With the interest rate, might be worthwhile using an inflated rate due to the current historical lows we’re experiencing – maybe factor in a 7% rate to be conservative. However, if you’re after a snapshot of how the numbers stack up right now – then use your current rate (5.2% seems a tad high though).
If you are after a precise figure, it might be worth including your other purchasing costs such as building and pest inspections, and solicitor/conveyancing fees
Thanks for the reply. Your website is a useful resource:) If you don’t mind I think I will build on your spreadsheet. This is what I’m looking for, especially with the ability to forecast for 5 yrs.
At the moment we have around $350k equity and we plan to stay put for 10yrs+ so the strategy I’m looking at is long term. I’d like to acquire as many properties as we can with the equity we have.
The only issue we have is that we are equity rich, though cash poor. Hence I’m considering borrowing the shortfall for a 5 year period with the assumption that after 5 years the property’s rent would have increased enough to be positive, or at least nuetural. Can I ask your thoughts on the above as a strategy?
In regards to loans I’ve been considered ANZ’s 5yr fixed loan (IO) which is around 5.8%.
No worries – go for it. Can you flick me a copy once you’re done?
I wouldn’t fix for 5 years. Personally, I think it can be a dangerous move – especially in the world of property investing.
Firstly, you’re at the mercy of ANZ credit policy for the next 5 years. So if you want to release equity – and they say no, you’ll have to pay high break costs to refinance to another lender.
It’s also hard to plan 5 years in advance. Your situation might change – and you could find yourself in a position where you need to sell or refinance. Either of those situations will result in high break costs.
I generally advise to not fix for longer than 3 years as it’s a period of time that you can plan for – you have a good idea of where you’ll be sitting 3 years from now…..but 5 years is just a bit too long.
In regards to releasing equity – can this not be done as a line of credit? eg, so you end up with two seperate loans and you don’t have to refinance the first?
In regards to break costs, I’ve heard this can work in your favour. Eg, if the rates go up and the bank can get a high return they break with no fee or may pay you. (Had this happen with my parents on a block of land)
My concern is that I feel rates will go up, and when they do I maybe forced to jump to a higher rate – consuming the chance of reaching a positive return. (Guess these are all things to consider)
Appreciate the advice, regardless. I noticed your a broker, do you do assessments for Perth based clients?