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Out of pocket or not?

Discussion in 'General Investing Discussion' started by Darkswan, 29th Mar, 2013.

  1. Darkswan

    Darkswan New Member

    28th Mar, 2013
    Brisbane, Qld
    Is my thinking correct that if one is out of pocket by for instance $1000 a month on an investment property in terms of mortgage repayments after rent income, then they are essentially unrealistically expecting the property to make a capital gain of at least $12,000 per annum over the long term in order to make a profit? In other words, does it normally not make sense to save up more of a deposit to so mortgage repayments are smaller, with the view that the property is only an investment? Brett
  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    Doesn't make sense to pay a deposit on an investment if you have a non deductible loan (eg. on a main residence) because you will be diverting funds to pay down an investment expense. This means higher non deductible interest and lower deductions.
  3. Kelly Black

    Kelly Black Member

    25th Mar, 2013
    Melb, VIC
    Hi Darkswan,

    Yes you are correct that negatively geared properties rely on capital growth.

    With regards to a deposit, it is not necessarily better to pay a higher deposit, as the funds pay be better used elsewhere. As Terry has suggested, one way would be against non-deductible debt (ie your own home loan) if applicable or it may be wiser to diversify by investing in shares or fixed interest.

    In other words, if you pay more of a deposit on your investment property, even though you are reducing your monthly repayments on that loan, you are also reducing our opportunity to use these funds elsewhere (and possibly with a greater return)