I have 2 rental properties both at 80% LVR each and also my own home which is at 30% LVR.
I have just subdivided one of the rental properties and will begin building in about 3 months, which I will get a loan of 120K for.
I want to purchase another rental property that I can subdivide, but the yield is only 5%.
How do I work out if I'm going in over-my-head, and perhaps should wait until the new house is built before I invest more?
Any help would be fantastic!
Thanks
You need to be able to cover the repayments.
This is known as servicability.
Can you support the 15 – 20 k development costs on top of loan to purchase place.
Factor in 10% GST on the sale of a subdivision new building and also any Capital gains tax.
You need to work out a cash flow spreadsheet.
Cost of keeping Rental property one = income – expenses
Cost of keeping rental Property Two = income – expenses
Cost of development – $20,000 development costs
– ?????? building costs
– ?????? Landscaping costs
– ?????? Marketing costs
– ?????? six months – 9 months holding hosts on loan required
Then once you know this you can use it to show the lenderwhether you can afford the next loan.
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