Chambers Fleming Padstow
2 Faraday Road Padstow
02 9771 4555
02 9773 9581Contact us
Investing in property is a proven path to long-term wealth, however you should consider it a medium to longer term type of investment, so you’ll want to make sure that you can afford to maintain your mortgage repayments over the long term. You will not want to have to sell your investment property until you are good and ready and if you were to encounter some financial stress, this could force you to offload the property at the wrong time.
Once you own an investment property it can be quite inexpensive to keep it and service the loan, that’s because you earn rent and get a tax deduction on many of the expenses associated with owning he property and remember that over time rents tend to increase as does your own income – so expect things to get easier over time.
Here is an example of what it might cost you to own an investment property. We recommend that you look at cost of servicing the loan on an after tax basis, this way you can put the cost in real terms for you.
Purchase Price of Property: $500,000
Stamp Duty and other costs: $20,000
Amount Borrowed: $520,000
Rental Income Received: $450 per week
Interest Cost @ 5.00% p.a: $26,000
Land Tax: $804.00 (Calculate your land tax in NSW)
Agents Fee @ 7%: $1,638
Total Costs: $30,422
Less Rent: $23,400 ($450 per week x 52)
Annual Shortfall: $7,022
Less tax deduction: $3,160 (assuming a tax rate of 45%)
Annual after Tax cost: $3,862 or the equivalent of $74.26 each week
In summary on this example your cost of holding this investment property works out at only $75 per week. Now I like to put that cost in a form that makes sense to me – for example the cost of holding this investment property is perhaps a tank of petrol or a couple of bottles of nice wine.
Make yourself aware of taxes involved in property investing and add these into your calculations. Advice from your accountant is vital in this regard as these can change over time. Stamp Duty, Capital Gains Tax and Land Tax all need to be taken into account. Remember that interest rates can vary over time but the good news for property investors is that in times of rising interest rates you can normally expect to be able to increase the rent.
You should know also that banks only take 80% of the rental income into account when working out whether you can afford an investment loan. This is due to costs like letting fees and vacancy rates, which you will incur, consider using this as a rule of thumb for you too. If you need help to work out the cost of holding an investment property you can contact us.
Our Experienced Property managment Team has over 60 Years local real estate experience