Hi there,
I'm new to this forum – stumbled across this while looking for free online calculators to easily see when our investment property will change from being negatively geared (I know, I know!) to being positively geared, so we can decide whether it is worth hanging on to it until that point.
Can anyone point me in the right direction please?
Thanks!
You should just do up a quick excel spreadsheet. Just list all expenses and non-cash expenses and then minus these from the rent. You can adjust the rent each year for increases and see when it turns positive. In this low interest climate it shouldn't take long to go positive
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I must be missing something. I've always considered positve geared to mean positive cash flow, rather than positive income. IE, when working out expenses versus income, one should use REPAYMENTS rather than INTEREST. So, given that repayments are set at the beginning of the loan, I don't see how the outward cashflow will change as the loan reduces. Sure, interest reduces, tax deductibility reduces, but repayments stay the same. Why would a property become positive cash flow? Is it because of your increasing rent? What am I missing? For my purposes it is more important to know wether a property is positive cash flow, rather than just positive income.
SOkay, we have the option to pay MORE then the minimum repayments (without any fee) as our loan is interest only. We currently ensure we pay at least the equivalent of P+I on it anyway.
I just want to figure out, given that the loan amount is slowly going down (that is, we have built up redraw in the account), at what point the rent will cover the repayments and other costs on the remaining time for the loan…at which point, we won't have to pay anything into the place, and it will pay for itself.
Maybe that is not 'positive gearing' but neutral gearing? Sorry if I used the wrong term
Hey, I'm not saying that you used the wrong term. I might have it wrong myself.
Try your banks website, some of them have good calculators that have the fees etc built in for your loan product.
If you have a broker, or a banker that you can talk to, you can ask them to prepare a loan schedule for you to work out what will happen with your proposed repayment level at x%. You can feed the loan schedule data into a spreadsheet to get what you need.
Shenny wrote:I just want to figure out, given that the loan amount is slowly going down (that is, we have built up redraw in the account), at what point the rent will cover the repayments and other costs on the remaining time for the loan…at which point, we won't have to pay anything into the place, and it will pay for itself.
Hello Henny
I think the following example will give you a very rough idea.
Total yearly rent $20,000
Total yearly expenses (excluding interest ) $ 5,000Assuming an interest rate of 6% then ( $15,000 X 100 ) / 6 = $ 250,000
In this example the property will be paying for itself when the loan is at $ 250,000.
Of cause the $15,000 only covers the interest payments, not any principle.You may want to search this site for more information as to why you should probably be using an offset account rather than paying extra directly into your loan.
Hope this helps
ElkaWell, then, here is another example of something that I find confusing in alot of the maths that i see happening on this site – the constant use of a simple interest formula, rather than a compound interest formula. Why does no one bother working out compound interest, that is, afterall, how the banks work out the interest, isn't it? What am I missing?
SThanks Elka – that is roughly what I came up with. There used to be a handy calc on http://www.realestate.com.au that I was using, but they have changed them and the functionality is a little different now.
Thanks SHales, I'm totally confused when it comes to compound interest, other than to increase the value of something, so when applying it to paying off a loan I'm a bit lost. Maths isn't my forte, I'm afraid – hence this post
Check out the negative gearing calculator here, it should help you answer this question:
http://www.dolmanbateman.com.au/online-tools/negative-gearing-calculator/
dolmanbateman wrote:Check out the negative gearing calculator here, it should help you answer this question:http://www.dolmanbateman.com.au/online-tools/negative-gearing-calculator/
That is a good calculator. Good work!
Found a website with a download version of Excel Negative Gearing Calculator. It looks good.
SHales wrote:Well, then, here is another example of something that I find confusing in alot of the maths that i see happening on this site – the constant use of a simple interest formula, rather than a compound interest formula. Why does no one bother working out compound interest, that is, afterall, how the banks work out the interest, isn't it? What am I missing?
SHi Elka,
Alot of the time people will have an IO loan for their IP so that your repayment is only ever exactly the same as the interest charged. Your loan amount doesn't build up or reduce and hence the interest doesn't compound. Hope that answers your question?
Cheers,
Nathanhenny wrote:Okay, we have the option to pay MORE then the minimum repayments (without any fee) as our loan is interest only. We currently ensure we pay at least the equivalent of P+I on it anyway.Not sure of your long term plans but paying the equivalent of P & I on your investment loans is generally considered not a great strategy. This is particularly the case if you have other non-deductible debt (home loan, car loan, Harvey Norman special etc) which would better place for your surplus cash.
if you have no non-deductible debt then I strongly recommend an I/O offset account combination. This ensures you are reducing your monthly interest payment and maintaining absolute flexibility of excess payments. As an example if you dipped into your redraw to buy a car then calculation of deductible portion of your loan becomes more complex and the redrawn component is not deductible.
henny wrote:I just want to figure out, given that the loan amount is slowly going down (that is, we have built up redraw in the account), at what point the rent will cover the repayments and other costs on the remaining time for the loan…at which point, we won't have to pay anything into the place, and it will pay for itself.There is no hard and fast rule as there are too many variables. Interest rates are the biggest expense you will encounter and you will move closer/further away from being neutrally/positively geared with rate movements. Other factors coming into play are rental changes, rates, strata fees and so on.
henny wrote:Maybe that is not 'positive gearing' but neutral gearing? Sorry if I used the wrong termIf the asset is only paying for itself without surplus income you are basically neutrally geared. Surplus income = positively geared.
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