I can get 3% return on fixed deposit.
If a house is worth $10000, and I can get 70% mortgage from Bank at 4% interest rate,
I need $3000 as initial capital and borrow $7000 from bank to purchase this house,
Luckly, if I can get $500 rental annually, then I get 5% ROI on rental property, but I need to pay 4% mortage rate, so I get 5% - 4% = 1% net income from rental property.
If the price of house keeps unchanged for a period of time, should I place $3000 on fixed deposit or should I purchase $10000 house for 1% net income annually?
Does anyone have any suggestions?
Thanks in advance for any suggestions :>
How to calculate this math?
It depends on what your objectives are:
- If this is indeed rental property then your estimated 1% annual net income will soon turn negative due to the cost of property maintenance and management. Your estimate of zero capital loss is unrealistic. The only way that I would buy this property is for political gain.
- If this is truly a play for income then I would opt to deposit $3,000 at 4% with FDIC insurance.
- If this is indeed rental property then your estimated 1% annual net income will soon turn negative due to the cost of property maintenance and management. Your estimate of zero capital loss is unrealistic. The only way that I would buy this property is for political gain.
- If this is truly a play for income then I would opt to deposit $3,000 at 4% with FDIC insurance.
1% annual net income is based on cash $3000 + mortgage loan $7000, so in term of cash $3000, do you know on how to determine the annual net income based on the invested capital?fab1usa1 wrote:It depends on what your objectives are:
- If this is indeed rental property then your estimated 1% annual net income will soon turn negative due to the cost of property maintenance and management. Your estimate of zero capital loss is unrealistic. The only way that I would buy this property is for political gain.
- If this is truly a play for income then I would opt to deposit $3,000 at 4% with FDIC insurance.
Thank you very much for any suggestions :>
You have $3000 initial capital to put towards you house which could otherwise be invested @ 3% fixed deposit (your figures above)
This means that if you use this initial capital to buy the house you will forgo an annual interest income of $90 (assuming no tax paid)
Now you need to borrow $7000 extra @ 4% = $280 p.a. interest to be paid
Therefore, total cost to you will be $280 interest paid plus $90 interest forgone = $370 p.a.
You say that you might(?) receive rent of $500 p.a.
This means $500 received less $370 paid out = $130 p.a. in your pocket when all is said and done.
So, based ONLY on the figures supplied & the assumption that the house price will not change, the house seems the better option.
Of course none of this takes into account the taxman’s take of rental income received & any negative gearing costs (if applicable) & maintenance costs (if applicable) that you might (or might not) be able to claim on your tax return.
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b.t.w, where are these houses for $10k ??
New York, London, Paris . . . . . Detroit ??
This means that if you use this initial capital to buy the house you will forgo an annual interest income of $90 (assuming no tax paid)
Now you need to borrow $7000 extra @ 4% = $280 p.a. interest to be paid
Therefore, total cost to you will be $280 interest paid plus $90 interest forgone = $370 p.a.
You say that you might(?) receive rent of $500 p.a.
This means $500 received less $370 paid out = $130 p.a. in your pocket when all is said and done.
So, based ONLY on the figures supplied & the assumption that the house price will not change, the house seems the better option.
Of course none of this takes into account the taxman’s take of rental income received & any negative gearing costs (if applicable) & maintenance costs (if applicable) that you might (or might not) be able to claim on your tax return.
*********
b.t.w, where are these houses for $10k ??
New York, London, Paris . . . . . Detroit ??