Paying the mortgage on one property is hard enough, let alone two. But the fact is, investment property can bear considerable financial fruit if you buy right, organise your finances well and select a suitable location. If you nail the first steps, is it possible to pay your entire mortgage in the capital cities with rental income? Let's look closer …
Paying your mortgage with rental income alone
Most property investors in the capital cities have all but given up covering their mortgages with their rental incomes. In cities like Sydney and Melbourne CoreLogic RP Data shows that the average rental yields sit at 3 per cent or lower.
Considering your investment home loan's comparison rate is likely to be around 4 per cent, there's no way you'll cover your home with an average rental yield. So what are your options? Get creative with your investment's location.
— CoreLogic RP Data (@corelogicau) December 13, 2016
The best suburb in Melbourne for rental yields
Residex rates Thornbury as one of the better areas for high rental yields in Melbourne. Here you can pick up a unit for less than the median price of $437,000 and can expect rental yields exceeding 4 per cent.
With a 4 per cent yield on a property worth $400,000, you'll net roughly $16,000 in total annual income. Assuming your investment home loan term is 30 years, with a 4 per cent interest rate and a 20 per cent deposit, it will set you back just over $18,000 total per annum.
That's a shortfall of only $2,000 – a figure which could be reduced to zero if you buy the right property, get solid advice on your investment loan and/or or renovate well.
The best suburb in Sydney for rental yields
Only 3 kilometres from the city centre, you'll find Darlington. Here you can pick up a unit for under $525,000 and expect a rental yield of 5.2 per cent, according to Realestate.com.au.
Let's say you find a unit in the area for $500,000. Assuming the same conditions as in our Melbourne example, your mortgage will cost you $24,060 and you'll net $27,300 in income. That's a profit of over $3,000, which could be enough to cover all your property's maintenance and extra costs!
Even in the best of suburbs covering your entire investment home loan with rental income is a challenge, but if you can do it in Melbourne and Sydney you should be able to do it anywhere. The key is to approach your purchase with a mind to maximising your rental yield right from the get go by picking the right property in the right suburb.
From there, smart renovations, professional property management, and advice from an experienced local mortgage broker can close the gap between your rental income and your mortgage repayments.
Get in touch with a professional mortgage advisor here at Mortgageport for help choosing the investment loan best suited to help you do so.