Can you really afford an investment property?

FBL Consulting Services

Published on: 05 October, 2018 by Foster Lee


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!



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About Foster Lee

Foster is a specialist in aspects of income tax, from the individual to companies and family discretionary and/or unit trusts, bringing together those over thirty (30) years of experience.

He prides himself on quality work at a very value-based fee, meeting the needs of all his clients on a timely, accurate and meaningful basis to protect them. His easy, approachable manner and personalised attention makes all the difference and Foster’s experience in the management of people and their skills is an advantage to you. He genuinely has your interest at heart to maximise your financial/business goals and objectives.

Specially tailored fees can be structured to suit your personal needs and circumstances.