Looking at purchasing my first property (which will be for investment) and am trying to get an idea of what holding costs are reasonable/or common in proportion to a monthly wage? Obviously, this is very subjective but would 30% of a monthly wage to hold an investment property be reasonable?
So basically on a low income salary, hence why its 30%. And, yes agree, impossible to answer but any opinions or stories are welcomed. Very new to property and investing.
Throw some numbers out. Whats the wage and how much are you borrowing. Could you afford 30% of your wage to go to a property? What happens if something breaks?
Holding costs are generally 25-35%. I use 30% as a rough figure. If your yield is 3.75% (I think this is probably around average through each of the 4 major capitals right now), then your net yield will be 3.75 * 0.7 = 2.625% Find out current loan rate. Lets say it is 4.75% (I don't know what it is now so just guessing), then you will be out of pocket each year a touch over 2% of the cost of the property. A 500k property will be $10,000 out of pocket. If your marginal tax rate is 37% then you will be 6,300 out of pocket after tax deductions If you can get depreciation, this can make a real difference but you need to look into this further. A 400k property will have slightly higher yields, so maybe will be 1.75% of the cost, so $7,000. If marginal tax rate is 37% then 4,400 out of pocket. Again, depreciation can make a difference here. A 'general' rule is that a property is cheaper due to lower demand and therefore will expect lower growth, so this extra $2,000 will often cost you a lot more than $2,000, but of course you need to be able to actually afford this and not go bankrupt! So better safe than sorry and you can still make some good money. Also you need to remember that your loan will go to P&I eventually, so this adds a large chunk onto your costs and you must plan for this in advance, especially if you're income is modest. You can use some simple calculations together with an online calculator to figure this out. Ask here (or me if no one responds) if you can not figure out how to find this out. You need to know this. Some properties have a little big higher yields like th's/units/apartments, but I am not liking apartments outside of Sydney due to the nature of the city. th's/units - if you get these you need to be careful if far from the city where demand for houses is much higher than for units/th's because one of the big factors for people choosing th's/units/apartments over a house is because it is close to amenities and the city, so I would be careful with this option. As someone else said - find out your borrowing capacity (costs nothing to talk to a broker), and come back and throw out some actual numbers and we may be able to give you more accurate numbers.
If you're young and live cheaply you could go to 50% plus (of your wage to pay off expenses inc mortgage). Probably not good advice
