If only this were true. Your worse case scenario is worse than $200 a week! You still need deposits, the banks discount the rent you receive and you still would need to prove serviceability on the full loan with your income. Otherwise you'll be deemed rent reliant. And if rates go up there goes your cash-flow. Then you're stuck with a property with dubious capital growth, the main reason to invest in resi property.
I hope your calculations include rates, maintenance, insurance and 48 weeks rent rather than 52.
I have designed a speadsheet that calculates the net cost of holding a property, once all of the above costs are taken into account:
Strata fees (if is a unit/apartment)
Council rates
Water rates
Landlord insurance
Property management fee
Agents letting fee
Provisions for repair and maintenance
X weeks vacancy
Interest on the loan
This gives me my total costs to hold the property on a weekly, monthly, quarterly, half yearly, and yearly basis.
I then have the spreadsheet estimate my total cash flow (profit or loss) based on:
Rent
Tax benefits
Depreciation (if applicable)
While I know the tax benefits and depreciation are a rough guide, I have worked this out based on Margaret Lomas' own calculations. I will not enter depreciation though, until I have obtained a depreciation schedule from a quantity surveyor. However, there are free depreciation calculators out there though that will provide a rough estimate based on the age, property type, floor area and quality of finishes, which you can input into the spreadsheet to give you a rough guide.
The other really nifty thing about the spreadsheet it that it allows you to input different scenarios, such as interest rate increases or decreases, rent increases or decreases, number of vacant weeks, maintenance etc, and it will automatically calculate the total cost of holding the property, cash flow (loss or gain) taking into account rent only, or total cash flow (loss or gain) taking into account rent, tax benefits and depreciation, on a weekly, fortnightly, monthly, quarterly, half yearly, and yearly basis.
So, as I purchase each property, I will be very mindful of the the total costs of holding the property, and I can create different scenarios based on what I think will occur in the future: such as a rent increase in the next 6 months (bringing my costs down), or an interest rate increase (which will increase my holding costs).
As a risk mitigation tool, I will ensure that I can hold onto all my properties if interst rates increase to 10%.
And if rates go up there goes your cash-flow. Then you're stuck with a property with dubious capital growth, the main reason to invest in resi property.
While I know that these properties won't be "blue chip", if every property is purchased at a hypothetical $200K, and I have 15 properties, I will be sitting on a portfolio worth $3 million. This does not take into account the equity that I have manufactured by either buying these properties under market or renovating them.
Another thing to take into account is that these properties will be spread across different locations, including metro, regional and other states, thus exposing my portfolio to different market cycles, and minimising my risk. Moreover, say my property portfolio only achieves a 3% increase in value per year, as it is worth $3 million, it is still growing by $90,000 per year.
Now another hypothetical is if the rates go up to 10% over the next couple of years (which I don't think is likely), it will cost me $1500 a week to hold 15 properties (average cost of $109 per property @ 10% interest, rather than $10 per property @ 7% interest). However, during this time, rents will also go up (more people will rent because they can't afford to own), which will reduce this amount, and I will have the equity to capitalise interest until the rates return back to normal levels.
