Found a casflow positive property- need opinions

[KyanFable]

Hey guys
I generally invest for growth but I've come across a deal that sounds really good. When I crunch the numbers it's positive by 10k per year. Now I'm no casflow positive expert so please correct me if I'm wrong but it sounds too good to be true! I have a few issues if i were to buy this property. the first is its located in nsw south coast town of narooma. currently the state of the market is terrible and i dont see much growth in a coastal holiday town. When you invest for casflow, does capital growth matter at all?

It's 4 units on one title so not strata titled
Rented individually for $170 each on a permanent basis. (Elderly folk) so $680 p/w

Vendor wants 450k
Council rates are 2k per annum
Water 1600 per annum

I'm thinking I could secure the deal for 425k. Given these numbers/ description what do you think? What am I missing?

 

[HD_ACE]

Insurances?
Pm fees if not self managing?

Cheers

 

[Peter_Tersteeg]

It looks cashflow positive with current residential rates.

A good rule of thumb is to assign 20% of your rental income to ongoing holding costs such as rates, maintenance, management fees, etc.

You might also want to consider if it's a worthwhile deal when the interest rates are around 7% instead of 5%.

 

[KyanFable]

What I don't understand is Do you buy a casflow positive property on an IO loan? Or p&i and let it pay itself off over time?

 

[MRO]

What I don't understand is Do you buy a casflow positive property on an IO loan? Or p&i and let it pay itself off over time?

It depends on your personal circumstances. Do you have any other non deductible debt as it would be better to direct the excess cash to this loan first.

 

[KyanFable]

Yes I do have non deductible debt. Good thinking!

Also cant get my head around buying a property that although positively geared will most likely take forever to increase in value .

 

[tobe]

a properties return is part yield and part capital growth. THis one is mostly yield. The total return might be similar to a negatively geared property of the same value somewhere else.

What would the alternative be in total return?

 

[pinkboy]

Is this an 'Over 60's' type complex?

Ive read in past threads they don't attract much CG long term.

pinkboy

 

[DaveM]

Is the CF+ sufficient to outweigh the lost CG opportunity of investing 425k into another market eg western sydney/brisbane etc

 

[Propertunity]

.... currently the state of the market is terrible and i dont see much growth in a coastal holiday town. When you invest for casflow, does capital growth matter at all? ...... What am I missing?

IMO, if you invest in RE it is for CG not yield (or cashflow). Certainly yield (rent income) helps you to hold the property so that you can get the CG you need.
There are plenty of cashflow investments to be had without paying Stamp Duty, Valuation fees, PM fees, maintenance on an older building, rates & insurances, IF you are not going to be rewarded anytime soon with CG.

You could, for example, live off cashflow from dividends in bluechip shares, or interest from cash in a TD at bank without a tenant issue or waiting for 12 months to sell to get some cash if you needed it in a hurry for something unforeseen in the future.

 

[S.T]

Could you also look at costs to strata title down the track to sell one or more off and make some profit, you could also maybe do this with internal renovations at the same time (if appropriate).

 

[KyanFable]

Is this an 'Over 60's' type complex?

Ive read in past threads they don't attract much CG long term.

pinkboy

No it's not. Just happens that the 4 tennants are elderly as the area has a lot of retirees and the population only surges during summer holdays

 

[skater]

Hey guys
It's 4 units on one title so not strata titled
Rented individually for $170 each on a permanent basis. (Elderly folk) so $680 p/w

Vendor wants 450k
Council rates are 2k per annum
Water 1600 per annum

I'm thinking I could secure the deal for 425k. Given these numbers/ description what do you think? What am I missing?

Firstly, I'm not going to say that this is a bad or a good investment. I don't know the area or anything about it. I also don't know what you are looking for in an investment. This could be exactly what you've been looking for, or it might not.

Now, you are suggesting that you will make $10k cashflow per year from it. That's a decent amount, but I'm not entirely sure you have added everything into the equation.

So......here are my figures based on your numbers. I'm assuming NIL vacancies, which is very optimistic, and allowing $500 per unit in maintenance. The figure of 7.7% for property management is just a guess. Again, I'm guessing with the insurance amount as well.

Income
$680 x 52 = $35360

Expenses
425k @ 5.55=$23375
Management @7.7% = 2722.72
Rates = $2000
Water = $1600
Maintenance = $2000
Insurance = $2000
Totals = $33697.72

Cashflow = $1662.28

This is a far cry from your estimate of $10k.

 

[HotRod]

$2000 maintenance???

Try 3 to 5 times that for an aging 4 unit site (gardens, lawns, outside maintenance etc etc, say $10K.

But, you should also factor in some depreciation (having a wild guess, but assume $10K).

It'll end up costing about $11000 out of your pocket after tax back ($5550 back on the $37000 to $80000 bracket).

 

[skater]

$2000 maintenance???

Try 3 to 5 times that for an aging 4 unit site (gardens, lawns, outside maintenance etc etc, say $10K.

In all fairness, it could be a decrepit fibro hovel with a tonne of grass to be mowed, or it could be in great condition, concrete block (little maintenance required) and no garden to upkeep. I'm trying to be conservative here. I've got a 4pack that I'd be lucky to spend $2k on, so was using those figures.

 

[KyanFable]

Thanks for all the replies. Particularly skaters reply has made me think more about what expenses should be accounted for.

 

[Truly Exotic]

more importantly, is it metro or a regional, or category 3?

you can get these sort of yields in woop woop quite easily,

if its in metro, then it sounds pretty good as a starting point

 

[skater]

more importantly, is it metro or a regional, or category 3?

you can get these sort of yields in woop woop quite easily,

if its in metro, then it sounds pretty good as a starting point

He already stated where it is.

its located in nsw south coast town of narooma.

 

[knightm]

4pack in Narooma unless there is good ocean views I would want to get the purchase price well under 400k. Say 90-95k each?

 

[Hungry Hawk]

What I don't understand is Do you buy a casflow positive property on an IO loan? Or p&i and let it pay itself off over time?

I struggle with this question too. We have paid off non-deductable debt. Most things I read suggest purchasing IO is the way to go, but part of me wants to increase our equity by paying down debt, when we have the cash-flow to do it. What do others think of the P&I option for IP's if you have no deductible debt?