How Do People Afford an Investment Property? Part Two

By Matt McCombe.

Last week I showed you an example of a couple, Mr and Mrs Giveitago, who purchased an investment property using the equity in their home. You can take a look on my finance blog below if you missed it.

Today I’d like to show you how someone renting can purchase an investment property – why would you want to do this, shouldn’t you always buy your own home first? – I hear you ask. Well, you might be renting in a nice suburb which you wouldn’t be able to afford to purchase in. On the other hand, you may be happily renting just a room in a share house but want to get on the property ladder all the same.

The benefits of purchasing an investment property rather than a home to live in are worth considering. For example, there are a lot of tax deductions you receive for an investment property – things like council rates payments, repairs, loan interest can be offset against your taxable income. There are no such deductions for the house you live in.

Let’s take Mr Versatile as an example. He has $30,000 in savings and wants to keep living in his share house paying rent of $170 per week (his landlord pays the council and water rates for him). He knows a suburb where he can buy a house for $300,000 and earn $330 per week in rental income. His $30,000 deposit is just enough for a 5% deposit and to pay for stamp duty and other fees and his weekly interest only loan repayments are $400 per week (7.3%p.a.) so he needs to come up with $70 per week to pay off the loan, effectively making the rent he pays $240 ($170 + $70) – all the while giving him ownership of a $300,000 asset and minimising the tax he pays!

To find out more about our upcoming September 1st 2010 “Spring into Investing” investment seminar please be in touch! – 0400 952 897, matt@extrememortgages.com.au ; www.extrememortgages.com.au .