First IP - what are the costs I won't have thought of?

[Shuttergirl]

Thinking of getting our first IP really really soon but am completely figure illiterate. Have briefly spoken with a mortgage broker (we are meeting this coming week) and based on a rough figure of $350K purchase, IO loan fixed interst for 3 years, the repayments appear to be around $2350 per month. Assuming we could get 5% yield, say $340.00 per week in rent, that would mean we would have to chip in $247.50 a week to the mortgage. Does that sound about right?

So now I need to work out what the costs of owning this IP will be on an ongoing basis. Landlords insurance, rates, maintenance, property manager fees, etc....

I haven't a clue, could anyone give me a rough guide?

Also, I think we might lodge the relevant docs with the ATO to reduce hubbies tax instead of waiting for the tax return. I assume this is a good idea to take a little pressure off our weekly finances but would welcome your thoughts. Is there a basic formula for me to be able to work out roughly what sort of a difference this would make to our income?

I just want to have all of my t's crossed and i's dotted so I know we can definitely afford to do this, and also afford to do this again and again and again over the years. I'm excited, not really nervous but my SANF would be better if I could just get this clearer in my mind.

Thanks to anyone who can help out.

Lisa

 

[steveadl]

Thinking of getting our first IP really really soon but am completely figure illiterate. Have briefly spoken with a mortgage broker (we are meeting this coming week) and based on a rough figure of $350K purchase, IO loan fixed interst for 3 years, the repayments appear to be around $2350 per month. Assuming we could get 5% yield, say $340.00 per week in rent, that would mean we would have to chip in $247.50 a week to the mortgage. Does that sound about right?

So now I need to work out what the costs of owning this IP will be on an ongoing basis. Landlords insurance, rates, maintenance, property manager fees, etc....

I haven't a clue, could anyone give me a rough guide?

Also, I think we might lodge the relevant docs with the ATO to reduce hubbies tax instead of waiting for the tax return. I assume this is a good idea to take a little pressure off our weekly finances but would welcome your thoughts. Is there a basic formula for me to be able to work out roughly what sort of a difference this would make to our income?

I just want to have all of my t's crossed and i's dotted so I know we can definitely afford to do this, and also afford to do this again and again and again over the years. I'm excited, not really nervous but my SANF would be better if I could just get this clearer in my mind.

Thanks to anyone who can help out.

Lisa

Don't forget, if the IP price is $350k - you will have all Stamp Duty and fees etc. on top of this. So the fees will either come out of your pocket, or the loan will be higher than the $350k purchase price, and hence increase your repayments.

All rough figures, and will depend on what co's etc. you use but from my gerneral experience:
- Lanlord insurance about $500pa
- PM anywhere from 6-10% of rent + letting fee.
- Council rates are totally dependent on the council in question, and the value they have the property at on their books.
- Water rates - same as above.
- Maintenance depends on the age of the house and the appliances within. But even on new houses things will go wrong such as oven repairs etc.

Definitely a good idea having your husbands tax varied to suit new IP income loss.

Probably not overly helpful, but you'll be able to pinpoint the costs much better once you have a particular property in mind.

 

[twobobsworth]

Many consider 30% of rent received a rough guide to your ongoing expenses.

 

[HeXa]

Income tax variation is good if you know you are the type of people who will not spend the extra income unneedlessly. I know of people who just pay the extra tax, then declare all their deductions at the end of financial year to get a quite sizeable cheque from the ATO that goes towards a property purchase (i.e. treat it like a zero interest earning savings account).

Check out the PIA software... Somersoft website will have a link to a demo version. You will then see things like depreciation calcs that can have quite a considerably good cash flow effect if the property is relatively new.

as for the ongoing costs list... land tax (see Allhomes), rates (see Allhomes), water supply (not consumption - see your Actewagl bill), management fees (5-16.5%), maintenance, etc.

You probably are already aware of the purchase costs... but I will mention inspection reports They are required to be provided in the ACT by the vendor and be done before the proeprty is listed. The eventual purchaser pays the cost (exception are things like apartments). However, once done. there is a loop hole with these reports being able to become quite old as long as the property remains listed. For most places this isn't a problem (they sell within 1-2 months) but for any property that is hard to move, means you might end up having to get another report done at your own cost (peace of mind)... effectively paying for two reports.

 

[Rickardo]

Shuttergirl,

Have you thought about purchasing the PIA program written by Ian and Jan Somers? It's pretty good for analysing costs. I think it's roughly $245 and sure you can do similar calcs without it but i think it's worth it.

 

[Shuttergirl]

Thank you for the input everyone

Steve, I had calculated another $16000 on top of the $350k and the loan repayments mentioned included that, sorry I should've been alot more specific I know.

You have made a great list for me to start with and I appreciate it.

Hexa, I can't be sure we wouldn't spend that extra tax money, hehe so maybe we need to reconsider

Rickardo, I might go and check that software out, thanks heaps