What am I missing



From: Toyo Spares


I read that I should be aiming for positively geared IP (positive gearing being where rental income exceeds outgoings - without factoring in tax deductions etc.).

I've also read the most people can only get to 3 or 4 properties before their income serviceability runs out.

If the IP are positively geared, why would this be so ?

If the reality is that most IP are negatively geared then it makes more sense.

i.e. bank valuations are conservative with respect to actual market value of property and also rental income. If I borrow 100% of purchase price + costs (presumably using equity in my primary residence) then, after X number of properties the equity in my primary residence would be used up and or my DSR exceeded.

Assuming other bases are covered - i.e. rental/property insurance, income protection insurance etc.

What am I missing ?
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Reply: 1
From: Michael G


The fact that your investment rental properties rely on rental income to service the loan, ie you become too "rental dependant"

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Reply: 1.1
From: Jude H

OK I need to buy into this. Why is it so? Statistically rental demand is there. If you are having trouble getting tenant, then drop the rent $10 pw. This will not cause your portfolio to fall over. There must be ways around it. Can someone please quell the black mood I feel whenever the words rent reliant are uttered?
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Reply: 1.1.1
From: Michael Yardney

Jude. You are 100% right.
Rental income from a good investment property is probably more reliable that from many jobs.
But the good news is...when you get to the next level and you have lots of rental properties and investment property is your "real" business, banks start to look at you differently and don't discount the rental income.
Keep working at it and you will get there!
Michael Yardney Metropole Properties
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From: Jude H

To both Michaels,

Thankyou for your advice. Will do as you suggest MC and see where it gets me. Will see you at the BBQ MC?

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