Hey guys I am really new to property investing too and I wanted to learn and ask from Dereks question, if Derek wanted to invest and deposit with $10,000 on a 150k – 200k loan say about 5% deposit and wanting to rent it out as a Ip would that mean it would be negatively geared and the only source of profit would be from capital growth only ???
Hi NI,
The answer to your question comes from the "numbers" – at 95% LVR, there would need to be a really good Gross Rental Income to be +ve geared. This is simply because of the high %age borrowed, thus making the loan a higher number.
Yield comes from Income divided by costs. Thus with a 95% loan, the Income needs to be higher to still have a +ve cashflow. Gross Yield is the "quick and dirty" number that is often quoted on here – simply, "Expected Rent per annum divided by Property Purchase price". It is often used as a quick way to decide whether a property is "worth spending time on" prior to a possible purchase.
So if Derek were to find a property with (say) a 10% Yield, then it is likely to be positive despite the extra high (95%) mortgage. .With Interest as low as it is right now, maybe even a 7% yield is enough… But there are other costs, and they vary hugely….
Benny
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