MY 7 POINTS TO CONSIDER
1. Do you have regular/consistent income to service the mortgage being considered?
2. Do you have spare cash flow to plug the net cash outflow "gap" if the property is negatively geared?
3. Estimate the gross rental income per annum less the estimated rental expenses (excl. non-cash items) = Net income per annum. Divide this net rental income into the total acquisition cost base X 100%. This rate of return on investment ("ROI") should be between 5.8% - 6% per annum. Otherwise, either negotiate a lower acquisition cost base and/or a higher gross rent or consider alternative investments like term deposits and/or shares. The latter's net dividend yield is around 5.5% after franking credits !
4. Reduce the rent by $100.00 per week and increase the interest rate by 1%. Now, work out your monthly loan repayments and expense commitments. Can you still afford to go ahead with the purchase?
5. Do you have to spend heaps of money on structural changes and/or improvements? This must be factored into the ROI.
6. Potential for capital growth. This should be the primary consideration. The worst house in the best street. Position, position, position is the golden rule. The tax breaks should be only an added bonus.
7. Where possible, borrow no more than 60% of total acquisition cost base. Leverage can add to your returns but it can also exacerbate losses!