Investing in low capital growth areas

[Timmsi]

From: Peter Timms


Hi all,
My wife and I have two IP's. One is negative cashflow and the other slightly positive. After much researching and reading we are convinced that positive cashflow is indeed the way to go on the next property. Also we are convinced that we should hold for the long term and not sale unless we can do something better with the money. We are looking in rural areas such as Grafton and possibly even areas of Tasmania, because of the higher rental returns that these areas are showing. However, it seems that nearly every strategy is to buy properties that have good capital growth. I guess the question I am asking is whether a strategy of buying cheaper IP's that have a high cashflow and using that cashflow to save for the deposit on the next IP is a sound strategy.
Any thoughts or suggestions would be appreciated.

Thanks,
Peter & Melanie

 

[Easymonet]

Reply: 1
From: Steve K.


I place an equal amount of importance on the potential for positive gearing as I do on capital growth. One of the first questions I ask myself is "how long before this investment starts to add to my monthly income rather than take from it?"
This seems to go against the more common emphasis on capital growth, but I like the idea of an investment that will help pay my bills if I lose my job.

 

[Mr. Fabulous]

Reply: 2
From: Mark Laszczuk


Peter,
If cashflow has/will become a problem, you should go and talk to Steve Navra. He's excellent at helping people solve their serviceability problems. He can be found at: navrainvest.com.au.

Mark
'no hat, some cattle'

 

[Rixter]

Reply: 2.1
From: Rixter ®


Peter,

Whats your end goal plan and reasons for buying IP? This question is what determines what IP strategy ( or combination) is best suited for you to apply.

Happy Investing,
Rixter

 

[Kellie]

Reply: 2.1.1
From: Kellie Dutton


Peter

Your strategy entirely depends on what you want to achieve, there are no right or wrong answers here. Cashflow is a wonderful thing, even in low cap gain areas, if the properties are always going to rent well it's a no brainer, buy it and forget about it. They also pay for more expensive capital gain properties in 'better' areas that may be negatively geared and that without the cashflow from the others you may not have been able to afford to keep.
I guess I am saying bottom line if you can combine both and one can pay for the other you will be in a good position without having serviceability issues sooner rather than later. Obviously being able to combine cashflow and cap gain in the one property would be all of our dreams to do that all of the time, those properties seem to be few and far between in a lot of areas atm.

Kellie