Hi,
I am very new to property investing, Steve has totally changed my thinking and what I've been taught (negative hearing) in the past.
I am 26 years old, and still very fresh and new to all of this and still trying to wrap my head around investing terminology. Can someone please explain to me what is the best way to calculate a positive geared investment? I understand that there are a number of variables that come in to play, however I'd like to know if there is a quick formula I can follow if and when I find a good deal. My understanding is that you cant really tell too much from the rental yield percentage as that does not give you a clear idea of what the exact cash return is (including paying interest as well as the loan)
Hope to hear from someone soon.
Cheers!
The only way your going to find an exact figure is to create a cash flow analysis spreadsheet. There's a few free ones out there on the net you could try using.
You might be able to do this in a quick formula, although some of the values might simply be a guess.
e.g. assuming $450K loan, $520 per week rent, 5% interest rate, $3000 average per year expenses, 30% taxable income rate, $10000 QS depreciation on a <5yr old house.
(Rental yield minus 10% for vacancy & management) – (interest repayments) – (expenses) + (tax benefits from depreciation)
= (24336) – (22500) – (3000) + (3000)
= 1836 per year
You might want to assume a higher interest rate to build some contingency into your investment strategy.
I forgot to thank you ‘minds-eye’ for the above reply.
A year later I feel I am a truck load more knowledgeable. I have been educating my self a fair bit over the last year though Steve’s (and his team) teachings.
Although I am still yet to purchase my first property I feel I am that much closer. I feel the hardest part is the initial down payment of a deposit. I have come across some inheritance money, however apparently most lenders need at least 3 months of ‘genuine savings’ – inheritance is not considered genuine savings.
I’m looking at going down the rout of a 95% loan (with LMI)
If I wanted to do a quick cosmetic renovation, am I only able to lend 95% of the property value? – where am I able to draw on cash to use on renovations?
Eg
Property Price: $300,000
Deposit (5%): $15,000
Closing costs: ??
Potential Loan amount: $330,000?? – is it 95% on this amount? (depending on my borrowing capacity)Excuse my ignorance here. Im still very much learning.
Hi Jary
Firstly welcome to the forum and I hope you enjoy your time with us.
I hate to say I am not convinced you would get a 95% lvr being your first IP purchase as you won’t stack up well on credit scoring and without owning other property unlikely the mortgage insurers will approve it.
You are also correct that with the odd exception all lenders require a minimum of 5% genuine savings however in saying this there are many ways around this.
This also goes with the renovation monies as depending on the costs of the reno there are always of raising this.
You have to understand that finance is not easy when you start out and getting the loan ad structure right is more important that the interest rate or application fee etc.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard,
In short you are saying the best way is to really just knuckle down and get a 20% deposit down?
This is slightly discouraging as sometimes its not always easy to save up that amount. I have launched my own business as an income accelerator in addition to my day job.
We have very little debut – which is my first propriety to eliminate over and above a deposit on a house (your thoughts?)80% is ideal but even 90% would be better and more achievable than a 95% lend.
If the money has been sitting in your account untouched for a period of at least 3 months some banks will accept this as genuine savings.
A guide to closing costs is 3-4% of the purchase price.
Eg
Property Price: $300,000
Deposit (5%): $15,000
Closing costs: ??
Potential Loan amount: $330,000?? – is it 95% on this amount? (depending on my borrowing capacity)The loan amount is against the valuation of the security and not your borrowing capacity or property price + buying costs (if I’m reading your example correctly) so (in almost all instances) you won’t be able to get a loan more than the value of the property.
So using a basic 95% LVR example your loan would be $285k against a $300k purchase/valuation price. But, there’s other factors to be taken into consideration too.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Hi Jaryd,
You don’t need a 20% deposit but the more you have, the better.
The problem with this is that the sooner you get into the market, the sooner you can start building equity.
For example, if you had bought 12 months ago for $300k, the way the market has improved, it is quite possible your property would now be worth around $330k. Of course there are no guarantees of this happening in the next 12 months and it’s no good if you are financially stretched and can’t afford the repayments.The loan amount is based on the cost of the property.
e.g. if the property costs $300k, 95% is $285k.
In addition to the sale price, you will need to have money for stamp duty (which will depend on state the property is in & whether you are going to live in the property) and for conveyancing, lending and settlement costs. You will also need to pay mortgage insurance but depending on the lender, this may be added to the loan amount.I think your first step should be to speak to a mortgage broker or bank to find out how much they will lend you. Then you will be able to calculate what you can afford to buy (or how much money you need to save to reach your goal).
There are other options that can reduce the deposit amount you need but this will depend on your circumstances.
Do you know what area you want to buy? Would you live in the property to begin with?
btw, what does an income accelerator do?
It sounds like you’re on the right track, so keep asking questions and get good advice.
Cheers,
Chris-
This reply was modified 10 years, 2 months ago by
Chris B.
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