G.Day Forumites.
I’ve read a few posts implying that as the years go by and you get that little bit closer to owning your IPs, your passive income will steadily increase. I can’t see how, as when you get a loan for X amount of years you are told your re-payments are $XXX.xx per mth. As far as i can tell this amount will stay the same for the entirety of the loan providing interest rates don’t change too much. So if your rental return is $100.00 a mth more than your loan re-payments, surely this is all you will earn in passive income until the IP is paid off. Unless you rip your tenants off and keep raising rents, which i don’t think you can do anyway. Or am i completely off the mark here?.[blink]
Cheers.Work smarter, not harder!.
Hi Cremin,
It is a matter of raising rents as time goes by, but it is not a matter of ripping people off.
It is a function of inflation. In ten years time the average wage might be $80k, a loaf of bread might be $4.00 and a Hyundai Getz may be $30k.
The rent will have increased in line with that, but your repayments will remain the same(assuming steady interest rates).
Cheers
Originally posted by wayneL:The rent will have increased in line with that, but your repayments will remain the same(assuming steady interest rates).
Ummm….that is your repayments will stay the same if you have an Interest Only loan, but if you are contributing to the principal (along the way) – your repayments should lessen (again, assuming interest rates are steady).
Jo
Originally posted by Cremin:I can’t see how, as when you get a loan for X amount of years you are told your re-payments are $XXX.xx per mth. As far as i can tell this amount will stay the same for the entirety of the loan providing interest rates don’t change too much. So if your rental return is $100.00 a mth more than your loan re-payments, surely this is all you will earn in passive income until the IP is paid off. Unless you rip your tenants off and keep raising rents, which i don’t think you can do anyway. Or am i completely off the mark here?.[blink]
Cheers.yes you kinda are off the mark.
No need to rip tenants off. Your signature says it all, “Work smarter, not harder!. You can do what Steve does. A third of his Passive income goes to repying off his loans. A third goes to investing in more properties and a third goes to himself.
The more you pay off your loan – the greater the passive income. And you use the rental income from one property to purchase a second property which then produces a second source of passive income from the second property.
Kind regards,
George.“If You never never ask, you’ll never never know”
Originally posted by Monopoly:Ummm….that is your repayments will stay the same if you have an Interest Only loan, but if you are contributing to the principal (along the way) – your repayments should lessen (again, assuming interest rates are steady).
Jo
[/quote]Hi Jo,
While the interest portion of the payment will decrease, and principle portion increases, the total monthly repayment will largely remain the same for the life of the loan (assuming same interest rates).
Ie pay $800/month at the start of the loan – still paying $800/month at the end of the loan.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Jo,
with a p & i amortized mortgage, repayments are the same amount for the life of the loan(interest rates being stable)but the proportion of principal vs interest increases down the time line.
In effect, you pay v.little principal in the early years and a considerable amount of interest in the analysis.
Cremin, ‘rip tenants off’ – v.interesting statement – market forces will apply here.
cheers
brahms
If you don’t ask, the answer is NO!!
Thanks Derek & Brahm,
I stand corrected. I have only ever had an IO loan for a small amount, and I wiped it out fairly quickly, therefore I am not familiar with the mathematics behind it all. That is where by hubby is more knowledgeable, and I am sure he would tell me the same thing if I had made that statement to him.
Cheers,
Jo
Let me give you an example of my first property bought in 1997. It’s a 2 bed unit near beach, transport, schools, parks etc.
1997 – Bought $95,000 Rent = $145 per week.
2004 – Now Worth $240,000. Rent = $205 per week. Var int rate = 7.07%
Passive Income = Rent $10,660 less Interest $7070 ($100k at 7.07%) less other costs $1,000.
Passive Income = $2,590.
And thats assuming no principal payments over that time.
Ripping off the tenant . . . hum err come again?
The exchange of goods or services for money is the basis of the economy. Prices are the reflection of the market, unless you hold the RE monopoly on the whole town, you could hardly “rip off” a tenant. And considering the socialist legal system we have that protects tenants that steel fixtures and destroy your property, I’m not sure where do you come from.May God prosper you always.[biggrin]
MarcHi ya Creemin. Just another thought. Over the years, your rent increases and your loan amount decreases (assuming you are paying P&I). You can now refinance and have lower repayments thus more in your pocket. Even if you refinance to a interest only loan, you will have even more left over and still be able pay off extra on your I.O loan to reduce the principle.
Regards
Martyyack- 1000 per annum per property? Does that include rates, water, insurance, possibly landlord protection insurance, depreciation schedule, repairs? sheesh- your places must be maintenance free, mate!
cremin, I think your question was a very worthwhile one. The only way passive income changes is by rent rises yes. But that’s assuming we only have 1 place. The theory and practice is, to keep buying more and more properties. So that 100 bucks becomes 500 bucks etc. And then, in say 2 years time, with market rent rises or some improvements to the property that might warrant a rent rise, that passive income might become 600 a week- not from a new property- from your existing ones.
But generally, Cremin- we don;t rely on rent rises to make money in this game- ya godda keep buying more properties
kay henry
I agree with combining a lot of the things said here already:
A) Increase rents over time (may be over a long time thought)
Keep buying more properties to increase the amounts of income you are receiving
c) If you are on a P&I loan then refinance after a few years so your repayments will be less (because the amount you are refinancing is less but over the same term ie: over 25 or 30 years again). I only do this if I need the extra passive income for another loan, otherwise I leave it as is and let it pay down as quickly as possible.
D) Reduce expenses if possible (without letting the property go to rot). If you’ve had a good reliable tenant in the property for a long time then you could also consider taking over the management of the property and therefore reduce one of your expenses.But everyone’s situation is differnt so you either need to find the one or combination that suits your circumstances.
What happens when interset rates go up to 10-12%?
RoboI found this link over at
somersoft forum which could
be interesting req this topic“Unless you rip your tenants off and keep raising rents, which i don’t think you can do anyway. Or am i completely off the mark here?.”
It seems as though a lot of people have gotten the wrong idea from this sentence. I was not implying that i am or intend to rip my tenants off!. I agree 110% with Steve that your tenants need to be treated professionally as clients of your property business.
I was referring more to the fact that there are plenty of people out there who are paying to much for there accommodation.
I am also aware that legislation has changed in favour of the tenant, to protect them from the ruthless landlord, courtesy of the 80’s. This has snowballed almost to the point where a deadbeat tenant has more rights and power in a court of law than the landlord (or should that be landjester). Just ask anyone who has had to deal with a nuisance tenant who is smart enough to know all their rights and how to work the system.
Anyway getting off the point here, thanks for all the helpful replys.Work smarter, not harder!.
Keep buying more properties to increase the amounts of income you are receiving
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