pos cash flow

Hi Investron,

If you want to find out if a property is positively GEARED do your sums on 100% borrowing.

If however it is a negatively geared property, you can easily calculate how much of your own money you have to put into the deal for it to become positive cashflow.

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Example

Property costs 300K (all cost included)

If you borrow 100% at 6% then your interest repayments per annum will be 300K x 6% = 18K

Rates + management fees + insureance etc … = 3K

Rent per year is 25K (this is unrealistic but possible).

So the property is POSITIVE geared by 25 – 3 – 18 = 4K p.a

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Let’s say the rent is 15K then this property is negatively geared by 15 – 18 – 3 = -6K p.a.

However you can make it positive CASHLFOW if instead of borrowing 100% (i.e. 300K) you only borrow say 60% since you have the other 40% in the bank in a term deposit (say).

This means that you will only pay interest on 60% of 300K which is 180K. (so you would have to put in 220K of your own money.)

180K at 6% = 10,800

So your property is positive cashflow by 15 – 3 – 10.8 = 1.2K p.a

This is just a silly example… I hopw it helps,

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