Cashflow positive and neutral

[cimbom]

Hello,

I've been doing some research and I'm having trouble finding properties in NSW under/around 200k that are cashflow positive or at least neutral with reasonable CG prospects. The best I've been able to find are properties where the rent would be about $20-30 short of paying the P&I repayments. I will use an IO loan and put the equivalent of the extra to pay the principal in offset. I would like to stick to positive and neutrally geared properties to maximise our borrowing capacity at this early stage in our investment journey.

Some areas like Broken Hill etc seem to be quite positively geared but I'm not sure how much of a long-term smart decision it would be to invest in an area like that.

I've also found that some apartments in Mt Druitt just scrape in as neutrally geared and even though the vacancy rate here is quite good, there seems to be a lot of units/apartments available and I'm not sure that there would be a lot of CG, especially when buying now.

Orange, Dubbo and Wagga Wagga also look attractive but most seem slightly negatively geared. I'm not sure how much of an impact this would have on our ability to purchase additional properties.

What are your thoughts on this? Any suggestions?

Thanks

 

[Lil Skater]

You've just got to look.

Noticed Nathan had a 7 day trial on his Deal Finder for Somersoft members, he does a lot in those areas so might be worth a look at.

Depending how handy you are this might be worth a look...

As a comparison this property is currently the cheapest one available for lease in Lethbridge Park.

Even this one might be worth a look if you don't want an auction, or just to get an idea of the property.

Took me 10 mins to find those in 2770. There's plenty more in similar areas or larger regional areas, it can take time but they're there.

 

[cimbom]

Thanks Lil Skater. I wasn't aware of the 7 day free trial, I will have a look at that now.

We would like to avoid anything that needs immediate renovations for now as my husband and I are both studying and working so we don't have too much spare time atm. Maybe in two years or so.

I'm not sure how I missed the Mt Druitt one as I was just looking it up earlier today. I have found some good possibilities there. I would be interested to hear what people think about the long-term prospects of that area though. The same for Broken Hill, etc.

 

[Jamie M]

You may not have to reno straight away - providing it's rentable now you could reno when time permits. I'd be avoiding any properties that have been renovated because you're simply paying the vendor for their efforts.

Cheers

Jamie

 

[Lil Skater]

As Jamie said.

I'd look for something that doesn't need work now, it may mean the rental return isn't as good, but when you do have the time you can do the reno increase cash flow and give yourself a chance to sell at a much higher price/pull equity out sooner.

 

[Dazz]

So....you're only interested in properties that ;

• are under 200K in purchase price
• don't need any immediate renovations
• are cashflow positive on a P&I basis
• have reasonable growth prospects
• low vacancy rates
• are in short supply

Is that the full list cimbom before we start looking, or is there anything else ??

 

[cimbom]

Thanks for your replies. That's pretty much what I've been doing. I'm looking for places that can be improved but don't need anything major immediately. I've found a few that look interesting but will need to investigate further.

 

[Azzy]

Really cash flow positive or not?

I am really new PI but I have been looking at the cash postive places yelling out "great deal 7% yield' but when I have looked closer many fees have not been accounted for.


It is often the gross rental yield that is calculated which does cause for skewed calculations.

And then when you use the equity to buy another property are you not immediately increasing your debt?

I may be totally wrong here but looking for answers from experienced forum members.

 

[Rolf Latham]

I am really new PI but I have been looking at the cash postive places yelling out "great deal 7% yield' but when I have looked closer many fees have not been accounted for.


It is often the gross rental yield that is calculated which does cause for skewed calculations.

And then when you use the equity to buy another property are you not immediately increasing your debt?

I may be totally wrong here but looking for answers from experienced forum members.

Hi azzy


its all mucky yuk anyways.

cash flow positive at 5 % is possible.

Property just has no loan.

How one measures CF+ varies from person to person and from perspective to perspective.

ist it based on zero lend,80 % lend 90 %lend 105 % lend etc

ta

rolf

 

[cimbom]

I have found something within our price range (and CF+) that I'm pretty happy with but there's one issue. The vendor purchased it two months ago, did some renos and now wants to sell it for 30k more than what they paid. They did a new paint job inside and out, fixed up the flooring, some new tiling and fixtures in bathroom and some improvements to kitchen.

I split the difference and made an offer (so 15k more than they initially paid) and it has been rejected. They did not make a counter offer but said they will not go below the asking price at this stage. Even if I offer their asking price, the property will still be cashflow positive (P&I) and have enough left over for property management fees as well. There is a tenant in place and they have just signed the lease. There is also room for more capital gains IMO as the kitchen can do with further upgrades (more cupboards, new oven/cooktop and install dishwasher) and maybe some new fencing around the house to spruce it up.

Thoughts?

 

[engelo10]

Find something completely run down and renovate. There is good value in the Central Coast and Newcastle. The deals are definetly out there.

Engelo

 

[luce.rocks]

I have found something within our price range (and CF+) that I'm pretty happy with but there's one issue. The vendor purchased it two months ago, did some renos and now wants to sell it for 30k more than what they paid. They did a new paint job inside and out, fixed up the flooring, some new tiling and fixtures in bathroom and some improvements to kitchen.

I split the difference and made an offer (so 15k more than they initially paid) and it has been rejected. They did not make a counter offer but said they will not go below the asking price at this stage. Even if I offer their asking price, the property will still be cashflow positive (P&I) and have enough left over for property management fees as well. There is a tenant in place and they have just signed the lease. There is also room for more capital gains IMO as the kitchen can do with further upgrades (more cupboards, new oven/cooktop and install dishwasher) and maybe some new fencing around the house to spruce it up.

Thoughts?

I think that if you've found something that satisfies all of your criteria, you shouldn't worry too much about what sort of profit the vendor is making.

Also, 30k might be the difference between the last sale price and the current sale price, but after purchase costs, reno costs, selling costs, and CGT, the vendor isn't making 30k profit.

 

[cimbom]

Thanks for your replies. I'm tempted to go for it but I am trying to be a bit cautious as well since it will be our 1st IP

 

[DaveM]

I have found something within our price range (and CF+) that I'm pretty happy with but there's one issue. The vendor purchased it two months ago, did some renos and now wants to sell it for 30k more than what they paid. They did a new paint job inside and out, fixed up the flooring, some new tiling and fixtures in bathroom and some improvements to kitchen.

Doesnt sound as extravagant as a place in 2770 I looked at just before christmas that I couldnt proceed on as they wanted a 66W. Sold for $171k.

Its now back on the market for $215k, nothing done to it. So vendor is expecting to make $44k from a do nothing flip?

I called the agent to check it wasn't a typo. He asked how much I would pay for it, I said $171k.

 

[Lil Skater]

Even if I offer their asking price, the property will still be cashflow positive (P&I) and have enough left over for property management fees as well.

Great.

Have you calculated:-

• 
  Council Rates

• Water Rates

• Insurance (landlord and building)

• Body Corporate/strata (if any)

• Minor repair costs

If not, this may cause the property to become negatively geared.

So, if you can find something that has all of that included and is neutrally geared with the scope to make improvements when time and money allows, you may be better off.

Luce is right in regards to the sale figure if the property still meets your criteria, but you don't want to be caught out.

 

[cimbom]

Thanks for your replies. I realise there will be other costs but to me it's great that it effectively pays for itself. Also, after P&I repayments and management fees, there is about $850 remaining after a year so that could pay for the insurance too. So really just council/water rates and maintenance as required, which I'm pretty happy with. I'm just a bit uneasy about the price increase.

 

[Lil Skater]

I'm just a bit uneasy about the price increase.

In that case I'd say stick to your guns, and see how it goes. The agent may come back to you in a few weeks and say the vendor has reviewed your offer and are you still interested, which means the ball's in your court.

In the meantime/instead, continue doing research.

Don't rush into it, and don't get emotional about the purchase.

 

[china]

Hi azzy


its all mucky yuk anyways.

cash flow positive at 5 % is possible.

Property just has no loan.

How one measures CF+ varies from person to person and from perspective to perspective.

ist it based on zero lend,80 % lend 90 %lend 105 % lend etc

ta

rolf

Based on the fairly standard 80% lend, you really need a property that yields 9% gross yield to have a cash flow positive property or neutral property. These properties are almost impossible to find. Mostly, it will involve having a granny flat to rent out to a second tenant.

 

[china]

Find something completely run down and renovate. There is good value in the Central Coast and Newcastle. The deals are definetly out there.

Engelo

I think that it is hard to find good value on the Central coast although prices are definitely depressed. 9% gross rental yield combined with good prospects of capital growth are non-existent on the central coast.

 

[sidknee]

Off the topic a little but can anyone tell me how to get Nathans 7 day trial?