As a rule of thumb, what percentage rental return would make for a positive geared property investment?
Sunday, August 9th, 2009 at
6:29 am
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Tagged with: Positive Geared Property • Price Maintenance • Property Investment • Rule Of Thumb
Filed under: property renovation
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First, figure all of your expenses you will have every month — mortgage (principle, interest), taxes, insurance. Then, subtract the rent you want to make on it … remember, you will have miscellaneous expenses. If you wish to buy or refinance another home, a lender will only calculate 75% of th net rental income.
Example: Mortgage (principle, interest, taxes, insurance) is $1500 a month. Rent is $1600 a month. You THINK you are making $100 a month, but in reality, you can only count 75% of it, or $75. And that won’t take care of any maintence that may occur.
As a general rule 20% of the rent income for Australian properties will be lost to maintenance, council rates, property managers and vacancies.
The % rental return required to make a property positively geared will depend on the amount you borrow as well. If you borrow 100% it will take a much higher return to make the property positively geared.
Generally you will need a 10% to 12% return to be positively geared. Note that most positively geared properties are created not found, in other words you have to renovate, wrap or be creative to make a normal property positive.