Forums / Property Investing / Help Needed! / Positive cashflow with increased interest rate

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  • Profile photo of curtis_07curtis_07
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    @curtis07
    Join Date: 2015
    Post Count: 5

    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.

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 376

    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.

    Profile photo of SteveSteve
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    @steve70
    Join Date: 2015
    Post Count: 10

    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 Me

    The devil is in the detail, always ask why?

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    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 Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    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 Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of RussianAussie (QLD)RussianAussie (QLD)
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    @russianaussie
    Join Date: 2015
    Post Count: 20

    This 7% scenario will be possible if AUD drops to $0.55-0.60 USD

    RussianAussie (QLD)
    https://www.facebook.com/sanderinoz

    Feel free to write me a message or add me in Facebook to chat about property investing

    Profile photo of DeanCollinsDeanCollins
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    @deancollins
    Join Date: 2015
    Post Count: 376

    @Russian,

    Why do you think interest rates are going to go up if the $A falls?

    Profile photo of SiteManagerSiteManager
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    @sitemanager
    Join Date: 2015
    Post Count: 56

    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

    Profile photo of SiteManagerSiteManager
    Participant
    @sitemanager
    Join Date: 2015
    Post Count: 56

    @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

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 376

    @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.

    Profile photo of SiteManagerSiteManager
    Participant
    @sitemanager
    Join Date: 2015
    Post Count: 56

    @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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