Can anybody achieve cashflow positive ?

[wobbycarly]

OK, I'll rise to the challenge.

Ex housie in West Sydney purchase for around $220k, add a G/F for another $80k. Rental income from house around $300pw & G/F $230-240pw.

No, it's not mine but can easily be done. Just need to think outside the box.

Aaah, but if it was easy, everyone would be doing it!

Agree, need to think outside the box - personally, I AM trying to push those walls.

Thanks.

 

[ssimpson2003]

Put in a >50% deposit.

Hi all, long time lurker first time poster good to finally get involved.

Anyway straight into it....IMO think that's where a lot of people underestimate their REAL cash flow with an investment.

As an investor you have to source that deposit from somewhere. Many will release equity from the PPOR in which case they are paying current interest rates on the additional borrowings.

If they are lucky enough,as you suggest, to pay 50% deposit in cash, then that cash is not making an income elsewhere, so you need to take that lack of income into account when looking at your real cashflow.

Most calculators you find online will only calculate the cashflow on the investment itself (post deposit - ie it asks for "loan amount"), not the real cashflow implications.

I'm only new to the investment caper so if there is a trick to avoiding this situation or minimising the costs assoicated with sourcing a deposit then i'd love to hear it.

cheers

 

[skater]

Aaah, but if it was easy, everyone would be doing it!

Agree, need to think outside the box - personally, I AM trying to push those walls.

Thanks.

Yes, but there are a few doing that at present. The problem lies, I believe, in many don't realise that they can add a g/f. Also, you have the problem of accessing the funds to do this as it isn't as straightforward as a simple purchase.

Regardless, these deals are out there and they are not really that hard to find, especially if you are in Sydney.

 

[cadence]

Forgive me if this is a silly question, but, why do you prefer negative cashflow over making a profit...?

this allows me to buy a new property without saving up a deposit ... eg: bought property for $400k years ago (80% loan being $320k) and now worth $550k (c/f almost in positive). I refinance the property at $550k (80% being $440k), and get to make use of the increased equity ($120k) to pay for deposit of another property without ever having to go through the (very difficult) process of saving up that kind of money in a few years. For the first property, I'm now c/f negative as the loan has grown from $320k to $440k, but I can service it at my current income level (esp. after tax deductions).

If I used the increased equity to buy another property for around $500k, then I hold 2 properties totalling $1m. Assuming 7% growth pa, I probably get about $50k net in equity growth pa (which will contribute towards the deposit of a 3rd property). If I only hold the one property, yes it may have been c/f positive, but I would have had to pay tax on the extra income, and it probably wouldn't have made too much difference to my borrowing capacity to enable me to buy another property. Also, instead of $50k equity growth pa, I'd only get half, so it'll take me twice as long to save up the deposit for another property.

Obviously, this method isn't suitable or necessary for everyone ... depends on each person's financial position, saving capacity, serviceability, whether you have other sources of income, whether your other investments are c/f postive/negative, whether banks will lend you more money etc etc ... but it has worked for me so far (who had very little money at the start) .... I probably won't keep doing this for much longer. Want to buy one more place, after which time, I'm just going to raise rents every year and enjoy being c/f positive for a change.

 

[alexlee]

If they are lucky enough,as you suggest, to pay 50% deposit in cash, then that cash is not making an income elsewhere, so you need to take that lack of income into account when looking at your real cashflow.

Most calculators you find online will only calculate the cashflow on the investment itself (post deposit - ie it asks for "loan amount"), not the real cashflow implications.

I'm only new to the investment caper so if there is a trick to avoiding this situation or minimising the costs assoicated with sourcing a deposit then i'd love to hear it.

cheers

Yeah, you're right. Clearly I don't know how this works.

 

[travelbug]

OK here's one. Not quite CF+ but pretty damn close at 110% lend.

Purchased in Sydney's west Oct 2010.

Purchase $218K + stamp $6K + legals $2K + reno $14K (and 4 weeks hard work)
= $240K

$240K X 7% = $16800
+ rates, insurance etc = $2200
= 19,000 $365 per week

Rent $340 - management = $320 per week
+ depreciation $30
= $350

So negative $15 a week.

I'm sure someone will tell me if I've forgotten anything.

 

[ssimpson2003]

Yeah, you're right. Clearly I don't know how this works.

sorry Alexlee, I didn't intend to be offensive.

I was just trying to point out anyone new to investment that online calculators usually wont show you the real cashflow. It's quite possibe and even probable that some people may take posts here as semi-professional advice (no matter how unadvisable that might be). I also believe that some less reputable property advisors/sales people use this tactic to avoid showing the real figures when selling their products/services

I guess what i was trying to do is to flag it for anyone in that boat. Once again sorry if it came across the wrong way.

PS, Any tips for those of us looking to minimise deposit costs?

 

[alexlee]

PS, Any tips for those of us looking to minimise deposit costs?

No idea, to be honest. I use existing equity to pay for deposits, and I don't have any issues paying interest on it. I look to minimise non-deductible debt, maximise deductible debt and maximise exposure within my comfort zone.

I've never thought about minimising deposit costs. Never thought about opportunity cost of deposits, either. But then, I haven't been doing this for very long.

 

[recruit2]

OK here's one. Not quite CF+ but pretty damn close at 110% lend.

Purchased in Sydney's west Oct 2010.

Purchase $218K + stamp $6K + legals $2K + reno $14K (and 4 weeks hard work)
= $240K

$240K X 7% = $16800
+ rates, insurance etc = $2200
= 19,000 $365 per week

Rent $340 - management = $320 per week
+ depreciation $30
= $350

So negative $15 a week.

I'm sure someone will tell me if I've forgotten anything.

That's still an awful lot of outlay and effort (4 weeks) just to make -$15 per week lol. But you will be laughing when values double as that's basically costing you nothing to hold this asset now. Well done.

 

[ssimpson2003]

No idea, to be honest. I use existing equity to pay for deposits, and I don't have any issues paying interest on it. I look to minimise non-deductible debt, maximise deductible debt and maximise exposure within my comfort zone.

I've never thought about minimising deposit costs. Never thought about opportunity cost of deposits, either. But then, I haven't been doing this for very long.

agree...sorry i should also have pointed out, that this only applies to anyone without existing equity or dont want to use other assets as security.

 

[travelbug]

That's still an awful lot of outlay and effort (4 weeks) just to make -$15 per week lol. But you will be laughing when values double as that's basically costing you nothing to hold this asset now. Well done.

We actually paid for the reno (not borrowed) so it is CF neutral at worst.

Forgot to add the $50K increase in value. Value $290K now. Surely you wouldn't mind getting $50,000 for 4 weeks work.

If we had sold it straight away we would have cleared at least $25K after tax. Again not bad for 4 weeks work (part time- still did our day jobs).

The one we are doing now will have similar numbers. Cheaper buy but little less rent.

 

[devo76]

That's still an awful lot of outlay and effort (4 weeks) just to make -$15 per week lol. But you will be laughing when values double as that's basically costing you nothing to hold this asset now. Well done.

To cost you just $15 dollars to hold a high value assett using other peoples money sounds ok to me. One rent increase will mean zero cost to the owner and when decent capital gains eventuate( sooner or later but will come). It will really start to pay off.

 

[virgo]

Revaluation after reno

We actually paid for the reno (not borrowed) so it is CF neutral at worst.

Forgot to add the $50K increase in value. Value $290K now. Surely you wouldn't mind getting $50,000 for 4 weeks work.

If we had sold it straight away we would have cleared at least $25K after tax. Again not bad for 4 weeks work (part time- still did our day jobs).

The one we are doing now will have similar numbers. Cheaper buy but little less rent.

Hi Travelbug

How did you go about getting the bank to "increase your value" after reno?

Which bank did that for you if you don't mind sharing....having a bloody time with CBA atm....


thanks

 

[ssimpson2003]

Hi Travelbug

How did you go about getting the bank to "increase your value" after reno?

Which bank did that for you if you don't mind sharing....having a bloody time with CBA atm....


thanks

Hi Virgo, IMO the easiest way is to ask your bank for a loan top up against the property. The bank will then revalue it and lend you additional funds according to the new value. There may be other techniques but thats how i've done it, and it's handy to have those extra accessible funds in an offset account or free re-draw facility.

If you are looking to re-finance (as it sounds like you are unhappy with your bank) then try to get a package deal that caters for investors (assuming this is an investment not a PPOR). There will generally be an annual fee, but some can allow you to have unlimited loans in the one package for no loan establishment fee and no charge for valuations (along with other perks). They also offer pretty good discounts on the advertised interest rates. (0.7% or more). Worth shopping around. Good luck!

 

[virgo]

Loan top up

Hiya

Thanks for the tip; however tried to go the top up route for CBA; and they are asking for a full application all over again BEFORE they send valuer in..

With Westpac, it was a case of just calling up the bank; they send in the valuer and pfffff! the funds are in!

 

[ssimpson2003]

Hiya

Thanks for the tip; however tried to go the top up route for CBA; and they are asking for a full application all over again BEFORE they send valuer in..

With Westpac, it was a case of just calling up the bank; they send in the valuer and pfffff! the funds are in!

yup that's prob the same package i'm on at wolfpac

 

[goonandtell]

i am currently trying to free up money with CBA to continue to grow but my 4 IPs all purchased last year

Purchase 91k - $20k reno and holdings
$115k bank value (realastically comps have it at 130+k)
Current tenants 190pw

Purchase $134k No renovate
in processs of signing 220pw tenant
About to sell back yard allowed 20 per week reduction (in contract its zero but we may negotiate pending final outcome)
Backyard is valued at 50k - we are looking around 40k

Purchase $131 - $20k reno and holdings
Just signed $220 pw tenant
About to revalue, comps would put it at $160k as is but again has a nice big block so looking at battle axeing this time building new on the back and selling front house

Purchase $99k - $15k reno and holdings
About to advertise at $200 pw
Again comps would put it at $130+k

These are in a country town but all have proper roads with curb and chanel, most have full footpath access, plumbed gas, water and waste. Expenses are a bit higher than melb about 8-9% management fees + usual letting fees, also water rates are quite a bit higher.

Currently getting looking into expansion probably in a diffferent regional hub just to spread it out a little, but i said that before the last 2.

 

[ozmale42]

A few of mine have gone cf+ but this is after holding them for some time and seeing rent rises consistently over a period of many years.

Why do you think investors are so into building granny flats in their IPs at present? It can tip a cf- IP into cf+ within a few weeks.

This is going to be a function of people's income and it will obviously vary from person to person. [I]Most [/I]people can only afford to hold 2 - 3 neg geared properties at a time.
I think if you do a search, you'll find this has been discussed at length

This is spot on....I did some quick back of an envelope calculations awhile ago and I figured I could probably go for 3 without putting too much of a strain on living and lifestyle expenses

My sums assumed
- Yields of around 5%
- An interest rate comfort buffer of 3%
- Each place could be vacant for a month in any given year
- I don't lose my job and have to take a lesser paid role

That would be a loss p.a of $700 per month, or $8,400 per annum for each property after tax

Naturally if things got a lot worse than in my assumptions , espcially interest rates, it's back to the drawing board

What I'm curious about is how some people can buy 2-3 properties a year to the point they've accumulated 20 or more properties with high overall LVR ratios. Surely there must be some equity in there so that some a cash positive or at worst, cash neutral.

 

[Aaron Sice]

if you want to generate more cashflow, aside from a basic cosmetic reno, you will need to add more dwellings per lot.

the BCA has clear definitions between a "residential dwelling" and a "residential building".

you can have up to six(6) unrelated persons living in a "dwelling". renting an IP out by the room to students is an example of this.

alternatively, you could put apply to provide a residential building on a lot, or renovate an existing home, and accomodate more than this.

it's all in the planning. and it all costs money.

 

[kathryn d]

if you want to generate more cashflow, aside from a basic cosmetic reno, you will need to add more dwellings per lot.

the BCA has clear definitions between a "residential dwelling" and a "residential building".

you can have up to six(6) unrelated persons living in a "dwelling". renting an IP out by the room to students is an example of this.

alternatively, you could put apply to provide a residential building on a lot, or renovate an existing home, and accomodate more than this.

it's all in the planning. and it all costs money.

Absolutley.