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Rudra,
Yea Dazza the numbers above work for new purchases not refinancing.
For your situation Rudra I think it comes down to your confidence in the property market, if you want to leverage up then pay the LMI and potentially buy multiple properties. Also consider your serivcability of the loans, as they are not positively geared.
Personally I wouldn’t want to contribute too much of my income to mortgage repayments in the current market. I prefer cash-flow positive property so that my lifestyle isn’t compromised by additional purchases.
ps. Cross-collateralization of your loans may pose problems down the track if you intend to build a substantial portfolio.
Hey Rudra,
Here are some comparisons between a 95% LVR and 80% LVR, based on the following assumptions:
– Purchase Price $230,000
– Loan of 6.8%, interest only, over 30 years
– Rental Return $320 pw (assume 1 week of vacancy per year)
– In Victoria
– Purchase costs include loan application fee, stamp duty, LMI, building/pest inspection, legal fees etc.
– Ongoing costs include council rates, real estate management fee %, strata levies, insurance, some small maintenance etc.Ok for a 95% LVR
– Savings required to buy approx $28,200 (11.5k deposit & 16.5k purchase costs), this includes $4,215 for LMI
– Cashflow per year -$3450, i.e. will cost you an extra 3.5k onto of your rental return
– Return on Investment -12.3%, it is negative so you would be hoping for capital gains80% LVR
-Savings required to buy approx $58,500 (46k deposit and approx $12.5kk purchase costs), LMI is now $0
– Cashflow per year $1,123 i.e. will cost you just over a grand per year to own this property
– Return on investment -1.9%, still negative so hope for capital gains.Pros/Cons of 95% LVR
– Much lower cost to acquire the property
– You will have to contribute more per year to repayments etc.
– Return on investment is worse than 80% LVRPros/Cons of 80% LVR
– High cost to acquire
– Contribute less per year
– Return on investment is betterHope this helps mate.
Making extra repayments on your mortgage will give you a return equal to your interest rate (rate charged by lender e.g. 7%).
If you are buying an investment property with the aim of it being cash-flow positive, work out the total purchase costs and ongoing expenses, use these costs along with market rent for that property to work out if your return will be higher than 7%. If so, then buy!
If you can secure a cash-flow positive property with a return greater than your interest rate then as long as the property doesn’t drop in value (stays flat at least), you will be getting further ahead.
If you can’t show the bank you have evidence of “genuine savings’ (your bank account going up each month) they may find it hard to lend you money as they fear you won’t be able to service the loan.
I would suggest paying off the credit card asap, then buying an investment property afterward.
If you are likely to pay off your credit card debt in less than 6 months, you may want to consider transferring the balance to another bank’s credit card to take advantage of the “6 months interest free” period or similar offer. I did this after finishing university. Although I would only suggest this if you plan to, and can afford to pay it back in the required time.
Good luck.
One of the big challenges for most people is saving up the required deposit/purchase costs for each property.
Say you were buying a $300,000 in QLD on a 5% deposit. It would cost you approx. $33,000 (inc, government costs, lender costs and building & pest inspections). Work out how much you can save per year to get a rough estimate of how many properties you can afford in your first couple of years.
CF+ properties will assist in your savings so it will get easier. Although you will need quite a few properties to make this positive cash-flow a substantial income (probably less than $150 pre-tax profit per week, per property. For properties under $500k on 5% deposits).
I am in the process of purchasing a property that settles on the 19th of Dec 2011 which has a rental yield of 11.6%, after all expenses it should generate around $7,200 pre-tax income per year. So they are definitely still out there!
Good luck!
