Hi there,
I bought my first home 1 year ago and am looking at investing in another as a rental property. I'm not really sure how it all works i.e. if I purchase a house for say $280,000 and rent it out for say $300 per week, how do I afford to pay the rest of the loan? How do investors have a number of properties and afford to keep all of them?
Any advice would be appreciated.
Thanks
MelThe shortfall comes from your other income, depreciation (if any) and if necessary a reduction in your taxable income. In other words, it is not a free ride, just that others contribute along the way.
You will have to satisfy the bank that you have the capacity to cover the shortfall without having to capitalise the repayments.
the hope is that rents will increase over time while the mortgage stays the same, eventually becoming cashflow positive. Or, you sell when prices rise (capital gains). In the meantime, the shortfall is covered by your income and tax deductions (negative gearing).
it's such a simple explanation but despite all the property books I have read I have NEVER seen anyone say anything like that.
Your kidding arent you?
You also need to have a cash float in an account to cover periods when you do not have a tenant or to cover urgent repairs that you cannot delay fixing. Another important point is who can afford a $280,000 house. It might be a good idea to start smaller and buy in a rural area and work at getting this house paid off or cash flow positive. The first investment house is the hardest and then once you have it paid down or its value has increased you can use some of the excess cash flow to pay off the next investment property. It takes time to build wealth through property as with negative gearing you are limited by how much you can outlay each week.
allowing $2000 a year in extra expenses
take a 280,000 house as an example on a 20 year loan that is $600 a week in repayment so you have to find about $340 a week
(26500 p/a interest based on 9.47% interest – based on 30% tax rate you get $164 a week back. Using a tax variation form you can reduce $340 a week to $175 a week in outlay.a $140,000 house as an example on a 20 year loan that is $300 a week in repayment so you get at 4% yield about $107 a week in rent so you have to find about $233 a week
(13258 p/a interest based on 9.47% interest – based on 30% tax rate you get $88 a week back. Using a tax variation form you can reduce $233 a week to $144 a week in outlay.a $70,000 house as an example on a 20 year loan that is $150 a week in repayment so you get at 4% yield about $53 a week in rent so you have to find about $137 a week
(6629 p/a interest based on 9.47% interest – based on 30% tax rate you get 50 a week back. Using a tax variation form you can reduce $137 a week to $86 a week in outlay.The first investment house is the hardest and then once you have it paid down or its value has increased you can use some of the excess cash flow to pay off the next investment property. It takes time to build wealth through property .
With negative gearing you are limited by how much you can outlay each week.
With positive gearing you are limited by how much the bank will lend you.
hi so where these days in qld can you find cashflow positive properties, apart from mining towns.
dave
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