Hi,
So I've found a place that I think is positively geared. Its a small 2 bedder near sydney city.
Income is about $18200
Costs: 17451 (strata, water, council) and mortgage of interest 5% (interest only) with 10% deposit.So its about $700 income.
Rent is until Dec 09, and tenant willing to extend, and they are in the process of renovating lobby etc … So i think possibly be able to increase the rent a bit by then.
Do i need to look for any other costs that may be involved that i hv overlooked? How would I take into consideration the 10% deposit ?
And is the profit margin $700 pa too small and if so, how much should i be aiming for?
Thanks in advance.
My 2 cents worth…
Dont forget to consider the Property Management costs unless you are going to manage the tenants yourself.
Allow around 8-9% of your rent to cover this cost.I estimate you will be negatively geared by around $890pa ($17 p/week) after management costs.
Hopefully the property will give you good capital growth over time regardless of the eventual cash flow position.
If Capital growth prospects are strong a small income loss would be acceptable to me.Your deposit is irrelevant when considering your cash flow position with this property.
Income v's expenses is what you are comparing.Hope this helps?
Dave
Dave is spot on, you need to allocate some of your income to rental management fees. Also, don't forget to allow for:
– Maintenance, you mentioned that they are rennovating the lobby, so it can't be a new building. A little bit of pumbing or electrical can add up over time.
– Bank fees – you may have some bank fees on you mortgage
– Potential interest rate increases as well since you're only working off 5% interest rateOn the other side, if you're PAYG and paying tax, you have the potential tax depreciation – since you have not mentioned it, it's really the only what if – and could turn the property back to being positive, but since it's not a new building, this may not have much impact at all.
Regarding what you're aiming for, you really have to weigh it up – if you're going to get good capital growth, then the fact that you're not making much income is not as much an issue. If you're just breaking even, and you're not expecting good growth, then you don't really have many positives there.
Dave is spot on accept for Your deposit is irrelevant when considering your cash flow position with this property.
Income v's expenses is what you are comparing.your deposit is also worth something, me personaly a chase 10% of the deposit i put down
so if the deposit is $20,000 i would want $2,000 p/a return on that, duno u may do it different and aim for what the banks interest rate is 5%
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