Does rental income cover the loan repayment of a investment property?

Hi Larry

Welcome to the forum.

If the rent coming in exceeds the mortgage repayments (which are generally interest only on an investment property) plus holding costs (rates, management fees, etc) then the property is considered cashflow positive.

If the rent coming in is less then the mortgage repayments and holding costs then the property is cashflow negative. 

To answer your question about whether the rent from a tenant covers the loan repayments. If it were cashflow positive then yes, if it were casflow negative, then no.

Hope that helps

Jamie 

yes, there are cf+ properties around, usually in country areas. The bad news is that they probably won’t produce any capital growth. The tenant may not want to buy, doesn’t have the deposit etc.

You might be able to turn a non-regional place that is cf negative into cf positive with a bit of creativity.  For example you could:

– Look at blocks of flats, strata title them and sell a couple off and keep the rest

– Look at houses with backyards sufficiently large to subdivide the yard and sell it

– Look at houses with backyards sufficiently large to house another dwelling (eg house, unit, granny flat) which you could construct and rent out.  A recent ruling in NSW has opened up the possibility of renting granny flats to separate tenants than the house.

– Renovate to bring the place into a higher rental bracket

– Pay a larger deposit and/or make larger payments in the early days of the mortgage, thereby reducing the interest payable.  Remember don't get a principal and interest loan.  Just an interest only loan with an OFFSET accout, which is where you'd put all extra cash.  Then in a couple of years when there's a fair amount in there, it is easy to just withdraw and spend on another property.  In the meantime though it saves you interest.

– Don't forget that particularly on newer places, a depreciation schedule could be the difference between cf negative and cf positive.  A quantity surveyor prepares a depreciation schedule for about $500.  In a nutshell, the building, the carpets, the window coverings etc, well, they age, and as such in theory they "depreciate".  The quantity surveyor determines how much they supposedly "depreciate" and writes down a magical figure that you can put down as a "deduction" on your tax return each year for the next however many years, to compensate for this fact.  So say a new place worth about $380k, you might expect a deductble figure of say $8k in the first year, which might amount to a tax refund of say $3k, depending on the tax bracket you are in. 

I know where you're coming from. We self manage the ones that are close by and outsource the management on those that aren't.

This is where it's extremely important to have a good property manager on board. I usually seek advice for good PMs via forums like this, from investors I know that are within, or have investments, within the area. I also call a few to have a chat – see how many vacant properties they have on their books, what sort of rents their achieving, how they screen their tenants, etc.
 
I have no probs with repairs being carried out without my involvement. You can request that the property manager sends you photos of the issue that needs repair – if you feel that the price is unjustified you could call around and source some quotes.

Cheers

Jamie

Hi Larry

I'm a bit greedy. I tend to look for something that will offer decent growth and a high enough yield to bring it close to cashflow neutral or positive. I spend quite a lot of time researching areas that I'm interested in. I also aim to purchase properties that I can add value to – usually through cosmetic renovations. The effects of adding value are twofold – I add some equity and can achieve a higher rent. I also allow tenants to own a "small" pet which also equates to higher rent (due to a lower supply of pet friendly rentals). Depreciation also helps with cashflow. I love tax return time  

Cheers

Jamie

Cheers

Jamie

Hi Fword

Sorry, I missed this one before.

It depends on the value of the repair. If it's relatively minor and seems reasonable then I trust their judgement. If it's a major job (which I've been lucky to avoid so far) then I'd request some pics.

The best way to find a decent PM, in my opinion, if through referrals from other investors. As for Geelong, I don't know of anyone in that area. If you post a separate thread on it you might have some luck.

All the best

Jamie

I've heard that Elders in Geelong is very sloppy with putting the rent up each year.

One company you may not have heard of is ReLease – they are rentals only – they don't do sales.

I'd suggest starting your hunt for a PM by ringing around to ask to speak to someone in the property management department of each respective realestate agency and see which ones actually ring you back.  It won't be many, despite you telling them you're looking to recruit a PM for your property.  That will help reduce your list of contenders right away.  Then look at costs, and ask for examples of how they've dealt with various scenarios involving tenants and maintenance issues.

Hello Larry
It also depends on how much your deposit is.
There are many companies out there stating cash positive, but why use your money ‘savings’ when for a small amount per week input by you you can use other people’s money.
Get the right advice.
Kevin