The Rule of Two
When you are looking at the ‘rule of two’, what it refers to is:
Take the purchase price – for example it is $200,000 – divided by 1000, multiplied by two. That should give your $400 per week.
$200,000 / 1000 x 2 = $400.00
This is the minimum weekly return or weekly yield that you are going to be looking at if you want to borrow 100% on the purchase price and still have this property looking positive for you.
When a property is negatively geared, and taking into account the taxation benefits of offset expenditure and depreciation, then the rule becomes something less than two. It becomes a rule of about 1.6 to 1.7, depending on your tax rate. So make sure you know what you are actually doing your calculation on and for.
We always recommend that you seek professional advice as this blog is for general information only