Low budget options

[Rod]

Gday everyone, my wife and I are looking for our first IP and our budget limits us to an outside of $150k. We are certainly looking at a buy and hold stratergy with a lot of interest in positive cashflow properties. We have found there to be none located so far in which would return a positive cashflow given that the many properties in this price bracket are older and do not carry with it much depreciation to bring us back over the line i.e. Tassy. Unsure of whether there are viable options out there within this amount or are we better to target a higher bracket through further saving or other??? Could anyone help or guide us as to where we might focus our energies as we are looking for some direction. We have no problem doing the work/due dilligance from then on until we gain a little experience with this.
Are positive cashflow properties a myth at this price and or should we be considering a different stratergy? What would some of you do capped at this amount for starting in IP's. Thank you all in advance for any input as it is very much appreciated.

Kind regards
Rod

 

[The Y-man]

A small commercial property, or indirect ownership thru units in a commercial property trust?

Cheers,

The Y-man

 

[Rixter]

Or a JV could be another option.

 

[Peter Parker]

Are positive cashflow properties a myth at this price and or should we be considering a different stratergy? What would some of you do capped at this amount for starting in IP's.

Rod, Positive cashflow will be hard for normal residential property let to single families. That is unless you do unconventional things like let each room of a 3br house to sharers. Then $300 pw for a $150k house may be achieveable, albeit with higher management costs.

$200k will give you perhaps 10 times more choices than $150k, though the latter is still doable in most cities. It will mostly be units, but houses are not unheard of in this range either (eg northern suburbs of Adelaide).

A well-purchased budget property should yield around 6% or if you've done really well, towards 7%. Not positive cashflow, but it will almost cover interest. After tax (depending on rate) it should fund about three-quarters of costs.

Still not positive cashflow, but there's heaps of inner-suburban investors who routinely buy properties that recover only a third to a half of a much bigger annual outlay. And if it's got some upsides (eg instant equity due to it being bought from an uninterested vendor or with reno potential) then it could still be a good purchase despite the negative cashflow.

As for country areas, if you can get the above yields in the capitals and rural yields aren't much better, it's probably better to go for the bigger centre, especially if it's near where you live and there's known demand for living there.

Peter

 

[Rod]

Sorry for the late reply, tied up a bit. Thanks for your ideas all; I am not keen on a JV just yet until I have a bit more know how without taking on two new experiences, nor quite ready for commercial or trusts. But will continue with persuing something residential while we save a little more, learn a little more. We will be chasing those outer suburbs a bit more. It is interesting to see that +ve cashflow is not as attainable as some books project and that days doing number crunching as a novice and not coming up with a variety of attractive choices is not just a result of not doing enough homework. Thanks for the target figures (%) Peter on what is average and what is not so that gives us a standard we should be aiming for that is realistic. Thanks again for your thoughts.
Cheers Rod

 

[HandyAndy888]

Or a JV could be another option.

Can you please enlighten me on what a JV is...?

 

[HandyAndy888]

Sorry for the late reply, tied up a bit. Thanks for your ideas all; I am not keen on a JV just yet until I have a bit more know how without taking on two new experiences, nor quite ready for commercial or trusts. But will continue with persuing something residential while we save a little more, learn a little more. We will be chasing those outer suburbs a bit more. It is interesting to see that +ve cashflow is not as attainable as some books project and that days doing number crunching as a novice and not coming up with a variety of attractive choices is not just a result of not doing enough homework. Thanks for the target figures (%) Peter on what is average and what is not so that gives us a standard we should be aiming for that is realistic. Thanks again for your thoughts.
Cheers Rod

Have to remember that those books were most likely written in the easy days when rental was high and property cost was relatively lower...

Cash flow properties are hard to find...I suggest you aim for "near balance" negative gear properties and then aim to turn it into a positive cash flow later down the track etc...

 

[Bullfrog]

Keep Looking

Hi Rod,

It's still possible, so don't give up. We we're in your situation about 18 months ago but managed to get a start by looking in some regional centres. Our second purchase was in Cobar NSW (Mining town) Although our long term goal is to buy & hold we needed to get our foot in the door so started off by taking a bigger risk and buying in a smaller town. If you negotiate hard you can still find +'ve C/F properties in Cobar today. They may not be very +'ve but it might just get you going.

Another place we bought a +'ve C/F property was Moree NSW. Again if you negotiate hard there still out there, although you do have to be carefull about where you buy as there's some area's of town that are no go area's. I called the police and they where very helpful.

Some people on this forum may think we have taken a high risk buying in these area's but I did a lot of research into both towns and have been very happy with how things have gone so far. Having these 2 properties has meant that we've just been able to buy a "buy & hold" -'ve geared property in Adelaide and the shortfall will be covered by the rents from the previous two properties.

Starting is hard but keep going we all had to start somewhere

Regards Bullfrog

 

[Rixter]

Can you please enlighten me on what a JV is...?

HandyAndy, you can read more about a JV HERE.

Hope this helps.

 

[outbackjack]

Cash Flow Positive

Sorry ladies and gentleman.


Please explain to me how you calculate a cash flow positive property.

My understanding is that cash flow positive is the following.

All income less outgoings, if this is the case and you brought a IP for cash, then it would be cash flow positive??

I seem to be missing something.

 

[Rixter]

Please explain to me how you calculate a cash flow positive property.
.

Negatively geared cash flow negative - Is when rental income minus all expenses (inc loan interest) plus tax back from deductions is less than $Zero.

Negatively geared Cash flow positive - Is when rental income minus all expenses (inc loan interest) plus tax back from deductions is greater than $zero.

Positive geared - Is when rental income minus all expenses (inc loan interest) without tax back from deductions is greater than $zero.

Hope this helps.

 

[MarkB]

if this is the case and you brought a IP for cash, then it would be cash flow positive??

I seem to be missing something.

No, you haven't missed anything.

If you throw enough money at just about any property (and lower the LVR), then it will become CF+

When talking about CF+ IPs people tend to assume that the property has a loan on it of perhaps 70-80%.

If you've done your homework you'll know just from these 2 simple calcs below whether a particular property is potentially CF+

Estimated market rent x 52 = gross annual rent (GAR)

GAR / Purchase Price = yield (in %)​

Rod, good luck with your search, but I have to say that you're probably several years too late to find $150k CF+ IPs in anywhere other than the deepest and darkest corners of Australia.

They're even getting very thin on the ground here in southern NZ (and this boom still has a way to go imho).

M

 

[KEISHA]

Dont Give Up

Hi Rod,
Ask this same question on the forum at www.propertyinvesting.com there are some very experienced and helpful people on there....like here!!

But dont give up and research everywhere....I reckon they are still out there.

I was told that I would never be able to buy what I have bought and I now own 4 properties so just listen to yourself and dont give up, stay committed and listen and read whatever keeps motivating you.