• All money is in NZD, all calculations done Weekly. Linked house is just example.
  • House in North Shore, Auckland, New Zealand. $600K
  • 30 year Mortgage with ASB, 430K loaned at 5.75% variable, (170K down)

Loan repayment figures:

Repayment required: $750
Proportion in interest: $475 :  ($430,000 x (0.0575/52))
Proportion in principal: $275 : (total-interest)

Incoming rent figures: (estimate)

Gross rent: $600 (Caters a bit of down-time)
net rent after tax: $450

Other figures:

$130 implicit revenue, from $475 interest, tax deductible.

Final calculations to show benefit in my favour (of making this decision)

$750 total, to be paid.
+$50 (estimate of home-owner related costs)
-$450 net rent
-$130 implicit revenue from interest tax deduct 475 (27% of 475)
-$200 rent I would have paid, if was renting somewhere else
-$275 proportion of payment that is principal (my money anyway)

=-$255. (I.E $255 per week to be benefited from buying this house)
  • 1
    Are you sure your mortgage compounds weekly? I can see why you did the calculations the way you did, (and my wife is a Kiwi... I thought most loans over there are fortnightly.) Increasing the compounding to be more frequent makes you pay more interest. I would also really avoid getting into an adjustable mortgage right now if you can at all avoid it.
    – THEAO
    Sep 14 '13 at 8:13
  • 3
    You show incoming rent, but also rent you 'would have' paid. So is this house for you to live in, or a rental? Is there property tax? And - not sure what the $50 is, but a house can easily cost up to 1%/yr in maintenance over time. Not every year, not when brand new, but some years in, it gets to that level. $4000/yr might be right for this house. Sep 14 '13 at 13:49
  • 2
    Don't the payments of $750 per week reduce the principal owed at all? Your second weekly payment should have slightly less of interest (because the principal has reduced by $275) and slightly more of principal paid off, no? The lower interest reduces the tax benefit too. Also, why is it a 30-year mortgage since you will be paying it off in about 17.5 years as discussed in a different question of yours? Will the bank still have a death-grip on the property during the 12.5 years after the loan has been fully paid off? Sep 14 '13 at 21:15
  • Looks like what we found some big flaws, this is great!. Ok yes, 1. Yes, it compounds weekly, so I should have calculated it fortnightly, so that's one mistake! 2. It's a rental, but I will live in it as well, so will fill 3 rooms, and live in 1. 3. I'm not sure if there's property tax or not, I don't believe there is!. The $50 was an estimate, wow 1%, ok thank you, that is a bit of a scary amount! 4. On the ASB calculator, I typed in 30 years, & it gave me this amount, so I just assumed it would take 30 years. Maybe their online calculator is wrong? Sep 15 '13 at 3:04

As a rental, this is not an ideal set of numbers. You manage to show a $255 'gain' but $275 is from payment to principal. So, from the start, you're out $20/wk.

This ignores the $170K down payment, which has an opportunity cost, however you calculate it. You can assign the same rate as the mortgage, and it's nearly $10K/yr. Or the rate you feel your choice of stock market or alternate investment would rise. Either way, you can't ignore this money.

Your mortgage rate isn't fixed. A 1% rise and it would jump to $1663 ($842/week)

Ideally, a rental property is cash positive without counting principal paydown or even the tax refund. It's a risky proposition to buy and count on everything going right. I didn't mean to scare you off with "1%" but you should research the costs of repair and maintenance. Last year my Heat/AC system needed replacement. US$10K. This year, it's time to paint, and replace rotting trim, $7000.

In the US we have property tax that can range from 1-2% of the house value. If you don't have this tax, that's great, just please confirm this.

  • 2
    +1 You might want to tell the OP about depreciation of rental property too as something to take into account. Sep 15 '13 at 14:36
  • @DilipSarwate - OP is in New Zealand. I'm lucky they use the same numbers system, and mortgage amortization is pretty universal. Although - a search ird.govt.nz/income-tax-individual/different-income-taxed/… mentions depreciation. So yes, we just mentioned it. I might edit my response as well. Thanks, as always. Sep 15 '13 at 16:28

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