1. What is Investment Property Borrowing Capacity?

Investment Property Borrowing Capacity refers to the maximum loan amount a lender may approve for an investment property purchase, considering rental income and the borrower's salary while accounting for negative gearing scenarios.

2. How Does the Calculator Work?

The calculator uses the investment property loan formula:

Where:

• Rental Income — Expected annual rental income from the property
• Salary Portion — The portion of salary allocated for loan repayment
• Rate — The annual interest rate (expressed as a decimal)

Explanation: This formula accounts for negative gearing by considering both rental income (multiplied by 1.25) and the salary portion divided by the interest rate.

3. Importance of Accurate Calculation

Details: Accurate borrowing capacity calculation is crucial for investment property planning, ensuring you don't overextend financially while maximizing investment potential through appropriate leverage.

4. Using the Calculator

Tips: Enter rental income and salary in dollars, and interest rate as a decimal (e.g., 0.05 for 5%). All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is negative gearing in property investment?
A: Negative gearing occurs when the costs of owning a rental property exceed the income it generates, which can provide tax benefits in some jurisdictions.

Q2: Why multiply rental income by 1.25?
A: This multiplier accounts for potential rental income increases and is a common lender practice to estimate borrowing capacity more favorably.

Q3: How accurate is this calculation?
A: This provides an estimate. Actual borrowing capacity may vary based on lender policies, credit history, and other financial factors.

Q4: Should I consider other costs?
A: Yes, property taxes, maintenance, insurance, and vacancy periods should also be considered in your overall investment calculation.

Q5: Is this applicable to all types of investment properties?
A: This formula is generally used for residential investment properties. Commercial properties may have different calculation methods.