> The Bank generally decides the amount of equity and therefore the borrowing. >
That doesn't mean the banks amount of equity or % deposit is feasible for that particular investment property. If you do the sums, their equity calculation might be too debt heavy. Even worse the investment property may not be worth investing 100% equity in. They wouldn't tell you that though, they are only interested in making money from interest.
Your example
Net rent = 13g - 2g = 11g Residency purchase price = 240g Therefore -> Net rental yield = 11/240 = 4.6% That is a very low rental yield as it is below a typical cash fund rate, thus it is not even worth investing 100% equity in this residency. However if it were an owner occupier residency, this rental yield would be feasible.
I'm not sure what you are calculating with inflation and tax, but if it has anything to do with capital gains, it doesn't effect the basic yield and rates cash flow.
> Variables are of course Interest rate, capital gain/inflation rate, rent rate, agents commission on rent, any tax implications but that depends on the way you borrow, rate of return of commercial property. >
True, the agents commission on rent needs to be factored into the net rental yield if the landlord doesn't want to do the rent collection. Interest rates aren't really a variable if the astute debt investor chooses a long fixed rate.
Correction to my previous post, it should read:
Investment properties with rental yields > interest rates are even worth investing 0% equity or 100% debt in.
Investment properties with rental yields < cash fund rates are not even worth investing 100% equity or 0% debt in.
For investment properties with rental yields greater than cash fund rates and less than interest rates, my formula calculates the equity or % deposit needed for that investment to beat 100% equity in a cash fund.
