Hi, I am fairly new here and trying to do all my research before buying my first IP.
I’m looking into some properties and some suburbs and believe I can find some positive cashflow properties.
My concern is that these properties are positive with the current interest rate. However, if this goes up the properties may become negatively geared. I am wondering how people protect themselves from this.
take out a fix rate mortgage and hope that after 5 years….inflation on the rent at 3% a year takes care of any increases in IP interest rates…..
this being said its fairly rare to find a CF+ investment property these days, most are CF- for at least the first few years.
Hi Curtis,
As Dean has indicated, from my experience with my portfolio, most of my IPs take about three years to be truly positive cash flow before gearing, but having said that,all my properties start by being negatively geared but positive cashflow from day 1.
I normally fix a portion of the loan and against the variable portion set up an offset account. all rent goes into the offset as well as tax benefits from the IP also remain in the offset. This allows me to reduce interest payments while also developing a cash buffer.
Steve
Email MeThe devil is in the detail, always ask why?
Hi, I am fairly new here and trying to do all my research before buying my first IP.
I’m looking into some properties and some suburbs and believe I can find some positive cashflow properties.
My concern is that these properties are positive with the current interest rate. However, if this goes up the properties may become negatively geared. I am wondering how people protect themselves from this.Best to use an inflated rate when calculating the anticipated holding costs. Rates are at historical lows at present – so use a rate of 7% which is closer to the long term average.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Agree with Jamie – otherwise you will have distorted figures based on the rates of the day. There’s a reason why lenders stress test their mortgages at the ~7% mark for rates too.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
This 7% scenario will be possible if AUD drops to $0.55-0.60 USD
RussianAussie (QLD)
https://www.facebook.com/sanderinozFeel free to write me a message or add me in Facebook to chat about property investing
@Russian,
Why do you think interest rates are going to go up if the $A falls?
Hi Curtis,
As Dean has indicated, from my experience with my portfolio, most of my IPs take about three years to be truly positive cash flow before gearing, but having said that,all my properties start by being negatively geared but positive cashflow from day 1.
I normally fix a portion of the loan and against the variable portion set up an offset account. all rent goes into the offset as well as tax benefits from the IP also remain in the offset. This allows me to reduce interest payments while also developing a cash buffer.@steve70, are you using dual income property / sub division ?
SiteManager
Investing for a better future
@deancollins
@Russian,
Why do you think interest rates are going to go up if the $A falls?@deancollins, which means the interest rate must be lifted up to attract foreign investor buying Govt. Bond because cutting interest rate means the country is not performing very well.
SiteManager
Investing for a better future
@sitemanager, but the Australian government want the $A to go down…..there are a number of countries all trying to actively drive down their currency in a silent…not really silent currency war at the moment.
That’s why they keep dropping interest rates….to stimulate borrowings….but also to make Aust goods more competitive overseas.
You should see aussie wheat and cattle producers with their USA$ denominated contracts….they are laughing at the moment.
@sitemanager, but the Australian government want the $A to go down…..there are a number of countries all trying to actively drive down their currency in a silent…not really silent currency war at the moment.
That’s why they keep dropping interest rates….to stimulate borrowings….but also to make Aust goods more competitive overseas.
You should see aussie wheat and cattle producers with their USA$ denominated contracts….they are laughing at the moment.@deancollins Nice, spot on Dean.
So I guess it is for sure that RBA going to cut the interest rate again next year or even next week :-)interesting day ahead for us investor here where the banks just increased the IR last week due to APRA ruling.
SiteManager
Investing for a better future
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