Rental and operating costs growth ? Qld unit

Before we talk to the accountant ( thinking about buying a holiday apartment) with the figures, I'm looking at the negative gearing calculator on the your money site.. It asks for rental growth and operating costs growth per year... Anyone here that has invested in Qld apartments that could give me a ballpark?

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Do you mean for a property to be used for holiday letting? As in short term stays?

No-one can give you a number (especially based oin your info). Queensland is a big place.

Surely that is part of your due diligence.
What is the vacancy rate at the moment?
Is there a shortage of properties? Will that continue (any planned developments).

What are the operating costs at the moment? Has that gone up in recent years or is it a fixed %?

And you say it's negatively geared? That doesn't sound like a good investment to me. If it's negatively geared with intertest rates at 5% how much is it going to cost you when interest rates get back to the normal average of 7% (8% and you're really in trouble).

Sounds like you need to do a LOT more research.

Yes, holiday letting. You're probably right! We need to see a financial planner. But you cannot say that all neg. gearing is a bad thing for everyone can you? Doesn't it depend on our financial situation and our goals? It wont always be neg. geared, we don't want to start a portfolio, rather to own it when we are retired or semi retired.

The agent is getting me some figures, I have the rental report and occupancy which is very good, almost 50% which is great. This is in Palm Cove. Thanks for the thought provoking questions, one has to start somewhere when this is a new thing. Have you an investment property?

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I think what Travelbug is saying referring to is not the ability to deduct interest payments from rental income (there were times when this was not allowed). I think what is not good is income not covering your outgoings, of which, interest would be one of the larger ones. Cashflow is important otherwise you will be continually dipping your hand in your pocket.

Saying that it wont be negative geared does not necessarily mean its a good investment. Even if the property is wholly owned you should assign a cost of capital to the portion that is not financed otherwise you are not really making a like for like comparison.

Travelbug's point is correct, if the return is negative in low interest rates it will more than likely be lower as rates rise. The questions the bank is asking is to assess serviceability of the loan.

If you are looking at short term accommodation how much will the management fees be and house keeping etc..... I think there is quite a bit of work associated with short term accommodation, but I am happy to be corrected.

Good luck and I would see a financial planner or an accountant.

Cheers
mark

Aussie Mark, thanks for the input. I understand what you are saying, apart from assigning a portion of the capital. We definitely need to account for interest rates going up, it should be part of the projections.

Hi, I'm not into negative cash flow properties but that's not to say they aren't for others. Negative gearing is fine as long as you aren't going backwards. For example if you own a property that is costing you $2,000 a year and in 10 years time it hasn't gone up in price you are actually $20,000 + stamp duty, solicotors costs etc behind where you started 10 years earlier.

50% vacancy- good!! WOW! Goes to show I know nothing about holiday letting. That would mess with my head.

I guess if you use it for yourself also that's a bonus. My main point was to point out that you need to be prepared and do your research before investing. I've seen people have $million portfolios and lose everything due to lack of future planning.

I'd definately speak to someone in the know (which isn't easy believe me). I've done the investment advisor run around. They just push managed funds. I gave up in the end.

cheers.

oh I am quite confused. i thought that 50% was good because I thought basically the school holidays are the high season where you would hope to be booked out, but the rest is largely unoccupied...however I have some statements from agents which has thoroughly confused me further. Off to the accountant we go for a start. Thanks guys... hehe

I don't know about vacancy rates as I know nothing about holiday rentals.

Let us know how you go. I'd be interested.

OK, well I've finally got my head around the cash flow and the tax savings. You're right, occupancy of 50% isn't great, I'm not even sure what I was looking at then. Lol. Besides, occupancy is only one part of the equation. I'm leaning towards doing it, as long as we can cover the net loss throughout the year we're OK, and as you said factor in a bad year and interest rates going up. The growth figures I was asking for aren't really that important, to know whether it is a good idea, at least not down to the percentage. I can see from yearly invoices what has been happening in that regard.