Help with entering the property market with a debt

Hi,

300.000 * 9 % = 27.000 / 52 = 520 dollars per week to hold the property.
Why do you think it costs 75$ a week ?

Plus they have a debt of 200K, which costs them : 350$ per week.
That would be 870 dollars per week ( 3480 dollars per month ) purely interest.
That is , that's the least they will pay without actually paying any mortgage.

They already gambled once and lost 200K, why would they want to lose another 300K on top of that ?

They should now accept that they need to work very , very hard, for a very , very long time to get rid of the 200K debt. After they are out of debt, they will have learned a lesson : nothing is free, and property is a gamble just like any other investment.There is no 'easy money'.

Please explain why they expect to pay 75$ per week when I come out at 870$ per week, and that doesn't even include repairs to the property , taxes, etc... Are they living in la-la-land where money grows on the tree and 1+1 = 3 ?

I agree with Scamp.

A good ball-park guide to work on with the expenses incurred in holding a rental property is to allow around 20% of the rent to be eaten up by the holding costs such as rates, insurance, repairs, management fees, vacancies etc. This is not including the loan and/or the loan interest.

On the other side of this situation; if they buy and then immediately re-sell, they will have all the buying and selling costs to be considered, and there will be capital gains tax to pay.

If they sell within 12 months, they will have to pay tax on 100% of the cap gain, at their marginal tax rate.

This could ultimately see most of their profit eaten up in costs and tax.

Not to say that they shouldn't do this deal, but you need to know EVERY cost involved, and over-estimate them as well.

Give us all the figures -
weekly rent, water and council rates, insurance, management fee, body corp fee (if applicable), repairs ($1k per year), loan size and interest rate, bank fees.

If the property was built after 1987 there will depreciation as well, so find out the date of construction and cost if possible.

Then we can work out the cashflow more accurately.

Cheers,
Marc.
erardent@hotmail.com

"we get sent lemons; it's up to us to make lemonade"
www.whydoislice.com - for all the golfers out there!

I didn't list everything on purpose as I wanted to guage pure reactions so thanks for that.

Actually, this is irrelevant now because they've decided to onsell and take the 30k profit (that's a net profit) so no need to get into this discussion.

Thanks though.