All Topics / Finance / Interest only repayments

Viewing 6 posts - 1 through 6 (of 6 total)
  • Profile photo of SAMTIMESAMTIME
    Member
    @samtime
    Join Date: 2009
    Post Count: 3
    February 5, 2009 - 5:47 am

    Hi,
    I have a short and long way of asking a question.

    THE SHORT QUESTION:
    I can make an 11% Cash on Cash Return if I Repay a loan with an Interest only repayment.
    The Max limit for the Interest Only option is 10yrs.
    If repaying using the Principal and Interest repayment option, my Cash on Cash Return is only 5%
    What should I do after the 10 yrs? Sell? or something else?

    THE LONG QUESTION
    I’m 19, study full-time at uni and work part time, so I’ve limited funds.
    Not keen on working for someone else my whole life, I’ve been looking for positive cashflow investments.

    I’ve found an interesting car park in the city for sale.
    Price: $50,000
    Rent: $5,760 ($480 per month)
    Outgoings: $1820 ($35 weekly)

    I ran the ANZ Home Loan Calculator to determine repayments for 30yr loan on $45,000 ($50,000 – $5,000 deposit)
    Principal and Interest: $3,564 ($297 per month)
    Interest Only: $3,108 ($259 per month)

    Deposit: $5,000 (10%)
    Closing fees: $2,500 approx (using 5% of purchase price)

    Using these figures, I calculated…
    Net Cashflow as…
    $376 (with Principal and Interest repayments)
    $832 (with Interest Only repayments)

    Cash on Cash Return as…
    5% (with Principal and Interest repayments)
    11% (with Interest Only repayments)

    The Max limit for the Interest Only option is 10yrs.
    Should I take a loan with Interest Only repayments?
    What should I do after the 10 years?

    Also, a major problem is that I only have $3,000 in cash (well under the 10% deposit needed) and I can only save About $1,000 a month.

    Is this a good deal?
    Is their a way that I can finance it?
    Should I just save up my pennies until I get a full-time job?
    If so, Is this deal worth selling for a spotters fee?
    Have I made a miscalculation?

    Thanking you in advance for your valued responses,
    Sam

    Profile photo of Dan42Dan42
    Member
    @dan42
    Join Date: 2008
    Post Count: 619
    February 5, 2009 - 6:42 am

    I don't think you've calculated the amounts correctly.

    I get:
    Cashflow (P+I):  $335 p.m.       Interest Only:    $373 p.m.

    Cash on Cash     4.5%                      5%

    How did you get $832 for Interest only cashflow?

    Profile photo of SAMTIMESAMTIME
    Member
    @samtime
    Join Date: 2009
    Post Count: 3
    February 5, 2009 - 7:03 am

    Hi Dan,
    Here’s my workings

    CASH NEEDED
    Deposit $5,000
    Closing $2,500
    TOTAL $7,500

    CASH INFLOW
    Rent $5,760

    CASH OUTFLOW
    Outgoings $1,820
    Loan Repay $3,564 (P+I) or $3,108 (I)
    TOTAL CASH OUTFLOW $5,384 (P+I) or $4,928 (I)

    Cash Inflow $5,760
    Cash Outflow $5,384 (P+I) or $4,928 (I)
    NET CASHFLOW $376 (P+I) or $832 (I)
    CASH on CASH RETURN 5% (P+I) 11%(I)

    What do you think?

    Profile photo of Dan42Dan42
    Member
    @dan42
    Join Date: 2008
    Post Count: 619
    February 5, 2009 - 7:19 am

    Now I'm with you. I took the outgoings as income, as it was right next to the rent. (Outgoings paid to you, not by you) I also calculated the Cash on Cash incorrectly. It must be the end of a busy day!

    Profile photo of mickjohnmickjohn
    Member
    @mickjohn
    Join Date: 2007
    Post Count: 78
    February 5, 2009 - 9:25 am

    Sam,
    Thumbs up for enthusiasm and im no expert in this field……..

    However, with such an investment, I believe that for finance reasons the property will be regarded as a Commercial Property and as such you would require a larger deposit to satisfy the lending criteria.

    I may be wrong about this though. If I am wrong, you will be up for Lenders mortgage insurance as well which may be several thousand dollars as well as stamp duties(if applicable)

    Also, I had trouble working the figures so I cant qualify them(another long day for me too) what interest rate were you working with? I worked out around 6.9% which seems a little high in any regard.

    It probably isn't a bad deal to start out with as long as there is some sort of rent guarantee and limited management fees.
    Unfortunately, It may not earn much in the way of a spotters fee as these deals tend to come up semi-frequently and can be found anywhere from realestate.com.au to the local newspapers classifieds.

    What is good, is that you have a solid grasp of the figures and you have obviously done some research. This, with your age are two of the most valuable tools(i believe) when it comes to investing.

    Keep looking around, there are several brokers that frequent this site, maybe they have a way for you to get into residential property, using your limited capital on a positively geared property in a Low Doc or No Doc finance situation.

    Good Luck!!

    Profile photo of SAMTIMESAMTIME
    Member
    @samtime
    Join Date: 2009
    Post Count: 3
    February 5, 2009 - 11:39 am

    Hi,
    Thanks for your response.

    The interest rate used was 6.91%
    Management fees/body corporate was included in the outgoings ($35 weekly)
    The park is currently leased until Nov 09

    I think I might have to give this deal a miss this time round due to my limited funds.
    I’ve only just started looking at investment properties and I’m sure I can find a deal that suits me.
    This one particularly appealed to me since a car park seems easier to manage than an entire house.

    I’ll have to find some due diligence lists to assist me in assessing properties, and talk with some agents to see what’s out there.

    By the way, you were spot on the money, I found the listing on realestate.com.au

    Thanks again,
    Sam

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