If purchased at 400K, then borrowing the lot at 9.5% on a 30% MTR ;
Interest.............38K
Outgoings..........11K
Total Expense.....49K
Rent...................8K
Loss per annum...41K
Tax Refund.........12K
Cost to Hold........29K p.a.
Property must appreciate at 29/400 = 7.2% just to breakeven. Ouch.
-----------------------------------------------------------------
If purchased at 450K, then borrowing the lot at 9.5% on a 30% MTR ;
Interest.............43K
Outgoings..........11K
Total Expense.....54K
Rent...................8K
Loss per annum...46K
Tax Refund.........14K
Cost to Hold........32K p.a.
Property must appreciate at 32/450 = 7.1% to breakeven. Ouch.
-----------------------------------------------------------------
If purchased at 500K, then borrowing the lot at 9.5% on a 30% MTR ;
Interest.............47K
Outgoings..........11K
Total Expense.....58K
Rent...................8K
Loss per annum...50K
Tax Refund.........15K
Cost to Hold........35K p.a.
Property must appreciate at 35/500 = 7.0% to breakeven. Ouch.
-----------------------------------------------------------------
As you can see from the three above very different purchase prices, your breakeven cost remains relatively stable. Amazing huh !!! Go the 400 option every time.
If the place is leased 'til end of 2011, you'll have to endure this for 3 years.
The only questions you need to ask are ;
1. What is the place going to be worth in 3 years time. If you cannot answer this question accurately, then walk away - you don't know what you are doing.
2. Can I afford to endue this negative cashflow. If the answer is no - drop it. If you can, revisit question # 1 for your answer.
As with everything to do with property investing, all manner of sins can be forgiven if the capital growth is there. If it's gonna grow by 30% p.a. then jump on it. If it's gonna grow by 3% p.a., avoid it like the plague.
This is where the investor streaks to the front and the analysis brigade fall down in a heap.
So - what is it gonna grow by ???
N.B. : Because we are surrounded by poncy lawyer wannabe's and lotsa folks who never take responsibilities for their own decisions and actions, I better put here that none of the above is advice. I'm not smart enough to give it, and don't have any useless bits of paper on my wall to prove to a court anything at all.
