Cashflow examples?

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From: Fiona H


Hi All,

I have been pondering my future wealth and have realised that whilst I am on-track for my net worth goals and secure retirement, the income side seems sadly lacking!

Why? Its more like HOW? How are people creating actual net income, rather than capital gain.

I've been trying to forecast what rents might be in 20years. Will they be, say 5% of capital value (I've used 8%pa capital growth on capital city properties), or will they grow at 3% (approx CPI) from now? Neither gives a very satisfactory answer other than saying I'll need heaps and heaps of debt free properties to maintain my current job-sustained lifestyle.

What sort of net income on capital assets are others getting? And/or ways of getting it?

Fiona
 
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Reply: 1
From: Nigel W


still answering that question myself...

but generally I suspect you need multiple streams of income. (not indorsing the book of that name by Robert Allen - merely the concept).

I guess the question to ask is, how can I generate additional or alternative sources of income with minimal effort? How can I get my existing dollars working harder and harder?

Is there a way to work Smarter not Harder (gee I'm lazy aren't I ;^) )

How can I get paid MANY times for the one effort?

Anybody got some concrete examples?
 
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Reply: 1.1
From: Tibor Bode


Fiona, Nigel,

This hit me a while ago and this is one of the reasons why I am so fond of cash flow positive properties (without taking into consideration depreciation). It is fine to have capital gains, but you can not get hold of it easily (meaning tax effectively). The only strategy I am aware of (sure there are others) is to revalue and re borrow after 10 years of holding the property to 70% or 80% LVR and use this money as it is tax free not being an income. Obviously you can not claim the interest on it. Idea from Kevin Young then repeated by Peter Span (and maybe others). Your interest expense will be covered by the rent payments from your very strongly cash flow positive property by that time. Only requirement is to have several properties and they would double in price. First is in your control, the second is not. So, having several well located income producing properties will help you to achieve a goal like that.
Any opinions?

Tibor
 
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Reply: 1.1.1
From: Luke W


Tibor,

You wrote:
>This hit me a while ago and this is one of >the reasons why I am so fond of cash flow >positive properties ...
>**** (without taking into consideration >**** depreciation).**** (my emphasis)

I haven't heard of anyone talking about finding +cf properties that don't rely on a) depreciation, or b) large capital deposits, so I'm intrigued by your comment. Are you finding them, or do they develop into that status over time as you continue to hold them?

It also raises a nagging thought of mine about wealth creation plans that have you acquire, say, 1 IP/year... does there become a point where all the depreciation you are claiming is greater than your taxable income, (or at least enough to tip it down to the lowest tax rate) I speak as someone on close to the average wage as an employee... (not that I intend to stay there forever!)

I'd appreciate your thoughts.
Luke
 
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Sim

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Reply: 1.1.1.1
From: Sim' Hampel


On 5/31/02 10:52:00 AM, Luke W wrote:
>
>I haven't heard of anyone
>talking about finding +cf
>properties that don't rely on
>a) depreciation, or b) large
>capital deposits, so I'm
>intrigued by your comment.

There are a few people who are quite good at finding properties that are cashflow +ve BEFORE tax and depreciation are counted and buy these properties on 100%+ borrowings (full purchase price plus expenses, using equity in other property for the deposit and expenses).

Basically, you'll be needing to aim for at LEAST 10% gross yield... and they're out there - you just need to know where to look.

Of course after the boom we've had in the last couple of years, there are not too many out there, but they are there.

HINT: it will be fairly unlikely (although not impossible) to find such properties in Sydney or Melbourne, but if you do, they will be on the outskirts. For more choice, try regional centres or smaller capital cities.

Alternatively, try the strategy of adding value by renovation to dramatically increase rental returns. Buying below value helps too.

 
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Reply: 1.1.1.1.1
From: See Change


After spending much to much time studying and setting up I have finally started ( with a little bit from my friends ) buying IP's in the last week.

Currently in process of buying two , both returning over 10 %.

As Sim said you won't find them in sydney or Melbourne , but that leave many other places to look in OZ.

see change

it's better to be guided by your dreams than your fears
 
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Reply: 1.1.1.1.1.1
From: Mark Laszczuk


Fiona,
Speak to Steve Navra at: navrainvest.com.au. He can help you. He's the master of turning capital gain into income. Ask also about his six ways to use the one dollar, or something along those lines.

Mark
'no hat, some cattle'
 
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Reply: 1.1.1.1.1.2
From: Mark Laszczuk


Fiona,
Speak to Steve Navra at: navrainvest.com.au. He can help you. He's the master of turning capital gain into income. Ask also about his six ways to use the one dollar, or something along those lines.

Mark
'no hat, some cattle'
 
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Reply: 1.1.1.1.1.2.1
From: Rick Gibson


Why is everyone only looking at properties as a source of passive income.

Why not look further afield such as passive income businesses instead of only focusing on property.

At $50 - $100 per week cashflow positive it is going to take a lot of properties to earn a decent income.

There is more than 1 way to skin a cat.

Rick
Brisbane Freestyler Co-Ordinator
 
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Reply: 1.1.1.1.2
From: Tibor Bode


Luke,

I just want to show, that I read what you'd said. As Sim said exactly what I could say about it not much I can add to it. I am Sydney based and investing in QLD (Brisbane or more exactly mainly in Logan), and if you are after further info have a look at my response in "What exactly is due diligence" thread or email me for further info. There are even deals in the 2 major capitals but it is in the too hard basked for me (I am very lazy and hate too much competition). I think Robert from freestylers just mentioned he found in Sydney properties in reasonable location with 9% plus return. I don't know, I am concentrating on QLD now.

Tibor
 
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Reply: 1.1.1.1.2.1
From: Luke W


Dear Tibor & Sims,

Just to say thanks for your comments, I am learning a lot from this forum very quickly, I appreciate your time to assist me.

>On 5/31/02 10:52:00 AM, Luke W wrote:
>>
>>I haven't heard of anyone
>>talking about finding +cf
>>properties that don't rely on
>>a) depreciation, or b) large
>>capital deposits, so I'm
>>intrigued by your comment

Hmmm.. maybe I would rephrase that now. How about "I hadn't heard anyone talking about those those +cf properties _Outside_This_Forum_... ;-)

Regards,
Luke
 
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Living on equity

Reply: 1.1.2
From: Brett Burt


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This borrowing the increased equity when the property has doubled in =value is fraught with danger. It would not have worked in Brisbane over =the last 10 years UNLESS you purchased very cheaply and managed to PICK =the right area. Like picking the right stock, most cannot do it. I =purchased in 1995 through a marketing company for $150k, valuation was =about right, and a few months ago, Mar 2002, sold the property for the =the market value, $180k. Rents have not moved in 7 years, even though I =tried many ways to increase it and capital growth was 20% over 7 years, =less than 3% per annum.

If property does not double in 10 years, or rent does not increase =enough, or interest rates are high when you want to borrow increased =equity, or tax system changes, or bank policies change, or you just =cannot demonstrate serviceability, the system Spann, Young et al, =advocate, will not work.

BB



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This borrowing the increased equity when the =property has
doubled in value is fraught with danger.It would not have =worked in
Brisbane over the last 10 years UNLESS you purchased very cheaply and =managed to
PICK the right area. Like picking the right stock, most cannot do =it. I
purchased in 1995 through a marketing company for $150k, valuation was =about
right, anda few months ago, Mar 2002,sold the =propertyfor
thethe market value, $180k. Rents have not moved in 7 years, even =though I
tried many ways to increase itand capital growth was 20% over 7
years, less than 3% per annum.

Ifproperty does not double in 10 years, or =rent does not
increase enough, or interest rates are high when you want to borrow =increased
equity, or tax systemchanges, or bank policies change, or you just =cannot
demonstrate serviceability,the system Spann, Young et al, =advocate, will
notwork.

BB



------=_NextPart_000_000D_01C20D63.DAC40CC0--
 
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Reply: 2
From: The Wife


I am very fond of balancing my loans, and my paid out debt. Nothing beats owning property outright.

TW
 
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Sim

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Reply: 2.1
From: Sim' Hampel


On 6/6/02 2:03:00 PM, The Wife wrote:
>
>Nothing beats owning property
>outright.

Not even sex ?

 
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