Mortgage $150k (assume 100% mortgage) Interest Rate say 7.5% Term 30 yrs Starting rent $200 p/w
Annual payment = $12700 Annual rent = $10400
Mortgage Shortfall = $2300 Rates = $800 Water p/a = $800 Emerg Services levy say $100 Insurance say $500 Land tax - Nil due to investment structure.
Total shortfall = $4500 or approx $86 per week. Okay that may go to $100 per week if you have a bit more than minor maintenance to do in 1 year.
Lets then assume 30% back in tax then the actual out of pocket costs are more like $3150 to $4000 or between $60 and $77 per week.
Now if you assume incomes and rents basically track inflation of say 3% in 5 years rents could be expected to be around 15% higher which will equate to another $30 per week = $1560 which halves your actual loss. In 10 years the rent will be around 34% higher = approx $70 p/w which means the property will be pretty much neutrally geared.
In all reality in that 10 years you are probably out of pocket in the order of $25k - which will be recouped easily in the future.
So okay lets assume buy costs are around $15k - this basically means you have secured an asset of $150k value in todays dollars and you will own outright in 30 years for a sum total of around $40k out of your own pocket. Further more your rent should be in the order of $450 p/w+ (based on inflation increases) so you will also have a secured income stream of $23400.
Are the numbers great, no they could be better but it does illustrate how there is still value investing in it at todays prices if you have a long term view. Are there better things to invest in? Well that is upto you to decide - property is my low risk way to grow wealth over the long term, while speculative stocks are my high risk fast way to grow wealth over the shorter term. Good mix of both is best IMHO.
