whats the point of owning an IP – does it really make money

Hi penti,

There will be a truckload of people who use this forum who will give you four hundred truck loads of reasons why purchasing real estate as an investment is better compared to putting your money into a savings account.

In my opinion and limited experience, what it comes down to is your ability as an individual to make the right decisions when purchasing, and using the right people who have the knowledge to help you see your goals through.

Some properties will give you growth, others will provide cashflow if you are creative in adding value or buy right.
Only by immersing yourself in resources like books, websites, seminars (if you so choose), and doing the ground work for yourself will help you build the knowledge and confidence to say – you know what , property is for me as opposed to term deposits or whatever.

your goal look achievable to me, as iiluminati said you need to factor in all your outgoings, rental income, and research the area you are buying in to see what sort of growth to expect and ask wether it is the right property to buy. can you find any ways to increase the rent? can you make i/o repayments with an offset account as opposed to p/i? all of these things and much more make for a wise investment. not as easy as throwing some money into an account, but hands on and in my opinion, more rewarding.

good luck, hope the pros on the forum can offer you some sound advice,

Ben

ok so i got bored at work.

i did the bank loan at 8% so it gives you a bit of a buffer.

160 000 property
16 000 deposit
=
144 000 bank loan

interest ONLY   at 8%  = 11520 pa

200 rent per week = 10400 pa

loss of 1120  not including rates etc.

TAX SAVINGS, of 1332.3
so
-1120+1332.3 = profit of 212.3

SO, you will be making a loss on this property, but the depreciation will push it into being slightly profitable for you.

capital gains,  according to you,  that is 16 394  after tax.  is that for 3 years?  hard to understand your first post.

if it is 3 years  then    16 394/3 = 5464

so for a cash outlay of 16 000, you will make 212.3 a year in cash,   and unrealised post tax profit of 5464.  
thats a 35.47%  return on your money.

of course its not that simple… there is stamp duty, rates, commisions, management fees, etc.  and also capital gains isnt guarenteed, let alone guaranteed at 8%.

but using just the basic figures it seems that that property gives a return 7 times greater then a bank.  if everything you said was guarenteed, id certainly go for that.

if you wanted a profitable property regardless of the tax deductions, then you wouldnt need to increase your deposit by much to reduce the loan to a level where it was positve geared.
 or you can renovate etc, to add value and ensure the capital gains

lets say purchase price is 160 k

i got 10% deposit – so loan is 144k repayment over twenty years = $277 a week

interest is 221 a week roughly

weekly rental return of 200 say $3000 a year in expenses so $57 weekly

so short fall of $200 – 57 – 221 = $78 loss a week. lets assume you also pay $77 a week to pay off the loan over 20 years

So lets assume a 10 year period

$160,000 compounded @ 8% over 10 years = $345,000

the calculator shows me total deductions of  $4000

Loan would be $100,000

So now after ten years you have $245,000 in equity not taking into account rent increases of $10 a week each year.akes off

Compounding property value takes off when time is experienced.

Rule of 91

take 91 divide it by interest rate and you get 9

every 9 years value should double.

If you stuck money into bank account you have to pay tax each year on the interest

Say $10,000 is saved each year say 6% interest

Year 10 you have tax to pay each year after on roughly $7900 interest

You can borrow against the increased equity of the IP to buy another one but time is the ingredient needed.