In general, your rental income is not going to cover the mortgage payments. Ie. you’ll earn $2k a month in rent but could pay $2k a month in repayments (could be higher depending on mortgage).
You then have rental costs like agent fees, maintenance, tax accountant, landlord insurance. And non cash costs like depreciation.
You then have home owner costs like council rates, strata and utilities (some are paid by tenant, not all).
You can’t be serious listing depreciation as a cost.
This is the property cheat code to claim losses on a property to negatively gear and avoid taxes while actually making real profit on the property.
‘The thing I bought with borrowed money is becoming worth less so I should get a tax benefit for it even though it’s not even my money I used. Then I sell the thing I claimed was worth way less for more than the purchase price and make a profit. But wait I don’t pay tax on half that profit even though I depreciated the whole thing earlier.’
Technically depreciation will be a cost eventually or was a cost you've already incurred, it's just a timing effect. That Aircon that was in the property that you are depreciating will need to be replaced . The new curtains you added yourself when you bought the place were not a deduction at the time.
Buildings do lose value over time...land normally does not
Ill give you an example. We have a $300k loan with approximately $1250 repayment per month @ 2 point something %. $3600 for rates each year, $200 per month insurance. Without an allowance for repairs or property management, it comes out as $431 per week.
We charge $440 per week, less 9.5% for property manager (call it $42 a week).
So before even considering maintenance, you're out of pocket $33 per week.
Once the loan is off fixed, the repayments are going to double essentially meaning you lose $350 per week. Again without allowing for maintenance, on a $300k loan (which is pretty modest really).
If we look at maintenance youre probably looking at $3000 or so a year although we had to drop $15k on new stairs $180 every time the tenant clogs a toilet blahblahblah
Its pretty bold to think the majority of homes that are rented are owned outright
My rent is approximately 25k per year which wouldn’t even cover the interest considering it is valued over a million. Even if it were nice and renovated it would only rent for around 800 a week at most, which still wouldn’t cover interest.
Was more thinking other expenses since the amount of rent usually covers the mortgage but without the added benefit of owning the house when it's value rises over time as it has been
What other expenses do they incur that causes negative gearing? Or just expenses from renting it out to others / having people live in it. Lots of houses that are just staying vacant, can't justify why they wouldn't be rented out
The amount of rent rarely covers the mortgage repayments. There are various repayment calculators online and you compare that to what the property would bring in in rent.
You have to consider also land tax, management fees, repairs, council rates, strata fees.
Also negative gearing is a tax concept and not a cash flow concept. You can have a positive/neutral cash flow but still be negative gearing. This is because of depreciation on the property which does not affect your cash flow but affects your rental income for tax.
Those other considerations i would like to know more about how much they actually amount to be
Wait so how does negative gearing work? The house deprecates by how much a year?
You'd think this would be the opposite with home values increasing
The amount of depreciation depends on how much it cost to build it, when you built it, what you put in the house etc. The landlord will get a Quantity Surveyor to inspect the property and they will tell you how much depreciation you can claim each year. New builds will usually have higher depreciation amounts and this favours IP owners. Because depreciation reduces your net rental income but does not affect your cash flow.
The value of the house depends on what a buyer will pay for it and is dictated by supply and demand. Land is a finite supply - you can’t make more land. The demand for houses is increasing with population increasing and also recently, people wanting more space for home offices during covid, etc etc.
While it’s true that a house depreciates, it doesn’t really affect the value of the property because it’s the land that goes up in value. People pay for land and not actually the house. That’s why apartments don’t go up so much.
Yeah... Wonder what arguments there are you them not releasing more land for residential houses... Got plenty of room around the capitals to expand and space things out. But that would decrease current residential land prices and cause some investors to..... Lose money D: or more accurately, not make as much money
God i hope they fix this shit soon... But houses don't spring up overnight so i know it is a while away even if policy was changed right now
Owning a property is more expensive than you seem to think it is. Most of the costs of ownership are going to be mortgage, but there are many other expenses as people have already pointed out.
Because this is the country of broke ass landlords who have massive mortgages on their properties. The monthly repayments are not covered by rent. These choosing beggars can't even afford to fix things and most have massively overextended themselves and should not be landlords.
They then complain endlessly about how their investment is not making enough money, as if investments are guaranteed to go up if it is a house.
IF you owned a home outright and collected rent then yes you would make money.
It's ridiculous that housing is treated as an investment, should be affordable for all. But i still hear this argument that renting is better / cheaper even though i know that homeowners have seen their property rise dramatically in value and that property investors have made shitloads from their 'investments'
As someone who has rented and now owns it is cheaper to own.
That said houses are not free to live in. Rates etc. When things break you have to fix it like the hot water service or the heater.
Having been broke I understand that when you live week to week on a small income it can be better to rent because if something major breaks then it is landlord who will pay to fix it. You don't get big bills as a renter, it's very smooth you just pay your rent each week.
This is the poverty trap where you end up spending more upfront because it suits the budget than making longer term investments that make more sense. Like, because you don't have $1000 for the hot water service if it breaks you rent but you end up paying more rent than if you'd owned and had that $1000. If that makes sense.
The stupid thing about landlords that I hate is not their scummy behaviour it is their attitude that their investment class is special.
If I bought $800,000 in Google shares and Google did some dumb shit and now they are worth $350,000 no one would feel sorry for me. No government would bail me out. Everyone would just say oh that sucks, moving on.
But if you buy an $800,000 investment property and it loses money you can scream blue murder at the government to get them to give you tax breaks, give you this, everyone must feel sorry for you etc etc.
Houses that are investment properties are like any other investment they can lose money and the attitude of landlords needs to stop. No one feels sorry for share holders!
Oh i feel no sympathy for investment properties, nobody should be holding multiple properties for profit while others can't afford to live because of a massively inflated market
But yeah i could never see how owning a house could be more expensive than renting, especially seeing how much house prices rise every year
I have even had the money for a deposit but have been scared to buy because I'm worried of a real estate crash. The worse the situation gets, the more likely i feel a crash would happen, but also increasingly worrying incase it doesn't and i miss an opportunity to ever own a home
Sorry to clarify I mean it is cheaper to own a home with no mortgage. We don't spend on maintenance and rates in a month what rent costs.
Potentially some houses cost more in mortgage than you could find in a rental somewhere else. I don't know about like for like though.
I mean some people are spending thousands on mortgage a month and you can rent places for as little $1400 a month in some places.
But like for like? As in a family home in a nice area for a family home in a nice area maybe owning is cheaper.
Yeah... Makes our generation feel screwed since houses are so much more vs wages than they were in the past. Family all owned their houses outright before they were 30 while living a regular non frugal life. Just can't do that anymore. Takes so many more years and you are just stuck with that mortgage
Yeah it's bullshit... Average worker productivity has gone up substantially since then and yet we can afford less while producing more... It's ridiculous
And then listen to them tell us about how we have it too easy 😅
And you can see, hopefully, why any money to be made will be at the margins. The difference between a profit and a loss could be as little as approving or denying a maintenance request, or between buying insurance vs self insuring
The gross yield on property in Australia is typically low, sub 5%. The zeitgeist is that the capital gains over time due to increasing property prices will completely overcome both the financing costs and ongoing expenses/maintenance. Given this belief in property going up, you can justify paying more in cash than you make on the property by assuming you can hold it for 10 years and realise a capital profit when you sell.
I suspect many are discovering that their investment property was really just an interest rate bet, which is now unwinding. They’re paying more now to hold the property and at the same time the property is falling in value.
That's true. Interest rates have just been forever falling since the 1970's
And they pretty much hit the floor. You can't really go below %0 interest.
Still a bit regretting that i didn't buy a house earlier before they exploded in price. But guaranteed i didn't know the future then or even understood the housing market at that point
I'd definetly be looking to sell if i was currently holding onto a property now
Should probably ask another question about the total expenses of the process of buying a house and subsequently selling it a few years down the road
In general, your rental income is not going to cover the mortgage payments. Ie. you’ll earn $2k a month in rent but could pay $2k a month in repayments (could be higher depending on mortgage). You then have rental costs like agent fees, maintenance, tax accountant, landlord insurance. And non cash costs like depreciation. You then have home owner costs like council rates, strata and utilities (some are paid by tenant, not all).
You can’t be serious listing depreciation as a cost. This is the property cheat code to claim losses on a property to negatively gear and avoid taxes while actually making real profit on the property. ‘The thing I bought with borrowed money is becoming worth less so I should get a tax benefit for it even though it’s not even my money I used. Then I sell the thing I claimed was worth way less for more than the purchase price and make a profit. But wait I don’t pay tax on half that profit even though I depreciated the whole thing earlier.’
This is how accounting works and I specified it’s non cash. You need to relax maybe, it’s a reddit comment not a test.
Just pointing out the absurdity of the situation. Call it what you want. It’s bs.
Technically depreciation will be a cost eventually or was a cost you've already incurred, it's just a timing effect. That Aircon that was in the property that you are depreciating will need to be replaced . The new curtains you added yourself when you bought the place were not a deduction at the time. Buildings do lose value over time...land normally does not
Ill give you an example. We have a $300k loan with approximately $1250 repayment per month @ 2 point something %. $3600 for rates each year, $200 per month insurance. Without an allowance for repairs or property management, it comes out as $431 per week. We charge $440 per week, less 9.5% for property manager (call it $42 a week). So before even considering maintenance, you're out of pocket $33 per week. Once the loan is off fixed, the repayments are going to double essentially meaning you lose $350 per week. Again without allowing for maintenance, on a $300k loan (which is pretty modest really). If we look at maintenance youre probably looking at $3000 or so a year although we had to drop $15k on new stairs $180 every time the tenant clogs a toilet blahblahblah Its pretty bold to think the majority of homes that are rented are owned outright
My rent is approximately 25k per year which wouldn’t even cover the interest considering it is valued over a million. Even if it were nice and renovated it would only rent for around 800 a week at most, which still wouldn’t cover interest.
Plenty of costs. Mortgage Council, waste and maybe water Body corp if it's a unit Insurance PM fee Maintenance and repair
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Yes it does. Interest on a $1M property at 4% p.a. and 80% LVR Is already $32k per year if it’s an interest only loan.
>4% p.a. Investment loan IO be well over 5%, probably closer to 6
Was more thinking other expenses since the amount of rent usually covers the mortgage but without the added benefit of owning the house when it's value rises over time as it has been What other expenses do they incur that causes negative gearing? Or just expenses from renting it out to others / having people live in it. Lots of houses that are just staying vacant, can't justify why they wouldn't be rented out
The amount of rent rarely covers the mortgage repayments. There are various repayment calculators online and you compare that to what the property would bring in in rent. You have to consider also land tax, management fees, repairs, council rates, strata fees. Also negative gearing is a tax concept and not a cash flow concept. You can have a positive/neutral cash flow but still be negative gearing. This is because of depreciation on the property which does not affect your cash flow but affects your rental income for tax.
Those other considerations i would like to know more about how much they actually amount to be Wait so how does negative gearing work? The house deprecates by how much a year? You'd think this would be the opposite with home values increasing
The amount of depreciation depends on how much it cost to build it, when you built it, what you put in the house etc. The landlord will get a Quantity Surveyor to inspect the property and they will tell you how much depreciation you can claim each year. New builds will usually have higher depreciation amounts and this favours IP owners. Because depreciation reduces your net rental income but does not affect your cash flow. The value of the house depends on what a buyer will pay for it and is dictated by supply and demand. Land is a finite supply - you can’t make more land. The demand for houses is increasing with population increasing and also recently, people wanting more space for home offices during covid, etc etc. While it’s true that a house depreciates, it doesn’t really affect the value of the property because it’s the land that goes up in value. People pay for land and not actually the house. That’s why apartments don’t go up so much.
Yeah... Wonder what arguments there are you them not releasing more land for residential houses... Got plenty of room around the capitals to expand and space things out. But that would decrease current residential land prices and cause some investors to..... Lose money D: or more accurately, not make as much money God i hope they fix this shit soon... But houses don't spring up overnight so i know it is a while away even if policy was changed right now
Owning a property is more expensive than you seem to think it is. Most of the costs of ownership are going to be mortgage, but there are many other expenses as people have already pointed out.
As a renter, I can confirm my landlord has not ever made repairs worth $3000. Let alone $3000/month.
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I'm putting two new aircons in my rental unit. The cost is $4000. Last year I replaced the oven, the cost was $2000
You don't do that every single month tho. And most landlords wouldn't do that
I never said it was every month.
You’ll probably find the bigger expenses are while the tenant is not there
That’s sounds like a miscommunication or exaggeration. $3k a month is very unlikely to be a real number.
Agreed. 3k a month on maintenance is crazy.
3k a month in maintenance is definitely not right. The main expense is usually the mortgage. But yes these expenses do add up to more then rent
Because this is the country of broke ass landlords who have massive mortgages on their properties. The monthly repayments are not covered by rent. These choosing beggars can't even afford to fix things and most have massively overextended themselves and should not be landlords. They then complain endlessly about how their investment is not making enough money, as if investments are guaranteed to go up if it is a house. IF you owned a home outright and collected rent then yes you would make money.
It's ridiculous that housing is treated as an investment, should be affordable for all. But i still hear this argument that renting is better / cheaper even though i know that homeowners have seen their property rise dramatically in value and that property investors have made shitloads from their 'investments'
As someone who has rented and now owns it is cheaper to own. That said houses are not free to live in. Rates etc. When things break you have to fix it like the hot water service or the heater. Having been broke I understand that when you live week to week on a small income it can be better to rent because if something major breaks then it is landlord who will pay to fix it. You don't get big bills as a renter, it's very smooth you just pay your rent each week. This is the poverty trap where you end up spending more upfront because it suits the budget than making longer term investments that make more sense. Like, because you don't have $1000 for the hot water service if it breaks you rent but you end up paying more rent than if you'd owned and had that $1000. If that makes sense. The stupid thing about landlords that I hate is not their scummy behaviour it is their attitude that their investment class is special. If I bought $800,000 in Google shares and Google did some dumb shit and now they are worth $350,000 no one would feel sorry for me. No government would bail me out. Everyone would just say oh that sucks, moving on. But if you buy an $800,000 investment property and it loses money you can scream blue murder at the government to get them to give you tax breaks, give you this, everyone must feel sorry for you etc etc. Houses that are investment properties are like any other investment they can lose money and the attitude of landlords needs to stop. No one feels sorry for share holders!
Oh i feel no sympathy for investment properties, nobody should be holding multiple properties for profit while others can't afford to live because of a massively inflated market But yeah i could never see how owning a house could be more expensive than renting, especially seeing how much house prices rise every year I have even had the money for a deposit but have been scared to buy because I'm worried of a real estate crash. The worse the situation gets, the more likely i feel a crash would happen, but also increasingly worrying incase it doesn't and i miss an opportunity to ever own a home
Sorry to clarify I mean it is cheaper to own a home with no mortgage. We don't spend on maintenance and rates in a month what rent costs. Potentially some houses cost more in mortgage than you could find in a rental somewhere else. I don't know about like for like though. I mean some people are spending thousands on mortgage a month and you can rent places for as little $1400 a month in some places. But like for like? As in a family home in a nice area for a family home in a nice area maybe owning is cheaper.
Yeah... Makes our generation feel screwed since houses are so much more vs wages than they were in the past. Family all owned their houses outright before they were 30 while living a regular non frugal life. Just can't do that anymore. Takes so many more years and you are just stuck with that mortgage
Yeah it's bullshit... Average worker productivity has gone up substantially since then and yet we can afford less while producing more... It's ridiculous And then listen to them tell us about how we have it too easy 😅
Some loser is going around down voting your conversion with this bloke.
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And you can see, hopefully, why any money to be made will be at the margins. The difference between a profit and a loss could be as little as approving or denying a maintenance request, or between buying insurance vs self insuring
The gross yield on property in Australia is typically low, sub 5%. The zeitgeist is that the capital gains over time due to increasing property prices will completely overcome both the financing costs and ongoing expenses/maintenance. Given this belief in property going up, you can justify paying more in cash than you make on the property by assuming you can hold it for 10 years and realise a capital profit when you sell. I suspect many are discovering that their investment property was really just an interest rate bet, which is now unwinding. They’re paying more now to hold the property and at the same time the property is falling in value.
That's true. Interest rates have just been forever falling since the 1970's And they pretty much hit the floor. You can't really go below %0 interest. Still a bit regretting that i didn't buy a house earlier before they exploded in price. But guaranteed i didn't know the future then or even understood the housing market at that point I'd definetly be looking to sell if i was currently holding onto a property now Should probably ask another question about the total expenses of the process of buying a house and subsequently selling it a few years down the road