Hello,
I am starting to look at adding a rental property or two. I currently have a mortgage of around $90,000 on a $450,000 home. I have a deposit of around $60,000 AUD if need be. I already know I can get financing on a single family investment home.
My questions involves the mortgage for the investment property.Looking at a mortgage repayments of $450 on a $350,00 dollar home for 25 years. Even if I could get $500 dollars a week it still would not meet the repayments and land fees and any other fees and maintenance. And in this area, $500 dollars a week would be a $500,000 home. I have even looked at more expensive homes and even a $500,000 home at 600 a week, you still would not make your payments. How do people buy homes in this type of environment now and make their payments without having to go in their back pockets? Or am I missing something simple?
Hi Glen,
Sadly most people don’t and just loose money. To be positively geared you will have to undertake an add value strategy. This may be as simple as renting by the room to uni students, it could be adding a granny flat, undertaking a subdivision, a renovation, or just buying well below market value.
My personal favorite is to combine three strategies into one purchase. I purchase a renovation project, that is sub divisible, and I construct a house with an integral granny flat. I then sell down the renovated home, keep the new dual income property. If I have done it right, I’ve got all my capital back plus a little more and I’ve got positive income with great depreciation.
Google 8 Dagnall Rd Greenwood Perth. The property settles next week. This is the exact strategy my client is undertaking on this property.
There are lots of books written about the subject, but you are in the right place. The simplest thing to do is to go to the local library and start reading. If you have any questions please PM me.
Hi Glen,
Good post, and well thought through. No, you are not missing anything at all – you have it dead right.
Top answer from David too – so many people DO lose money, with several “advisers” promoting negative gearing (the science of losing money on a weekly basis in hope of a Capital Gain down the track).
Just this week Jason resurrected a top article originally from Steve and re-presented it – take a look:-
https://www.propertyinvesting.com/negative-gearing/Your comments were describing the “usual” negative-geared property, where, to purchase it, you must be prepared to lose money weekly, then get back SOME of that loss from the Tax Office. To prevent this, you need to start looking at property differently – as David shows, profits CAN be made by buying well. But then, this is a whole new area of investing. Can you do reno’s? Or subdivisions? Or simply look for better deals in areas where property is cheaper yet rents are still high (e.g. regional areas).
Of course, with the latter, there are REASONS why property is cheap and Rents are high – few people want to BUY there. You need to consider whether YOU want to !! If you do, have you lined up an Exit before purchasing? Or, will you use one of David’s ideas and buy a loss-maker, then change its function to make it into a profit-maker?
Keep on reading, Glen – the answers are already out there…. Some of them are in the Training Centre on the Home page, and then, some others are HERE:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/Other than that, check out the stickies in each forum that appeals to you. And come on back with questions if you need to. See, as we answer each question, we answer it for hundreds of others who are reading and just “taking it all in”. So, good on you for asking questions – especially ones as good as your one,
Benny
Benny
If you are to purchase a new property at this time – more likely than not it will be negatively geared – costing you money. There are markets which are exceptions to this, generally regional or outer metro Adelaide/Hobart. I’d be careful with regional as the supply/demand constraints are fairly low, so they don’t necessarily have the same capital growth drivers as metro property.
The idea of property is a long term proposition – that property values and rents will increase over a decade or more, not for immediate cash flow.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
My motto is fairly simple, ‘buy a problem, sell a solution’. If you’re buying new you’re buying someone’s else solution and trying to profit from it. It’s not impossible but probably not the best use of money.
Examples of buying a problem and selling the solution are like David said – by a problem house, renovate it then sell / rent the solution. That’s where the money is – same with subdivisions, worst house in the street etc.
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