First off, many thanks to Simon from Mortgage Hunter for helping us with our first home loan. A round of applause, please!
Our home was $279,000. Repayments will be about $1400pm for IO which makes $350pw.
If I had purchased this as an IP, this would mean I’d need to rent it out at greater than $350pw to make a positive cashflow (or is my head screwed on backwards?). I doubt I would be able to rent a home worth $279,000 for > $350pw to anybody.. So there’s obviously something I’m missing from the equation.
Hopeful, keen and learningWauloK,
Mate you can only rent out a place to somebody at what the market will pay not at what you think you need as a return![biggrin]
This is what I’m saying.
So if repayments are $350pw and I rent it out at $250pw I’m making $100pw loss.
That’s what I don’t understand.
Hopeful, keen and learningWauloK,
At the risk of sounding flippant, what’s not to understand? [biggrin]
In investing vernacular that’s called negative gearing. If it were an investment you’d be claiming that loss as a deduction and hoping the capital gain would offset your net outgoings once you get those tax dollars back.
If the capital gain isn’t there then its not a wise investment decision and you should look to find either +ve geared property for cash flow, or -ve/neutral geared for capital gain. The mix depends on your situation and leverage.
As its your PPOR, then this is all moot. People buy their homes with their hearts and should buy their investments with their heads. Don’t think of your home as an investment. Some would argue its a liability and not an asset as it takes money out of your pocket and doesn’t put money in your pocket. At best, the equity you build up in it over time gives you borrowing power and therefore leverage through your investments.
Regards,
Michael.So in other words I would not purchase a place for this amount of money in this location. I’d just have to find another place which is about half the price but would expect the same amount of rent. (If I didn’t want to negative gear, but wanted positive cashflow instead).
Hopeful, keen and learningbullseye!
But this is all back-of-the-fag-packet math. There’s calculators out there that will give you a more accurate take on what is and what isn’t positively geared.
I think the 11 second test would suggest you should pay up to ($350/2*1,000) = $175K for +ve gearing. But, I was never any good at math [blink].
Cheers,
Michael.There doesn’t seem to be many places around which offer that sort of answer to the 11sec solution that I’ve seen from looking around. I guess I need to look out in the sticks for that sort of deal.
From what I’ve seen advertised regarding the home sale and rent on the Gold Coast is:
Rent * 1000 = home price
Alternatively you can expect to get ($homeprice / 1000) in rent, which does not fit any decent model I’ve seenA home advertised for Investors seems to be advertised at eg:
$200,000 home guarenteed to get you $210pw in rent (or something similar). Which does not seem like a good deal at all! I think the RE’s are either trying for the gullible or don’t know much about investing.
Hopeful, keen and learningWauloK,
They’re out there, just getting fewer and far between. Check the posts on Warnbro for example and others.
Given current market dynamics, I’m looking to exit my mortgage with my spare cash instead of investing. Not advocating you do the same necessarily, just be aware that its getting tough to find true +ve geared investments. Others would suggest switching to shares in this climate from property etc. Lots of options, but that’s what this forum is about. End of the day you got to go your own way…
Good Luck!
Michael.Thanks for your help!
Hopeful, keen and learninghi
if you increase the rent beyond the curent market boundaries, the property may remain vacant, and you’ll notachieve any of your finaancial targets,dont be too greedy.karron golding
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