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I tell you I have heard some terrible stories over land lords holding people to contracts.
A friend of mine works for a realestate doing rentals. A guy came in and signed a lease and paid deposit in the morning, said his wife was coming over to life with him from NZ. Later that day he came back all distressed saying his wife had died in a car accident and he needed to cancel the lease and go home to take care of his kids or something. They couldn’t give any of his moeny back and the owner refused to do anything about it. The company just paid him his bond money out of their own pocket so he could fly home, and to get him out of the repception cause he was getting crazy [blush2]
Always calculate it yourself, don’t let the banks tell you. Otherwise they just give you 30 year loans so the payments are as small as possible and you pay as much interest as possible.
I have seen people pay near 55% of their GROSS income. After tax that leaves them with about 20% I don’t know how they did it but they do. Most people who are actively repaying are about 35-40% if they have no other debts. But people who just pay minimum start at 35%ish and tend to go down to 30% and then 25% or less.
I don’t work for them
I have however spent weeks going over every loan trying to find the best ones. A friend of mine who still works ANZ was trying to get me to take a loan with them. The best they could do for us (despite the fact that we are both professional earning $110k+) was 7.6% with 100% offset. They couldn’t even match virgin moneys 7.3% with 100% offest… what a joke.
I went to almost every ‘broker’ echoice aussie etc. etc. None were able to offer any loan with a 100% offeset account that had below 7.37% interest rate. Not one loan was better than virgin money one even after the ‘professional discounts’ were applied, they just cut the 8.1% rate to 7.4%. I only found two places that had below 7%, one was 6.99% but had no 100% offset, and the other was ratebusters at 6.92% but with steep application fees.
I can see why rate busters isn’t popular. It is because the average loan only lasts for 2 years, therefore people will probably not even stick with them and they probably make all there money this way by taking in the exit fees.
What I mean is that if people have debts already they struggle really badly.
$39k per year is about $576 per week. $200 rent. $125 car payment. $80 other car costs (fuel, insurnace, rego). $40 bills (elec. phone. etc). Food $100. HECS $30. That leaves $0. Maybe $100 if you used share accomidation and paid $100 a week rent. Either way a loan repayment, you can only afford may $200 per week. That only covers interest on about $135k loan.
I was on $39k and I saved over $30k in 2 years so it can be done, but i had no car loan and $50 rent. It can be done sure, but something is wrong with society when kids have to do this out of school, where none of this is taught.
I am not surprised by the responses here at all as I have heard this all before.
I used to sell ANZ loans, we were taught customer service and low fees are what people want, not low rates. Every time we were asked to match rates we were told to show all the features we had etc. and how easy it was to get out of the loan and trade later one etc. etc. We gave ‘professional’ discounts that really get adjusted back to the standard variable if you read the fine print after 4 RBA rate adjustments.
Yes the rate buster fees are high. But do any of you actually do the math? If you are going to hold the property for at least 5 years and avoid the exit fee than this loan is defaintly chaaper than the big banks. I can see how some investors might not be suitable for them, but if you are in any way looking at paying down a house the interest rate is the only thing you should be looking at.
6.92% interest:
$300k @ 30 Years: $1980/month, $712,800, 137.6% Interest7.36% interest:
$300k @ 30 Years: $2,064/month, $743,040, 147.7% Interest8.11% interest:
$300k @ 30 Years: $2,215/month, $797,400, 165.8% InterestSo thats $41k saved if you get the pro. discount applied for all 30 years, and $80k saved if you don’t.
The weekly saving is $50 per week from 8.11 or $20 per week from 7.3The fees are about $3k more. So you only need to hold the loan for 1 year (8.11%) or 2.5ish years (7.3%) for it to have been the cheaper option.
This is the exact reason why rate busters will never explode and send the banks running. People see $5k in fees and crap their pants. Seriosuly the ratebusters even give you an atm card that is free to use at any atm and unlimited eftops, all tied to an offset account. Yet people won’t take it because they don’t think 0.5% PA makes a difference, when it makes a huge difference.
We cannot answer unless you tell us what your loan repayments will be. This is because the only thing to weigh up here is the interest you will pay on the $550k and the income from rent and the value increase in the $350k house compared to just loaning $200k.
Firstly if you have $300 per week in rent, after tax you probably will end up recieving about $9k from the property. Depending on how big your repayments are that is about $173 per week extra on the $550k loan.
Quite frankly you would be paying up near $88k per year on a loan like that, otherwise the interest is going to run into the hundreds of thousands of dollars. If you sell the house and only lend $200k, payments of about $32k a year will get it paid off with very little interest in about the same time. That is by the time you paid off the $550k loan you could have proably paid off the $200k and saved well over $350k.
What do you plan your repayments to be on the $550k loan, and what would they be if you only had to loan $200k. If you are just paying the 30 year loan minimum the bank says its definatly better to go with the 200k loan. This is because on a $550k loan paying minimum will likly result in repayments of upto 1.5 million.
Don’t be fooled by all these people claiming ‘no right or wrong answer’ or some such rubbish.
The right answer is always the LOWEST interest right with low escape fees. The best right now is clearly http://www.ratebusters.com.au. The variable rate is just 6.92%. on a $300k loan that is $50 PER WEEK cheaper than ANZ and other big banks who are at 8% or more. Don’t be fooled by all the crap out there, interest rate is what really matters.
I would be careful.
If it isn’t a long time investment then its a risk because these houses never value. I have seen houses on the railway line sell for $220k around salisbury in QLD where the average is now up around $400-$500. Rent didnt seem to be affected though.
Firstly the best way is always to get a cheap house and pay it down massively.
If you are both on $50k per year you should be able to scape together $750 per week in payments. Don’t even bother looking to invest until you have paid of the house. This is because the investment property will not return more money than that saved by paying off existing debt to avoid interest. Remember the majority of ‘investors’ make $100k on an investment house and end up paying $300k in interest on their own $300k house, which is redicuoulsy stupid since they could have just but the investment money into their own house and paid it off paying just $100k interest.
You should be able to pay off a $200k-$250k house with only $50k in interest paid or even less. Then get an investment house and do the same thing, using its rent to help pay for it. Doing this should knock them over in 4-5 years each, if that. 30 years you should have 6 or 7 houses completely OWNED. Then you can sell half buy a $1million property on the coast somewhere and life off the rental money off the other half and retire. This is way better than interest only investment and getting lump sum payments of $100k etc. every now and then.
Don’t be conned into investing when you have equity. Equity isn’t a reason to invest – not owing money is. Loans are 8% interest, houses are not going to go up in vlaue 8% all the time. Negetive gearing helps but not much. Its rarely more profitable to invest than it is to get yourself out of debt. This is because while in debt every dollar you don’t spend on your loan, means more interest. For example on a 30 year loan, if you buy a $10 movie ticket each week, that is $30 interest you will pay. If instead you put that $10 on your house you would end up saving about $25-$30 per week and cut the life of the loan down hugly.
You want to buy a $700k – $1000k house on $90k per year?
interest on $700,000k is going to be $50,000 per year. The $300 per week rent will be taxed so you probably won’t end up with more than $10,000 or less from that house per year. So you still need $40,000 just to cover the interest.
I think the bank would loan you the money just because of your equity but it is crazily stupid. Do you really need a $800k house? If you are going to live in it you really need to be paying twice the interest rate per year, that is 16% per year, which is completely unaffordable on your income.
If its valued at $380k and you have $58k im equity, how much are you in debt? $300? More?
The point is if you loan another $300, then you are $600k in debt and paying essentially paying $300k at 16%. Where as the houses only make about 8%. So the values of the 600k would have to increase in value 8% per year. There is no way this is going to happen definatly.
You are much better simply paying down your debt on the first IP completely, then use the first properties rental income to help pay for payments on the second.
TOTAL COSTS $491 pw
RENT $260 pw (probably more)
I don’t know about your tax return calculations. From that the weekly loss is $231, which means you get back 45% * 231 = 104$, so the net weekly loss is $127, or $6604 per year.
The definatly increase in value of the house is 3% of $295,000 = 8850. Minus 25% capital gains results in 6637.50 minus 2% sales commision is $6,504.
So there is a net loss of $100 per year if the house only increases in value with inflation. You are essentially backing on the fact it will go up more than inflation. I recommend you start paying far beyond the minimum interest only repayments. This is the only way to start making more profit out of it.
Firstly, I can’t wait until property prices fall over and every interest only investor is instantly bankrupt. It would be a good day for justice and a wake up for the goverment. Giving ‘investors’ tax deductable interest while struggling home buyers don’t get that is a complete injustice. Most investors would not be in the market if it weren’t for this negetive gearing. The investors themselves are what is driving prices so high.
The baby boomers have now paied off loans and all investing and we seen a massive property bubble. They all buying up houses for investment. I get sick and tried of hearing “I have 1.2million in property” when they really have 1million in debt and 1.2million in POSSIBLE property if the values don’t fall over.
Having said I can feel for the orginal poster. I was in the same position in 2003. Out of uni and into a $39k job. It took a few years of work but now I am on $60k but also have girlfriend who earns about $41k. So things can change quickly and we are now in a situation to loan about $300k and we should be able to pay $750 per week now and in a 2 more years up that to about $1000 per week after my HECS debt and her car debt finally come to an end. We want the house paid off in under 10 years.
However people are being really unfair to the original poster. When you are on your own making $39k nothing is affordable. People her claim that $180k apartment (and some even said $300k houses) are available. I can tell you right now that they will not give young people on $39k more than about $140. If a couple you can get them upto about $260, thats a big if for most people. He is pretty much in a part of his life where he can’t do ANYTHING. You can’t save much on $39k at all living by yourself. Not even $200 a week, in that time property prices can explode. I was looking for hosues around $200 when i just finished uni, 3 years later when I am finally ready the same houses are now asking $300 and I guess selling for about $280.
