Hi JB,

Welcome to this good place !! My first question is “Where is Frenchville?” I am from SEQ, and have never heard of it – I suspect this place might be further North, or West?

Does this make the property negatively geared by -280? and if so how can the rental yield be 7.3% or perhaps that’s because it doesn’t factor in rates and other costs?

Help! am i doing this right? Should i also be factoring in other costs?

The yield shows 7.3% as you are discounting that large amount you put in as a Deposit (almost like it didn’t cost you anything to put it into the deal).

When calculating Yields, use the Purchase Price not the Mortgage as the denominator. Thus – 161120/299000×100 = 5.4% yield

Good work taking the lower expected rent. Had you not done that, I would have suggested dropping a couple of weeks rent off each year as “possible vacancy”.

Using the lower rent works though – shows you are being conservative/realistic – well done !!

The figure of $4000/year for Rates/Ins sounds reasonable to me (again, depending on where Frenchville is). Maybe a bit of Maintenance is rolled up in that too? And you are right, JB – the rates etc show up AFTER you have calculated the Yield. So even if a Yield is better than the Mortgage Interest you are to pay, it still may not be enough to cover the Rates/Ins/Maint/etc and still leave a positive cashflow.

I presume this is a house, as you don’t mention any Body Corp costs (?) Hope that helps,

Benny

Hi Jprop,

To me, forcing Equity growth is way easier than saving. As such, the more of your own cash you can retain (to put into reno’s to add value) the better. The flip side is that, with the Equity growth, this provides the deposit/costs to “do it again”. Re LMI, the cost of having it is laughably small. So if you can get it, do consider using it. What is the interest cost of an extra $10k on a mortgage for LMI if it allows you to keep $50k in your back pocket to do renos? It is tiny in the scheme of things.

Tied up with all that is serviceability though. Positive gearing is a darn good start, but so too is a regular income while you go through your accumulation phase. Once the accumulation is complete, consolidation (paying down the debts) is next.

Spoke to my broker and he said serviceability and capacity is there to borrow 300k but would need to draw on the equity of the two properties for the 20% deposit.

Sounds good to me – check whether you have the serviceability to handle another purchase – if another positive geared buy, that will help. Your broker (or one of ours) would be able to give you chapter and verse – just beware of getting both houses on one loan though. You DON’T want to go that way. It might seem easier NOW, but it could tie you up tight further down the track.

It is called “cross-collateralisation” or x-coll – and you don’t want to go there. Be sure your broker KNOWS that !!

Have a read of this pointer:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697974

And, having done that, do read on down that thread – there are some pretty neat “pointers” for newer investors, including (just a posts further on) a story of a young bloke who used positive geared property to set himself up – in LESS than 2 years. It is a good read !!! ;)

Hope that helps some…

Benny

I sourced the job through the site http://www.serviceseeking.com.au.

I have had similar good results from that site on a couple of occasions. But then, I am sure some luck goes along with that.

On the most recent occasion, a friend had an issue with their hot water heater. A call from one of their respondees to our “call for help” indicated that I would likely be up for the cost of a new hot water cylinder (around $1500). My words to them indicated it was likely more electrical (from the fact the circuit breaker was tripping) and perhaps I needed a sparkie rather than a Plumber?

He affirmed that, for a HWC job, you need both – depending on the problem. Very few plumbers are licenced to do electrical work as well as plumbing.

Fortunately, the plumber I had used previously (also from that site) was still in my phone – so I called him. He put me onto his sparkie mate, and we soon had the electrician onsite. He swapped the old CB with a new one – there was evidence of heat around the contacts of the old one, causing it to trip. No need for a new HWC after all – and call out plus the fix was just $90. So, yeah – there are good ones out there, but when you get a good one, keep his phone # handy !! You never know when you might need them again,

Benny

Hi Ethan,

I’m thinking of Terry (how do you tag in this forum?!?).

Simply enter his name (the one with the @ at the front). So, find him on forum first (Search for member names or an old post of his) and you will see he logs as Terryw – in fact, his tag is @terryw too – not always the case for all members, but it works with him. e.g. Richard Taylor on the other hand has a tag line that does not include his name… check it out. Richard has already posted to this thread, so scroll back to see.

Now, since I have mentioned Terry’s tag above, he will receive a notification that he was mentioned in this thread. Then he can come read it, and add his thoughts as well.

Benny

Hi Jade,

NIL please.

Huh?? Is this an acronym like LOL, TLDR, or ROTFLMAO ? If so, please enlighten me – I haven’t heard of NIL before.

Thanks,
Benny

Hi Good Vibes,

Unfortunately, finance and property investing is not a subject taught in schools – if it were, there would not be as many folk inadvertently costing themselves so many opportunities. i.e. wanting to change their old PPOR into a rental AFTER it is paid off. As Jamie said, any mortgage you take out on it NOW will have the ATO looking at the PURPOSE of that mortgage. If the purpose is to invest (e.g. you borrow to buy an investment property) then it would be deductible. But if you mortgage it to buy another PPOR, or take a holiday, then it is NOT deductible.

So, what CAN you do? Well, depending on your future goals, if you wanted to begin investing, have a chat with someone (perhaps form on here, or not) who can advise just HOW you might be able to utilise this property and its Equity. It may not be what you might think is ideal, but there will be some way that becomes “better” than other ways. Like, since it is your old PPOR, there would be no CGT to pay if selling – but also, even if you keep it and rent it, you can be away up to 6 years and STILL have CGT exemption when you do finally sell. That is worth knowing eh? Check with an adviser re what happens after 6 years though.

Another option might be to borrow against that house to buy shares (also an investment) if that would provide a satisfactory solution for you. Then the interest on the mortgage would likely be deductible – but then you might be paying Tax on the profits from the shares…. and even CGT on sale too….

Really, a lot comes back to you and YOUR goals – consider what you really want to head towards, then take advice on HOW to get there. Many of our members might be able to help you with that….

And hey, welcome to you – I am glad you have joined us, and I hope we are able to assist you with some good thoughts,

Benny

Hi Dean,

Whoa !!! How can anyone make money as a landlord then? $7000 per apartment ($140 a week or ~$600 a month). Rents must be through the roof with that kind of impost.

THanks for making us feel better Dean…. ;)

Benny

Hi Anthony,
An interesting set of questions there !! I for one, cannot think of a quick answer to many of them. Mainly because many of the answers will depend on you and your goals in the first place. Like you said, “How long is a piece of string”.

Steve has some interesting thoughts in his various books – one that stays with me is his “Multiplication by division” tenet. In short, once the yield on a place drops markedly (usually as its value increases) it is time to re-consider whether the equity within it should be released by selling, and the equity then parlayed into the purchase of two more properties with better yields. And, a corresponding increase in equity too.

Investing is such a complex area though, that simple answers are often hard to come by – but read on…..

It sounds to me like you are wanting to take a seriously good long hard look at investing – in which case, perhaps my very best tip would be to consider just what a Property Apprentice course would do for you. You are seeking wide-ranging answers to many questions, and I can’t think of a better resource to set you up for your future. Talk with Jason re what it can provide for you – Steve refers you to Jason in the link below.

Take note that the following link to the Property Apprentice course has Steve talking for about 3 mins (along with many pages of info). Have your speaker volume at mid-range prior to clicking on the link (there is a few seconds delay before he speaks….).
http://www3.propertyinvesting.com/property-apprenticeship

Benny

Hi Coogee,

Wow – that does seem weird. I’ll be interested to read what might be going on there too – I hope one of our gurus can come up with an answer.

Benny

Hi Tony,
Thanks for sharing that. Wow, I couldn’t believe the number of jealous souls who took the time to comment. So many posts that made NO sense at all – but then, I can only guess they have never researched property investing to know better.

e.g. one of them commented something like “Humph – I bet he is only paying off Principal and NOT paying any Interest !!” That gave me a good chuckle.

Well done you !!! ;)

Benny