I have been reading that this rule does not apply in this current market. Is there another alternative? Also when crunching the numbers on a deal why isnt the deposit included in the interest costs, as this would still be an expense in buying it wouldnt it?
Im so confused [sick3]Hi Kenlea,
Whilst the rule doesn’t strictly apply in the current market, Steve (in his new book) does talk about how it can still be used as a guide to see how close a property could be to being positive cashflow. This then gives you an idea of how much you may need to do.
For eg, if you are only $20 or $40 a week in the red (or negative cashflow) you may be able to do some improvements to the property to increase the rent legitimately (say, add a carport, or put in airconditioning, etc…)
In the case of another alternative, Steve does go through some other guides that will help you sort out the riff from the raff! He gives about 4 or so different number crunching formulas that give you a picture about how the property may perform, so then you can make the right decisions about it.
As to why the deposit (I presume this is the deposit for your IP) is not included with the interest costs (I presume these are the interest costs for the loan you have on your IP), whilst it is a cost, it is not an ongoing cost. Therefore you can separate the cost you will intially have at the start, and then you can calculate the ongoing cost for the property. The ongoing income that you recieve (rent) can then be compared to the ongoing cost and will (hopefully) cover all the ongoing costs you incur.
I hope this answers your question. (?)
It can be very confusing!Kelly
Hi Kelly thanks so much youve lightened my load. There is one point Im not sure on. If we paid for the deposit from our equity in our home wouldnt that amount be an onging cost that would have to be paid back and therefore structutered into the cost?[blink]
Hi kenlea. You are correct. Unless you have the deposit in ‘cash savings’ already, you will of course be paying interest on the deposit. Usually, this is accessed via a line of credit or loan split on your existing loan, and kept sperate ‘for investing purposes only.’ All the best with your journey. [strum]
My two second rule is take away the three zeros at the end, double the amount and that is the rent the property should be earning to be cash flow positive, it works and is faster than the 11 second rule.
By the way there are still cash flow properties out there.Originally posted by Bradleyvonx:My two second rule is take away the three zeros at the end, double the amount and that is the rent the property should be earning to be cash flow positive, it works and is faster than the 11 second rule.
By the way there are still cash flow properties out there.What figure do you subtract the zeros from. Am confused. Sorry – am new to all this aswell.
Julie
Property Conveyancer
MelbourneOriginally posted by Bradleyvonx:My two second rule is take away the three zeros at the end, double the amount and that is the rent the property should be earning to be cash flow positive, it works and is faster than the 11 second rule.
By the way there are still cash flow properties out there.What figure do you subtract the zeros from. Am confused. Sorry – am new to all this aswell.
Julie
Property Conveyancer
Melbournesorry,
for example:
the purchase price ie $200,000 drop the last three zeros therefore giving you $200, double this makes $400.- (per week) which is the rent the property has to fetch to be a good deal.
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