I conceded and sent the sheet to Dave Ward after all.  I will learn in time but for now I just want to know the outcome.

Guys that is exactly the sort of thing I am looking for.  The formula for the interest only mortgage is simple enough to understand so I'll implement that myself and try and digest the other one too and if I get stuck I will definitely send it your way and as for the link I have not had the chance to look at that yet but I will.

So that is the first issue addressed so secondly how far off was I in my list of probable deductions. Are there any more I should be considering?  How about loan set up costs perhaps.  I understand that not all costs will be possible to implement into a formula based spreadsheet for a template but it would be nice to have an idea what to expect.

For those who have not talked with me you may gather I am very new to investing, having spent all of my life so far simply working for money, I would like to change that so that money works for me so all your help is greatly appreciated.

Thanks again.

Paul

Firstly, thanks very much for being encouraging more questions. I have used forums for many things in the past on different subjects and have always felt that there is someone at the other end thinking    "AAAAARRRGGGHHH, have you still not got this?, I don't want to explain it again" so thanks again.

Your absolutely right I had been doing my workings out using a repayment mortgage which of course makes the outgoing a whole lot more expensive than an interest only mortgage.  I have only really recently understood the value and the reasons behind having interest only mortgages.  My main goal in the past was to own outright as many properties as possible to have a great retirement.  My thought was even if I own two plus my own home outright, putting that with my pension will give me a good retirement.  Now that I understand that the interest on an IP is considered a loss ( I hate the term tax deductible as it makes it sound like the loss comes out of your tax rather than being deducted from your earnings before the correct amount of tax is paid, so still a loss…) and that the interest on my own property would not be, I can really see the benefit to structuring your debt in a way that is cost efficient and although my goal is still the same, I want to retire comfortably at the very least,  I now have a better plan to carry that forward and achieve it.

Because I am new to Australia and have never owned a house here yet, I have no idea yet what exactly I will need to factor in to the equation.  I am currently in a rental and I pay my own water bill in here and rent and pool maintenance.  I have only recently heard the term strata fee too.  I need to know exactly what I will be paying out when the time comes and how to factor that into my plans.  I have no desire to own a negative geared property at the moment simply because, as I understand it, that type of arrangement generally relies on capital gain on renovations and area rises etc and also being able to spot a house being sold under market value and picking an area.  I don't posses these skills yet but I'm sure with experience I'll develop them.  Thankfully at the moment I am in a financial position to make mistakes without them wiping me out but I don't know how long that will last.

I have no particular property in mind as yet and before I go into the investment world again I will be buying myself a house to live in with either the thought of renting it out when I decide to move on up or staying put and buying something else.  To give you an idea of the figures I have been working with I had been looking at the defense housing with the fixed sale prices and fixed rent prices.  As I think I said at the beginning of this thread, I liked the idea of them for the lack of maintenance and I had been doing my calculations using repayment mortgages.  A particular house I think I was looking at was as I recall $440k with a rent of $440 per week.  I know they charge a nice 13.5% for management fees so costs are as follows…. I think….

$440 per week  x  52  = $22880

Mortgage at $418k LTR 5% so house value at $440k on a repayment mortgage at 5% interest over 30 years giving $2243 per month of which $1741.67 is interest.  Interest for the year is  $20900.04

Rent per year $22880 – 13.5% management fees = $19791.20.  Divide that by 12 months =  $1649.26

I am in a high tax bracket so lets say for example and ease that I was earning $150k per year. I know that to work things out I need to take my $150k and add my rent ( after management fees in this example to keep it simple)$150k + $19791.20 = $169791.20.  from this I need to deduct my interest for the year.   $16791.20 – $20900.04 = $148891.16 so I will pay less tax because I have had a loss.  

On $150k I would have paid $43446.63 according to my tax calculator but with the less earnings I will be paying $43036.36 so I will have saved $410.27 in tax but I will have also been paying a repayment mortgage at $501.33 per month ($2243 – interest of $1741.67)    $501.33 per month is $6015.96 – the $410.27 I have saved in tax leaves $5605.69 as my payment for the house per year so if I have done my calculations correct I will be buying a house outright with few problems for $467.14 per month or $5605.68 per year or $168170.40 for the entire 30 years plus the cost of the deposit and any set up fees. Is that wrong?

I am sure that I have left out a good few thing which I am not yet aware of but that's my basic workings out using a few apps for tax and mortgage calculations etc.  If anyone can point out my mistakes or things that I have not thought of I would be very very grateful because with good mentoring and guidance you guys and your experience really can change the lives of my wife and kids and help us achieve a few of our life ambitions.  Remember I am working out using a repayment mortgage.

Hoping you can help and hoping I have not fallen asleep at my ramblings.  Thanks in advance..  Paul    Oh and just to round off, I have no idea about depreciation yet and how it works.  I understand its the value of what fixtures and fittings and what they have lost in the years counted as a loss but that's about my extent of knowledge on that subject.

Hi Catalyst.  I was basing that figure on how much of my own money I would be using to buy it based on the fact that the tenant would be repaying a repayment mortgage for the rest of the money.  

So I need to understand the financing of investing better.  I know I will be paying roughly 8% for a management company, the interest on the loan is a loss and any profit made is taxable at my marginal rate.  I also know that depreciation is involved but I don't know how this works to well yet.  

I have asked the question somewhere that am I better off paying extra on my domestic mortgage or using that money to run an investment property at a loss because of negative gearing although when I asked the question I had in mind that I would set up the mortgage on the IP to be a repayment.  I can see now why that setting up an IP with a repayment mortgage is not a smart move unless you don't want to invest any more and just want the mortgage gone.  With an interest only mortgage you have a greater chance of making a profit and then using that money to pay off your own mortgage quicker.  Using the tools on an app I recently got I can see that just $400 a month extra on a $400k property over 30 years with 5% deposit can make a huge difference to the amount of time you owe on that property.  It takes ten years of the time and saves you $132,492 in interest.

What else should I be considering as part of my costing and due diligence?