borrow at 8% for a 2% net return ? ouch, page-6

  1. 265 Posts.
    Actually let's do the exercise from the viewpoint of a renter.

    You're renting and paying around $350 per week ($18,000 approx per annum) for a house that is valued at $380,000.
    You have $150,000 cash in the bank .. that's earning you $9,000 at 6% per annum.

    If you were to buy that $380,000 house for $400,000 all up including stamp duty etc.. by borrowing $250,000 - that 250,000 will cost you $20,000 per annum in interest at 8%.

    Your rental was $18,000 per annum - you are now paying $20,000 per annum as a house owner. Also you have the maintenance and replacement and wear and tear expenses + rates etc.. now sitting firmly on your shoulders.
    Let's conservatively allow another $5,000 per annum for this.
    So your $18,000 per annum rent has become a $20,000 per annum bank borrowing interest + maintenance and repairs and replacement + rates ($5,000 p.a. conservatively).
    Plus you have also lost $9,000 in bank interest .. that your $150,000 was earning you.

    So you're paying another $7,000 per annum more as a house owner now plus lost another $9,000 per annum = a $16,000 per annum loss.
    Ouch !!!

    So an investor was another $5,000 per annum worse off in comparison = at $21,000 per annum.

    either way ... OUCH !
 
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