Recently I have been deliberating on whether or not I should buy a rental property as an investment. I know there are plenty of pitfalls when it comes to property investment and rental income, but it is also a fairly simple way to make a lot of money with minimal effort. The last few weekends I have been reminded about my property investment aspirations because the house across the road had open days each Saturday at 11:30am.
Investment Property Price
I decided that I was going to be a virtual sticky beak and so I scoped out the house online via one of the larger property websites in Australia. The property is priced at $420,000+, it has 4 bedrooms, 2 bathrooms, 2 garages and air conditioning throughout. The land is just shy of 600 square meters in size which is only slightly bigger than our block and so it gives me a good idea of what I might be able to sell our house for if we ever decided to sell.
In case you are wondering – No, this house it isn’t a mansion, and yes, property in Australia is horrendously overpriced and is begging for an American style housing crash. Nevertheless, if I decided to buy the property (assuming I could snare it for 420K) then my repayments would likely be around the $1800 a month mark. The house is currently tenanted (and has been occupied almost continually for the last 5 years) with rental income of $400 per week, which equals $1733 per month ($400 a week x 52 weeks / 12 months).
That means that if I decided to buy the property and continue to score $400 in rental passive income each week, my monthly liability will be less than $100 per month and I get all the generous tax benefits of owning an investment property, like claiming the interest on the loan as a tax deduction.
Is a Rental Property Worth While?
I have wanted to have a investment property for a while now, and my brother and I often speak about going halves in one to enable us to pay down the debt faster than we could do it as individuals. The problem with this is that we would need to draw up a contract and also agree on exactly what the future plans of the investment are. At the moment it isn’t really a concern though as he isn’t quite in a position to take out that big of a loan for a few years, and I have only just reduced our own debt load to a comfortable level and I am not sure I am ready to take on such a large amount of debt just yet.
Still, the prospect of only being out of pocket about $100 a month more than what I already pay is tempting. A middle ground that I have been considering is to look at smaller places around the $300K-$350K mark. It is still a lot of money, but far more manageable than $420K and from what I can see the rental return on the cheaper properties are comparable as a percentage of the total cost.
The biggest concern that I have with getting the rental property investment is that I need to keep it tenanted if I am going to easily be able to service the new mortgage debt. Then what happens if interest rates sky rocket and I am left paying significantly more than I have to right now. There are so many unknowns and with the potential job uncertainty that I am facing I am starting to think that right now may not be the best time to be making large investment decisions.
What would you do?
Have you ever owned a rental property before, are there any tips you can give me?