................................................. 8
2.6 SECTION 6: FINANCE.............................................................. 9
2.7 SECTION 7: NET YIELD SCENARIO ANALYSIS .................................10
2.8 STAMP DUTY & LAND TAX SHEET ..............................................11
2.9 YOUR SHEET ......................................................................11
NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 2LIST OF FIGURES
Figure 1 - Definitions of Terms................................................................... 5
Figure 2 - Introductory Section of Boarding House Calculator ................................... 6
Figure 3 - Acquisition Section of Boarding House Calculator .................................... 7
Figure 4 - Revenue Section of Boarding House Calculator ...................................... 7
Figure 5 - Capital Costs Upgrade & Development Section of Boarding house Calculator....... 8
Figure 6 - Operating Costs Section of Boarding House Calculator .............................. 9
Figure 7 - Finance Section of Boarding House Calculator ......................................10
Figure 8 - Net Yield Scenario Analysis Section of Boarding House Calculator .................11
LIST OF APPENDICES
APPENDIX 1 - CASE STUDY EXAMPLE
NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 31. INTRODUCTION TO THE CALCULATOR
The following user guidelines have been designed to accompany the Boarding
Accommodation Calculator. The guidelines outline the benefits of using the Calculator and
provide a step by step guide to how as to how to enter data into the input sheet and how to
interpret results provided by the Calculator.
1.1 WHAT IS THE BOARDING ACCOMMODATION CALCULATOR?
The Boarding Accommodation Calculator has been designed as a bespoke tool to be used by
the Department of Housing to assist existing and prospective boarding house
owners/managers in NSW. The Calculator can be used to gain a better understanding of
issues affecting the viability of a boarding house business by testing different development
scenarios and analysing their economic implications.
The Calculator is a tool that may be used to:
1. model the viability of existing boarding house businesses;
2. model the viability of existing boarding house businesses and any proposed
upgrades to buildings / variations to business costs; and
3. model the viability of developing new boarding houses.
The Calculator is an excel based program that allows the user to ‘input’ development related
data. It will then ‘calculate’ the development yield of a boarding accommodation businesses,
extension or development. By varying costs and other factors such as revenue and loans, the
effect on development yield and business profitability can be clearly understood and
quantified.
It is important to note however that the Calculator has been created as a simplistic tool to be
used by the Department of Housing to assist owners/ mangers identify mechanisms to
improve business profitability and thereby to retain boarding accommodation businesses. It
will be owned and operated by the Department of Housing and its use will be at their
discretion.
The Calculator has not been designed as a detailed tool to guide development feasibility or be
used to assess the more complex and detailed feasibility analysis required by SEPP 10. To this
extent the Department of Planning does not endorse the use of the Calculator.
1.2 WHY CALCULATE DEVELOPMENT YIELD?
Through extensive discussions with industry representatives it was identified that
development yield (rather than Discounted Cash Flow and Internal Rate of Return) was the
method of benchmarking investment used by the industry. Consequently to simplify the
Calculator and to ensure it is targeted to its users, it has not been designed as a Discounted
Cash Flow Model but rather a calculator of profit and yield.
NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 41.3 WHAT INPUTS CAN THE CALCULATOR TEST?
The Boarding House Calculator has been designed to vary matters such as land tax, stamp
duty, legal costs, the number of rooms (rent) and other income streams (i.e. grants), capital
invested and operation and maintenance costs. The effect of varying these factors and their
financial inter-relationship or knock on effects are assessed by the Calculator.
As an example an owner/manager may utilise the model to test the impact of lowering tariffs
by $10.00 per room per week to allow the business to be eligible for land tax exemptions.
By actually reducing tariffs and not having to pay land tax, the Calculator may be used to
determine whether overall profitability is improved or otherwise.
The Calculator may be used to compare allows for comparisons between different business
and development options. A comparison of yields also allows for benchmarking against other
forms of investment.
1.4 USEFUL DEFINITIONS
The following table provides definitions to terms that are used within the Calculator and the
user guidelines.
Figure 1 - Definitions of Terms used by the Boarding House Calculator
Term Definition
Passing Yield The rate of return that the current rent yields expressed as a percent
of the land purchase price.
Vacancy The percentage by which total income should be reduced as an
allowance for some of the rooms in the boarding house not
generating any revenue.
Contingency An addition to the total Capital Upgrade Cost which is incorporated to
account for any unforeseen costs associated with the upgrade.
Capital Upgrade The actual cost involved in upgrading of the existing facilities.
Operating Costs Costs associated with the operation of a boarding house. These
costs are ongoing costs. It should be the annual c ost for each
variable which is entered into the Calculator.
Equity The amount of the owners own capital that is used in the project. No
financing costs are associated with the Equity input.
Capitalised Net Income The value of the property calculated through capitalization of the Net
rental.
Development Margin The difference between net income and total costs. Expressed as a
percentage.
Return on Equity The development margin expressed as a percentage of the amount
of equity injected into the project. Thus given a rate of return on the
equity invested.
NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 52. HOW TO USE THE CALCULATOR The following section of the user guidelines takes a step by step approach to show how to use the Calculator. It breaks down the guidelines into the 6 different sections of the input sheet explaining the relevant data to enter into each section of the sheet and how the Calculator’s results can be interpreted based on the results of section 7. Within each section a pictorial example has been provided of a sample development. For reference purposes, the complete example may be found in Appendix 1 of these guidelines. It is important to note that consistent across all sections of the calculator the ‘cut’ and ‘paste’ options should not be used. The reason being that this will corrupt formulae built into the model. 2.1 SECTION 1: INTRODUCTION The introductory section (section 1) of the Calculator should be used to record the descriptive details of the subject property being modelled. This is particularly useful when testing different development scenarios in order to keep a clear record of what each one is for the purpose of comparison and future reference. Information is entered only in cells where text is coloured blue. Cells with black text have been ‘locked’ so that they cannot be altered. They either contain a generic description or an important formula integral to the functionality of the Calculator. Figure 2 - Introductory Section of the Boarding House Calculator 2.2 SECTION 2: ACQUISITION As highlighted above, information should only be entered into those cells which have blue text. The first input (Row 2.01) should be the property purchase price. From this figure the Calculator will automatically calculate the applicable stamp duty rate based on NSW rates as of March 2007. Should Stamp Duty not be applicable then “no” should be selected (Row 2.02). NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 6
Both legal costs and other costs related to the purchase of the land need to be entered into this section (Rows 2.03 and 2.04). Using these values and the other acquisition costs entered above, the Calculator will calculate a total acquisition cost (Row 2.05). The net annual income upon purchase should be entered into the model (Row 2.06). The Calculator will then calculate the passing yield (Row 2.07). This is the Net Annual Income expressed as a percentage of the purchase price. Figure 3 - Acquisition Section of the Boarding House Calculator 2.3 SECTION 3: REVENUE The revenue section (section 3) should be used to input the potential future income receivable upon completion of the works on the subject property. The revenue section of the Calculator gives the opportunity to enter up to 12 revenue sources for the subject property. The example below shows three variations of weekly rent for the subject property. For each source of revenue the Calculator requires the potential weekly rent to be inputted as well as the number of rooms for which that weekly rental is applicable. The final column then calculates the total potential income received. Although not mandatory, a vacancy rate for the rooms should be inputted into row 3.14. The nominated vacancy rate will be subtracted from the total potential revenue receivable to give a total revenue figure. This figure (Row 3.15) which will then be used in the final section (section 7) of the Calculator and its assessment. Figure 4 - Revenue Section of Boarding House Calculator NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 7
2.4 SECTION 4: CAPITAL COST UPGRADE & DEVELOPMENT Section 4 Capital Cost Upgrade & Development of the Calculator should account for the upgrade costs of the works being undertaken on the subject property. Fifteen lines have been provided for the input of costs incurred in the upgrade of the existing facilities. There are no restrictions to the nature of the costs nominated by the user. For each cost incurred the Calculator requires the number of units and the cost per unit to be inputted. Through multiplication of these figures, a value will be calculated. Values are then summed to give a total cost of the upgrade (Row 4.17). Within this section a contingency figure can also be built-in. The contingency figure will be calculated as a percentage of total costs and included within total costs. The contingency figure is included to account for any unforeseen costs which might occur as a result of undertaking the works detailed in the model. It is considered good practice to include a contingency as a percentage of construction costs whenever construction/renovation works are being undertaken. Figure 5 - Capital Costs Upgrade & Development Section of Boarding house Calculator 2.5 SECTION 5: OPERATING COSTS Section 5 of the Calculator deals with the ongoing operating costs involved with the project. In order to accurately calculate these costs each must be entered as an annual amount. The first input required within this section is the unimproved value of the land for land tax purposes. This figure should represent the value of the land only involved in the project, in other words the value of the property minus the value of any building improvements on the land. By opting Yes (5.02) the Calculator will calculate the Land Tax liability on an annual basis. NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 8
Other costs which should be considered within this section are Insurances, Repairs and Maintenance, Administration fess, Council rates, Water rates, Staff Wages and Owner/Manager Salary all of which are entered as an annual amount. For each inputted cost the Calculator gives a percentage of total operating costs, a percentage of revenue and a dollar amount per room without any additional data inputs. Figure 6 - Operating Costs Section of Boarding House Calculator 2.6 SECTION 6: FINANCE Section 6 of the Calculator deals with the costs involved in financing the project. The first input (Row 6.01) relates to the amount of equity being injected into the project. The following two rows (Row 6.02) are automatically populated from inputs made elsewhere in the model. The next input relates to the finance borrowed to undertake the construction work. Costs associated with the loan are then entered (Rows 6.03, 604 & 6.06). These inputs calculate the total construction loan interest figure (Row 6.07) and the total cost of the loan (Row 6.08). The Calculator then uses the amount borrowed for construction, its associated costs and the remaining amount needed to acquire the land to give the total funding required post works (6.09). The input of an Effective Mortgage Rate (inclusive of Line Fees) will then calculate total interest on funds borrowed which can then be used in the Net Yield Scenario Analysis. NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 9
Figure 7 - Finance Section of Boarding House Calculator 2.7 SECTION 7: NET YIELD SCENARIO ANALYSIS Section 7 of the Calculator is the final section of the Calculator’s input sheet. It summarises how the project performs financially. It requires only two additional inputs, both of which relate to the capitalization rates applicable to the project. Net Income before Finance (Row 7.01) relates to the total income minus the operating costs. This is the potential income the owner of the property could expect after the upgrade works have been completed. The Net Income is then capitalised resulting in an end sale value. In order to complete this calculation the capitalization rate will need be inputted (Row 7.02). This section sums all of the costs of the upgrade (Row 7.03). The Calculator provides a development margin in Row 7.04. This is done through the subtraction of the total costs from the capitalized end sale values. It should be remembered that this development margin includes Land Tax which may not be applicable to all types of boarding house accommodation. The net income excluding land tax (Row 7.05) is then capitalized (Row 7.06) using the rate inputted on the same line. A development margin based on land tax exemption is detailed in this section (Row 7.07). The relevant yields before and after Land Tax are shown on the right hand side of this table so that the effect that land tax has on a boarding house project can be clearly seen. The final project performance calculations which are undertaken in this section relate to Yield on Equity. The return on equity is shown (Row 7.10). This figure has taken the Net Income after Interest (Row 7.08) and expressed it as a percent of equity invested (Row 7.09). In addition to return on equity invested, the Calculator gives a return on equity in year 10, assuming a percentage growth in income that can inputted onto the same line (Row 7.11). NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 10
Figure 8 - Net Yield Scenario Analysis Section of Boarding House Calculator 2.8 STAMP DUTY & LAND TAX SHEET The Stamp Duty & Land Tax Sheet requires no data inputs. The Calculator automatically applies the rates detailed in this sheet to the Land Purchase price, this gives the Land Tax and the Stamp Duty rates applicable to the project. It should be remembered that if a change to the rates occurs then the onus is on the user of the Calculator to keep the rates updated. Once updated, rates will be automatically applied to the Calculator. 2.9 YOUR SHEET A blank excel spreadsheet has been provided within the model for calculations external to the calculator. This sheet has all the functionality of a standard excel worksheet and can be linked to the main Calculator. NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 11
APPENDIX 1 - CASE STUDY EXAMPLE NSW DOH BOARDING ACCOMODATION CALCULATOR USER GUIDELINES Page 12
Welcome to Boarding Housing Calculator
This excel template can be used to test the viability and feasibility of boarding houses operations and upgrades and new development
Do not save changes over the Master Template. Use Excel's File Save-As command to Save your working copy.
Boarding/Guest House Feasibility & Viability
Program Written by Hill PDA (March 2007 Version 1.2)
1. INTRODUCTION
1.01 Boarding House Name Glebe House
1.02 Address Glebe Point Rd
1.03 Suburb/LGA Glebe
1.04 Description of this feasibility Base Case with Fire Upgrade
1.05 Report Prepared By Martin Hill
1.06 Report Prepared For NSW DoH
2. Acquisition
2.01 Purchase Price/Current Sale Price $ 1,200,000 A
2.02 Stamp duty Yes or No Yes $ 48,805.69
2.03 Legal costs $ 3,000.00
2.04 Other costs (Survey, Valuation, Finance Fees) $ 4,000.00
2.05 Total Acquisition Cost $ 1,255,805.69 B
2.06 Net Annual Income upon Purchase $ 47,884.00 C
2.07 Passing Yield (C/A) 3.99%
3. Revenue Potential
Description Weekly rent Number Rooms Annual Income
3.01 Room 1 - 4 126 4 $26,208
3.02 Rooms 5 - 8 173 4 $35,984
3.03 Rooms 9 -10 165 2 $17,160
3.04 $0
3.05 - - $0
3.06 - - $0
3.07 . - - $0
3.08 . - - $0
3.09 . - - $0
3.10 . - - $0
3.11 . - - $0
3.12 . - - $0
3.13 Total 153 10 $79,352
Average rent Total Rooms
3.14 Vacancy 5.00% $3,968
3.15 TOTAL REVENUE $75,384 D
4. Capital Costs Upgrade & Development #Lots or Base Rate
Description Sqm $/Lot Value
4.01 Fire Upgrade 1 40,000 $40,000
4.02 $0
4.03 $0
4.04 $0
4.05 $0
4.06 . - - $0
4.07 . - - $0
4.08 . - - $0
4.09 . - - $0
4.10 . - - $0
4.11 . - - $0
4.12 . - - $0
4.13 . - - $0
4.14 . - - $0
4.15 . - - $0
4.16 Contingencies 5.00% (of dev. Costs) $2,000
4.17 TOTAL CAPITAL OR DEVELOPMENT COST $42,000 E
5. Operating Costs
5.01 Unimproved Land Value for Land Tax $ 650,000 $/PER ANNUM % of Expenses % Revenue $ per Room/wk
5.02 Land Tax Yes or No Yes $ 5,166.00 23% 7% 9.93
5.03 Insurance $ 6,000.00 26% 8% 11.54
5.04 General Repairs & Maintenance $ 6,500.00 29% 9% 12.50
5.05 Office Admin & Telephones $ 2,000.00 9% 3% 3.85
5.06 Council rates $ 1,800.00 8% 2% 3.46
5.07 Water rates $ 1,200.00 5% 2% 2.31
5.08 . $ - 0% 0% -
5.09 . $ - 0% 0% -
5.10 . $ - 0% 0% -
5.11 TOTAL $ 22,666.00 F 30% 43.59
6. FINANCE
6.01 Equity Provided $600,000 I
6.02 Total Acquisition Cost $1,255,806 B
6.02 Total Capital Upgrade/Construction Cost $42,000 E
6.03 Construction Loan $42,000 J
6.04 Loan Establishment Costs including Valuations etc $ 250.00
6.05 Construction Loan Interest Rate 9.00% per annum
6.06 Number of Months 6.00 months
6.07 Construction Interest $ 945.00
6.08 Total Construction Interest + Charges $ 1,195.00 K
6.09 Total Funding Required Post Works $699,001
6.10 Effective Mortgage Rate (incl. Line fees) 6.75% $47,183 L
Note Construction interest is assumed to drawn down evenly over the construction period. Post construction the mortgage is increased by the construction loan + interest
7. NET YIELD SCENARIO ANALYSIS
7.01 Net Income Before Finance (D-F) 52,718 4.06% Yield on total costs
7.02 Capitalised Net Income (Sale value) 7.00% $ 753,120
7.03 Total Acquisition Cost (B) + Capital Costs (E) + Construction Finance (H) $ 1,299,001
7.04 Development Margin -$ 545,881
7.05 Net Income Before Finance & No Land Tax $ 57,884 4.46% Yield on total costs
7.06 Capitalised sale value assuming land tax exemption 7.00% $ 826,920
7.07 Development Margin -$ 472,081
7.08 Net Income after Interest (D-F-L) $5,536
7.09 Equity Invested $ 600,000
7.10 Return on Equity Year 1 0.92%
7.11 Return on Equity Year 10 Income Growth 3% 1.24%DISCLAIMER
This is a simple Calculator to estimate the viability of a simple
boarding house business or development project. Hill PDA in no way
guarantees or can be held responsible for any investment outcomes
displayed as a result of using this Calculator.
Please seek professional advice before making any investment decisions
or use the enterprise version of the Estate Master DF software
(www.estatemaster.net) for a more accurate and detailed analysis.
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