Is Property Really A Tree That Will Always Grow Money??

[nu2ips]

Hi
I would like to just put this out there.
[B]CASH FLOW Vs CAPITAL GAINS[/B] ( i hear that just waiting for capital gains to kick in is just like betting on HOPE???)

POSITIVE vs NEGITIVE gearing ( Why would someone spend a dollar to get 40cents back? Why wouldnt you by an investment that makes money NOW ???)

 

[Dis]

i hear that just waiting for capital gains to kick in is just like betting on HOPE???

Haven't you heard?

The house always wins!

 

[Patosan]

The poll doesn't seem directly related to the thread title ?
I'd expect the rsults to be extremely heavily slanted towards ... dare I say the obvious.

 

[want2bewealthy]

Its proven time and time again in history that residential property doubles on average every 7-10 years,

If you're in it for the long haul, the first year will be the hardest on your pocket [cash flow] rents will rise, you will gain equity [sometimes fast, sometimes this is delayed and might happen in 3 years time but usually faster than usual growth when it happens]

Some will argue that some properties wont grow like others, its true, but if you purchased a half descent property, in a half descent location [in a capital city] you should see strong growth over time.

 

[nu2ips]

It probably is a pretty straight forward question but as a new person to IPs i was very interested to see what seasoned investers are looking for when they purchase.
cheers

 

[want2bewealthy]

It probably is a pretty straight forward question but as a new person to IPs i was very interested to see what seasoned investers are looking for when they purchase.
cheers

Onya mate, youve gotta ask questions or else youre forever stumbling in the dark, theres alot to learn in the investment world, I dont think you ever stop learning, there sure are some greats on this forum so its a cool place to hang out when youve got some spare time.

 

[Les]

G'day nu2ips,

It probably is a pretty straight forward question but as a new person to IPs i was very interested to see what seasoned investers are looking for when they purchase.

The answer (poll result) will likely depend on just which forum you visit

For me, give me CG everytime,

Regards

 

[Ausprop]

I insist on any asset on paying it's way, which is ironic given that negatively geared cap growth properties got me started. Perhaps it is the fact that I have seen so much growth that I question if it is a bankable forecast - maybe I am becoming old and cynical?!

 

[nu2ips]

so capital growth seems to be the choice of weapon for wealth building. if this is so (ie equity = more borrowing to invest ) without the yield ( i take that this is consistant with cashflow) how the hell do afford to pay for more than one IP if i also have a PPOR that soaks up a lot of income ( i know i should of thought more PPOR but the world of investing was not a thing that i thought i would be able to be apart of when i financed the ppor)

do you get what i mean??? (i hope)

 

[Bandita]

I insist on any asset on paying it's way, which is ironic given that negatively geared cap growth properties got me started. Perhaps it is the fact that I have seen so much growth that I question if it is a bankable forecast - maybe I am becoming old and cynical?!

We have the same criteria!! Property must be able to pay it's way (this is our SANF in case of a downturn, we really won't be affected), luckily we only have IP's that do so and have shown great CG at the same time......and we're not investing in the outback! Our IP's (so far) are all within 2-12km of Melbourne. We're struggling to find something like that now, but we will (we were stuggling to find something that paid for itself everytime we bought, but patience always paid off)..... a decent rental yield in Melbourne right now may actually show a very undervalued property (as 99% of yields are crap! )......I do fully believe that CG are what will make us the money, but we need to be able to hold the properties, buy more, and SAN, and properties that pay for themselves (or close to it) are the only way to do this for us at this time in our lives.

Cheers,
Jen

 

[nu2ips]

how is CG going to make the money if it is just sitting there in the IP ?? Dont you have to pay CGtax if you sell??? Why wouldnt you look for the income value of an IP fist and formost. I know patience is part of the plan but dont banks not only consider your LVR but DSR as well. If your yield is crap wont you run out of legs for further finance even if you have great CG in your IP..???
just wondering!

 

[WinstonWolfe]

I agree with JenD and Ausprop that growth cannot indefinitely continue at current rates. I am starting to see signs of renter adaptation to recent rent rises. Renters are beginning to form larger households by remaining with or going back to parents' house, seeking work away from expensive capitals, downsizing house or status of suburb. Renter behaviour will change as rent as a % of median wage rises. This can only mean growth will slow.

When you neg gear, there are several risks taken: risk of having cash flow lowered and risk of growth not happening until some inconvenient time much later than expected. The former reduces capacity to spread risk by investingn in other assets and the second is a serious hit on an investor's liquidity, and therefore the flexibility needed to weather a loss of job, poor health, divorce, change into a better performing investment etc etc...

To be heavily focused on a highly neg geared CG strategy requires a lot of things many don't have- one is a very secure long term job, and optimally a relationship providing a second income option as backup.

 

[Bandita]

how is CG going to make the money if it is just sitting there in the IP ?? Dont you have to pay CGtax if you sell??? Why wouldnt you look for the income value of an IP fist and formost. I know patience is part of the plan but dont banks not only consider your LVR but DSR as well. If your yield is crap wont you run out of legs for further finance even if you have great CG in your IP..???
just wondering!

With CG in an IP (or any asset) you can draw out the equity from the CG to purchase more assets (or simply just fund your lifestyle) - one of the really important things to understand about CG and equity is that you DO NOT have to sell to get accessto the equity (CG).

Cheers,
Jen

 

[Ausprop]

With CG in an IP (or any asset) you can draw out the equity from the CG to purchase more assets (or simply just fund your lifestyle) - one of the really important things to understand about CG and equity is that you DO NOT have to sell to get accessto the equity (CG).

Cheers,
Jen

true... but you will be chained to your desk trying to reconcile what has gone where which really isn't fun. after you have drawn several times, then perhaps sold off one or two of the purposes of your redraw - I could see you being there for all of Jul to Sep just preparing your books. Especially if you have clocked up 45 properties as per the guy in API this month

 

[Bandita]

I agree with JenD and Ausprop that growth cannot indefinitely continue at current rates. I am starting to see signs of renter adaptation to recent rent rises. Renters are beginning to form larger households by remaining with or going back to parents' house, seeking work away from expensive capitals, downsizing house or status of suburb. Renter behaviour will change as rent as a % of median wage rises. This can only mean growth will slow.

When you neg gear, there are several risks taken: risk of having cash flow lowered and risk of growth not happening until some inconvenient time much later than expected. The former reduces capacity to spread risk by investingn in other assets and the second is a serious hit on an investor's liquidity, and therefore the flexibility needed to weather a loss of job, poor health, divorce, change into a better performing investment etc etc...

To be heavily focused on a highly neg geared CG strategy requires a lot of things many don't have- one is a very secure long term job, and optimally a relationship providing a second income option as backup.

I've done some interesting calcs on this......

If you speak to a BA or any of the other gurus (and they are correct, in inner Melbourne at least, the CG is higher! - and consistant, which is probably even more important)........

But their calcs on why to buy a highly NG property with high CG compared to a positively/neutral geared or close to it property with good CG is ALWAYS 1:1. Well, my argument is that is not a fair comparison. (And I'm NOT talking about country IP's or mining towns for positive/neutral gearing).....I'm talking about properties close to major CBD's which have at minimum 7-10% historical growth.....The thing is, for every 1 highly negatively geared property you may have missed out on purchasing 3 or 4 neutrally geared properties. If you bought the neutral geared IP (or close to it) you may have been able to buy again and again much more quickly.

I will not argue that quality inner city properties (and the right properties in that) will experience INCREDIBLE gains over the lower quality properties - but I cannot accept the 1:1 ratio. I reckon a 1:4 ratio is more realistic, and I find the benefits much higher (and less risk, more SANF) on "4" side

Cheers,
Jen

 

[WinstonWolfe]

The thing is, for every 1 highly negatively geared property you may have missed out on purchasing 3 or 4 neutrally geared properties. If you bought the neutral geared IP (or close to it) you may have been able to buy again and again much more quickly.

Cheers,
Jen

that's an excellent point that I have not considered deeply before....

 

[MarkB]

The question was "what's your preference - CF, CG, Pos Geared, Neg Geared?".

Genuine cash flow positive residential property (I mean double digit yields) is basically a thing of the past now.

And I doubt it will ever return - and certainly never in the numbers (yields / frequency) that it could be found prior to this boom.

M

ps. Yes, property is a tree that will always grow money (it may loose its leaves on occasion, but there's always a spring ahead)

 

[BoatBoy]

I agree with JenD as well, I would rather a flock of cash flow neutral doing 7% CG than 1 million dollar jobbie costing a several hundred a week to hold with 10% CG.

Each to his own though.

What is SANF, I googled it and all I get is South African Naval Forces.

I havent had a coffee yet

Dave

 

[Arkay]

Sleep At Night Factor......

Mmmmm. Coffee...

Cheers,

Arkay.

 

[BoatBoy]

Sleep At Night Factor......

Mmmmm. Coffee...

Cheers,

Arkay.

Simple as that,

Thanks

Dave