QUESTION 1:
Regarding lease options, I bought a small e-book regarding australian lease options and seemed a bit thinner on the content than I expected, but pretty much all the examples had a certain portion of the rent you charge put aside as credit on the option strike price. so, for example you might charge $300/wk and put $30/wk on the loan. Now, he was saying about how at the end of the 12 months, the person has their deposit! How can they “have their deposit” if all you’ve really done is reduce the final amount they have to pay on the property? I mean the bank only lends them what the price of the property is, right? So…
oh hang on, does that mean that you still “charge” them the full strike price, as far as the bank is concerned, and then because the bank lends them that amount minus the deposit, they end up lending them the full amount of what you’re now charging them personally for the property, thus eliminating their need to save a deposit?QUESTION 2:
OK, here’s a test scenario, based on research out of the paper, and on allhomes.com.au.A unit for sale in inner-city prime area (canberra). It’s only 1 bedroom but average rent for similar places seems to be about $230, and it’s a popular location. The asking price is $140,000, which seems a bit cheaper than other similar properties. (I’ve yet to actually see this property, but I’ll call tomorrow to arrange a look shortly). Now, my calculations put me in the red on a monthly basis, so I’m guessing I’m doing something wrong, but I haven’t quite figured out what. They are:
Price: $140,000
Monthly mortgage: $828 (at 6.35% over 30 years)
Average rent for similar: $230pw
Stamp Duty: $3400
Legal Fees: $800
BC Fees: unknown, but estimated at $40/w
Insurance: unknown!Calculations are as follows:
Annual mortgage: $9936
Annual Rental Income: $11960
Total one-off fees: $4200
Recurring annual fees: $1820 (+insurance)Income first year: NEGATIVE $3996
Income subsequent years: $204
I keep reading forums about people making $80/wk profit from rent, etc. What are they doing that I am not factoring into my calculations? It seems to me that the stamp duty in all my test cases absolutely massacres year 1 profit, and the rent people are willing to pay never seems to be enough to cover the mortgage.
email: g e n e r a l g h e r k i n @ y a h o o . c o m
phone: 0405 411 098Hi Nathan,
on my calculations you are getting a good 8.5% gross yield.
To boost your cashflow you need to take into consideration the “non-cash” deductions that the Tax man allows you. Ie Depreciation benefits if the house is built after 1984 and also the 5yr write off of borrowing costs (inc stamp duty).
Also you are making your calcs i assume based on paying principal and interest off. Only pay interest off, as principal repayment are not tax deductable.there are other issues to consider with regards to what you can and cant claim in tax so i advise you speak to a tax specialist before investing.
hope this helps
DanThanks Dan. Actually, although I have little understanding of the difference between a P&I loan and an interest-only loan, I contacted a mortgage broker today to see what it will take to help me make the first step into getting my first investment property, so I guess I’m going to learn all about loans very shortly!
Question: What is “Yield”?
email: g e n e r a l g h e r k i n @ y a h o o . c o m
phone: 0405 411 098As the dictionary defines it …. a profit obtained from an investment, a return.
Enjoy
AD [:0)]A great deal of talent is lost to the world for want of a little courage. Every day sends to their graves obscure men whose timidity prevented them from making a first effort.
-Sydney Smithok, so how am getting a return on my investment if I’m in the negative as far as my cashflow is concerned?
email: g e n e r a l g h e r k i n @ y a h o o . c o m
phone: 0405 411 098
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