The golden rule

BY MARY HOLM

Q. I would appreciate if you can elaborate or direct me and other readers to get more information on the golden rule, as per the letter from the expat Kiwi on July 7.

A. I can't take credit for the rule. Nor can I vouch for its validity.

But the man who sent it to me says it has served him well.

The rule, as he puts it, is that "rent needs to exceed 1.4 times the interest component of the mortgage, to ensure positive cash flow month on month".

When you're looking at a rental property, then, find out how much of your mortgage payments will be interest in the first year.

With a table mortgage, the common type of home loan, the answer will be most of the payments in the first few years. Your lender should be able to help with this information.

Under the rule, your rental income needs to be 1.4 times that figure. If it's less, the investment might not work well.

When calculating annual rental income, don't forget to allow for a few weeks without tenants.

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