First Investment

Hey everyone,
I'm looking to buy my first property and start building a portfolio over time, but not quite sure how to go about it. I've been in contact with a few buyers agents like Buyers club and Alliance Corp but just don't feel entirely confident that I'm not going to get played. I understand the basics, finding a low vacancy rate and high rental returns in areas with good capital growth, but don't know everything that goes into figuring out if a property is positively geared. I understand rental income vs mortgage repayments but what else would I need to calculate in and how to get those numbers?
Completely new to this so I'm a little hesitant to make a mistake that will cost me.
I've got $65k in savings and was thinking of aiming for a property for around $450k in QLD.
Any advice or help would be amazing and heavily appreciated.
Thanks

 

Break down your rates, maintenance (estimate) etc into weekly or monthly, and offset it with your rental income and mortgage repayments, see if you still have anything left after paying all that in the end of the day.

Also if the property is relatively new (only a couple of years old), it's worth getting a depreciation schedule done on the property as well to claim back what you lost.

 

is there a certain age that makes depreciation available to claim?

 

Hi Scott,

I'm not sure to be honest. But I did do a depreciation on my 10 years old property previously in QLD. Have a chat with the team at DuoTax. They did all my properties.

 

I've got a very simple rule of thumb which works well for my own portfolio's cash flow.

Assume 30% of the rental income goes towards general holding costs. What's left can be paid to cover the loan. Ignore depreciation and other negative gearing benefits.

 

ok sweet, so you allow 30% which is to cover maintenance , land fees, rental fees, insurance? and the remaining 70% is to cover repayments and determine if it's positive or not?

 

It's not 100% accurate, but it comes reasonably close. Also keep in mind that many of the costs have a tendancy to increase (as does rent). Interest rates fluctuate. Positive gearing is nice, but it's not the only thing you should focus on. Choose a property because it's a good investment, not necessarily because of the gearing.

BTW, it's very rare for a property to be postitive geared on the day you buy it, unless you're putting in a lot of cash and not borrowing much.

 

So if it's rare to find would the goal be to get as close to positive gearing as possible and then rely on capital growth to increase for rental increase?

 

You should be looking at a lot more data points then the ones you mentioned.

You need to be looking at data that paints a picture that shows that demand exceeds supply now and into the future. Fundamentals + Data = Best Result.

It terms of determining whether your investment will be positively geared or not. You need to calculate the rental income. Example $450 weekly rent x 52 weeks = $24,300 then you need to subtract your associated expenses including loan repayment. Then you’ll be able to determine cashflow position.

Based on your budget you get potentially get a townhouse close to the CBD in Brisbane or a single unit dwelling in an established desirable suburb in most of our regional towns.