can you still get positive cash flow properties

[steveadl]

I agree - as I so often do agree with you, Steve - but what I don't necessarily agree with is the oft-quoted rule of thumb that yield% plus CG% is a constant - around 14% is the figure usually quoted. Though if this held true, even a 9% yield property would make 5% CG per year, as per my example.

My strategy is to look in an area where I'm anticipating strong CG for fundamental reasons (ie population growth, development and economic activity, etc), then try and find a property that is or can be CF+ in that area. There's no reason, if you find (or create) CF+ property in a strong area, why your property shouldn't go up with the properties surrounding it.

If I can find a property where:

1) I anticipate enough CG in the first year or two to refinance and retrieve my equity, and

2) it's cashflow positive after refinancing (ie increasing debt to 100% of purchase price plus costs)

then it really doesn't matter if it gets minimal yearly growth, IMHO. I've got my equity back to use for further purchases, and I'm not having to put any money into it each year.

If you're on a long-term plan, the chances of you getting one or two "boom" CG years during, say, a 20-year period, are pretty good in even the most stagnant areas. I look at these deals as being "capital growth for free", and I'll take as many as I can find.

Absolutely agree with you Tracey (big surprise ), there is bound to be some cap growth at some point when you're holding for the long term.

To be honest, I've never really assumed that 14%pa average figure is necessarily true either. I'm not saying it isn't - I just don't really use that in my figures. The only assumption I make is on cap growth of around 5-7%pa. Even that is hard enough to get the mindset around sometimes when you see the projections for that same house in 20yrs time. How much!! No way!

 

[Francine]

she got positive cash flow and really good cg aswell

she got positive cash flow and really incredibly good cg aswell.she bought well
she had the mindset she would be lucky and she was.


she bought the 70 such properties in a really short period
replaced hers and her husbands wages

they were managed by property managers

paula.

 

[The Y-man]

replaced hers and her husbands wages

.

Wow, for a moment I thought that said "replaced her husband...."

Cheers,

The Y-man

 

[buzzlightyear]

Any property can be cash flow positive, you just need a big enough deposit. The discussion about cash flow positive needs to at least have reference to the deposit being used to fund the purchase. Ultimately you can buy positive cash flow from a or multiple properties.

 

[geoffw]

Not sure if you read the whole thing Geoff. I SOLD the house less than 12 months ago for $60k & it was renting for $150pw. Now, I can't remember how to work out the yeild, but I know that is considerably over 10%, as a yeild of 10% would roughly be a rent of $120pw on that sale price. It is irrelevent when I bought the thing as the original question was "Can you still get positive cash flow properties". I don't think that particular property is going to have substanial CG in the near future, but it will get some, in line with the other properties in the area. I also said:

Sorry Skater, I misread.

And in thinking about that, I realise that I do have a property which may still be CF+ based on current prices.

The property was recently valued by the banks at $550K. It was a dual occ under single title- by changing its ownership to unit title (the ACT equivalent of strata title) I increased its value from $500K. The extra $50K in equity does nothing for rental. It just makes it nicer for the banks, so that I can sell both separately to owner occupiers, not just investors.

I'm getting about $650 pw.

That would make it a little negative before tax, positive after tax.

For a number of years, I've been negative about positive.

But with recent rapid rises in rents, things may now be changing.

BTW, it's in "inner" Canberra (well, actually the "outher of the inner"- North Lyneham, not too far from Dickson).

I bought it for cashflow, but with a very firm eye on CG. With a purchase price of $275K it's performed well on both.

On a 1200sqm block, the worst house in the best street, it's got some excellent development potential.

"Multiple streams of income" from one property was Michael Croft's mantra, when he used to post. That enabled purchase of properties in a good area, with an income well over what might normally be expected from a single stream of income from a block of the same size in the same area.

And SimonJulie has (have?) made a specialty of developing these sort of properties from single properties, renovating large single houses to be dual, or even triple, occ.

 

[Bazza]

she got positive cash flow and really incredibly good cg aswell.she bought well
she had the mindset she would be lucky and she was.


she bought the 70 such properties in a really short period
replaced hers and her husbands wages

they were managed by property managers

paula.

Who is she?

Cheers,

Bazza

 

[Bill.L]

Hi all,

Steve,

If I had 2 choices in 30yrs:

A: 3 properties each spinning off $200pw to my pocket valued the same.

B: 3 properties starting off losing $50pw each, worth triple what I paid for them allowing me to access over $1M in equity, and break even in cashflow (or likely positive cashflow as well after year 8 or so).

This example is not as clear cut as appears. There is a difference of $750 pw in cash flow. It all depends on what you do with the cash as to which is the better investment. Plus you have to discount future cashflows as they are not certain, just hypothesised due to past history.

It is never as straight forward as it first appears.

bye

 

[wagnman]

If you have a property that is cash flow positive dont you just keep plowing the +ve cash flow back into the property so that it pays it off over time making it more and more +ve cash flow and increasing the equity in the property at a much faster rate than just relying on CG?

Wouldnt this allow you to exellerate the CG so that you can buy more property faster.

Dont alot of people try to buld "groups" of properties in a trust? By this I mean they try to get say three +ve cash flow or +ve geared properties and 1 heavily -ve geared property in a trust so that the net result is near to neutral geared for the 4 properties and the trust runs at a break even in terms of cash flow but makes huge CG?

Cheers.

 

[alexlee]

Dont alot of people try to buld "groups" of properties in a trust? By this I mean they try to get say three +ve cash flow or +ve geared properties and 1 heavily -ve geared property in a trust so that the net result is near to neutral geared for the 4 properties and the trust runs at a break even in terms of cash flow but makes huge CG?

You're mixing TAX profit/loss with cashflow. IPs can be negatively geared but have positive cashflow. It's unlikely you'll have a property that's TAX positive unless you hold it for a long time or have very little debt against it.

At 3.5% net yield (say) and 8% interest, you would have to have LVR of 40% before the thing is positively geared, and that's assuming no depreciation. If your trust has other income (shares, etc) then the equation changes. But you'll need a lot if other income. Assuming a 80% LVR property, 8% interest, 3.5% net yield, 2% depreciation, 300k property, you're talking about tax losses of 14,700. If that's in a trust you need that much other income to use up the losses. In the hands of an individual on 30% marginal tax rate, the net cashflow would be around -6,900 per year.

That's why negative gearing is so effective for individuals: most of us have salary income to offset the tax losses from property.
Alex

 

[BayView]

If you have a property that is cash flow positive dont you just keep plowing the +ve cash flow back into the property so that it pays it off over time making it more and more +ve cash flow and increasing the equity in the property at a much faster rate than just relying on CG?
That's what we do.

Wouldnt this allow you to exellerate the CG so that you can buy more property faster.
Yes it does

Dont alot of people try to buld "groups" of properties in a trust? By this I mean they try to get say three +ve cash flow or +ve geared properties and 1 heavily -ve geared property in a trust so that the net result is near to neutral geared for the 4 properties and the trust runs at a break even in terms of cash flow but makes huge CG?
Can't understand why people want to add neg cashflow properties to pos cashflow properties, and run at "break even".
The whole point of this caper is to build up enough passive income to replace the earned income and tell the boss to get stuffed.
Why wouldn't you just buy pos cashflow properties/investments if you could, and cop the tax bill that tells you that you are making money, and look at ways to minimise the bill through the tax deductions?

Cheers.

Hope this helps.

 

[steveadl]

Hi all,

Steve,

This example is not as clear cut as appears. There is a difference of $750 pw in cash flow. It all depends on what you do with the cash as to which is the better investment. Plus you have to discount future cashflows as they are not certain, just hypothesised due to past history.

It is never as straight forward as it first appears.

bye

Point taken Bill, it definitely depends on what you do with the cashflow. Although in the example above - it's not really a $750 difference.

The negatively geared properties start out losing $50pw - that's the worst they'll ever be. Chances are after year 5 or so (?) they are even, and year 6 they start putting cash in your hand as well. The positively geared properties may only start out giving you $10pw each in hand, and take 20yrs to get to $200pw. By year 20 the negatively geared IP's would likely be putting $100-150pw in your hand as well.

(note these are just very rough calculations based on $10pw increases each year for the sake of easy calculation, it ignores tax etc.)