Novice getting started – help / advice appreciated

Hi Little1,

Congrats on starting out with IPs, and welcome to this place too. You’re in a good place !!

Gearing is all to do with leverage (think of the gears on a bike, or a manual car). If the Income is equal to Expenses, then it is neutrally geared. If Income is less than Expenses, then it is negatively geared. And Income greater than Expenses, then positive.

Aside from that, you may be eligible for Tax relief (in Australia, losses are able to be claimed for Tax relief for Investment Properties – I don’t know about NZ). Taxes returned to you can derive a positive cashflow from a negative geared IP.

So, where are you? Let’s take your comments one at a time :-

The house was $440,000 we paid a 100,000 deposit, it’s rented for $600 per week, repayments for mortgage are $980 per fortnight. Is this neutrally geared?

Mortgage cost is $490 a week, and Income is $600 a week – Income is $110 a week greater than expense. It is positive geared at this point, but the other expenses need to be taken into account.

Do the rates, insurances, etc come to MORE than $110 a week? If they are less than $110, it is positive geared still.

I don’t know if we have equity in this property (I don’t understand equity, borrowing, interest only loans)

Equity is Value today minus Mortgage. You should have $100k Equity at least (your Deposit). If you have owned it for some time, the values in the area might have increased too. What would be its value today do you think?

Re IO vs P&I, most investors prefer IO. To get a quick primer on the subject (and a few other useful points), do check this link :-
https://www.propertyinvesting.com/forums/general-property/4349450

Sounds like you are paying Principal and Interest rather than Interest Only. Have a read – there are several pointers that would give you a good grounding in several somewhat complex subjects. After that, come on back and let’s talk some more.

Benny

Hi Angela,

Minus expenses it would be neutrally geared.

Cool !! So it is paying for itself then.

The “where to next” is the question you appear to be asking. And that is quite a complex question, so not one to rush to answer. Have a think of what your major goals are – e.g. to be able to have partner retire within 10 years, or reduce working hours/days per week in 5 years, etc.

This Queenstown IP sounds like a good start, in that it is not costing you to hold it. But what of its future? Here’s a few questions for you to ponder :-

1. What happens if Interest Rates rise by (say) 1%? Will you still be able to keep it?
2. What is the “feel” for Queenstown? Is it a booming city – i.e. growing at a good pace?
3. Is the area (suburb) that your IP is in a growing suburb? e.g. infrastructure spending – roads, trains, buses, schools being upgraded/built?
4. What are the effects if you were to change your P&I loan to IO? (Did you read the link re the differences, and did it make sense to go IO for you?
5. Can your IP be “reno’ed” or upgraded to allow you to 1) add Equity, and/or 2) lift rents?
6. If 5. is Yes, how much will this cost, and will you need to borrow to accomplish this? (You have Equity to be able to do this.
7. Does NZ give investors any Tax relief for providing housing?

Once you have a few answers that fit with you, run your ideas by someone familiar with financing to get their take on things. There are several Mortgage Brokers on here (some of whom are also Financial Advisers) and their input would be very worthwhile.

You are in good shape right now – don’t be in too much of a rush to move on, but do move on….. Keep on reading, thinking, asking, and meeting until the situation can be SEEN to be one that works for you. Maybe another purchase like this one, or maybe something entirely different.

Question – how much will going IO save you per week based on Interest Rates right now?

Benny