8
  • All money is in NZD, all calculations done Weekly. Linked house is just example.
  • House in North Shore, Auckland, New Zealand. $600K
  • 30 year Mortgage with ASB, 430K loaned at 5.75% variable, (170K down)

Loan repayment figures:

Repayment required: $750
Proportion in interest: $475 :  ($430,000 x (0.0575/52))
Proportion in principal: $275 : (total-interest)

Incoming rent figures: (estimate)

Gross rent: $600 (Caters a bit of down-time)
net rent after tax: $450

Other figures:

$130 implicit revenue, from $475 interest, tax deductible.

Final calculations to show benefit in my favour (of making this decision)

$750 total, to be paid.
+$50 (estimate of home-owner related costs)
-$450 net rent
-$130 implicit revenue from interest tax deduct 475 (27% of 475)
-$200 rent I would have paid, if was renting somewhere else
-$275 proportion of payment that is principal (my money anyway)

=-$255. (I.E $255 per week to be benefited from buying this house)
JoeTaxpayer
  • 172,694
  • 34
  • 299
  • 561
williamsandonz
  • 275
  • 2
  • 5

1 Answers1

9

As a rental, this is not an ideal set of numbers. You manage to show a $255 'gain' but $275 is from payment to principal. So, from the start, you're out $20/wk.

This ignores the $170K down payment, which has an opportunity cost, however you calculate it. You can assign the same rate as the mortgage, and it's nearly $10K/yr. Or the rate you feel your choice of stock market or alternate investment would rise. Either way, you can't ignore this money.

Your mortgage rate isn't fixed. A 1% rise and it would jump to $1663 ($842/week)

Ideally, a rental property is cash positive without counting principal paydown or even the tax refund. It's a risky proposition to buy and count on everything going right. I didn't mean to scare you off with "1%" but you should research the costs of repair and maintenance. Last year my Heat/AC system needed replacement. US$10K. This year, it's time to paint, and replace rotting trim, $7000.

In the US we have property tax that can range from 1-2% of the house value. If you don't have this tax, that's great, just please confirm this.

JoeTaxpayer
  • 172,694
  • 34
  • 299
  • 561