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From: Day Dreamer


Recently I brought a townhouse and every year I am out of pocket to the tune of several thousand dollars just to service the loan. Where can I identify which suburbs offer +ve cashflow properties (or near +ve) without me having to compare the % return of each suburb ? I realize capital growth is the key, but don't really mind to have few cashflow +ve properties.
 
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ve Melbourne suburbs

Reply: 1
From: Michael Yardney


There are no +ve cashflow suburbs, only +ve cashflow properties.
If you did not borrow any money against your investment property, and I'm not advocating this,then your property would almost certainly be in +ve cashflow.
So whether your property is positively or negatively geared is a function of the net rental as well as the amount of money you borrow and the interest rate you are paying.
In suburban Melbourne areas of higher capital growth generally have relatively poorer return. Areas of poorer capital growth, and these are easily identified on the REIV website, tend to have relatively higher rental returns.
I guess it depends upon what you are looking for in your investment property - capital growth (which is tax free and the thing that eventually makes you wealthy) or extra rental which while it pays the mortgage, is taxed and while it gives you a good feeling in your pocket today, doesn't tend to compound and grow like capital growth.
Michael Yardney
Metropole Properties
 
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Reply: 2
From: Gail H


Even in regional centres with low capital growth, positive cash flow is hard to find when you factor in annual running costs (rates can be exorbitant in some of these places).

But capital growth can be an illusion if you are shelling out thousands every year to fund the purchase. There is also a limit on how many negatively geared properties you can afford to service (which then limits the growth prospects of your portfolio).

Look at www.realestate.com.au

and look up regional cities and towns - you will soon be able to compare purchase price and yield of numerous towns to get some idea.

Gail
 
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Reply: 3
From: Michael G


Hi,

The guys are right here. Imagine next door to your townhouse is a 3 bedroom home getting the same rent as your townhouse. So you think to yourself (-ve geared), but what if that house had a granny flat out back getting another 30% in rent? And this made it positively geared.

Would this suburb now be a positively geared one?

This is what people mean by +ve geared properties, not suburbs.

Michael G
 
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Reply: 2.1
From: Stirling Reid


Why not try Brisbane. There are plenty of suburbs with 9% gross yield. (as quoted in Residex report). And if the average is 9%, you should be able to find 12% and 13% properties.

Stirling
 
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ve Melbourne suburbs

Reply: 3.1
From: Anony Mouse


Probably a better way to think about an IP is from a triple point of view.
-ve gearing:will help you get control over more property than you would by using OPM, rather than your own.
The issue is, can you service outgoings from cash flows, other than IP's, and will capital appreciation make the exercise worthwhile.
-Tax shelter: This is where you are on the cusp of +ve earnings to a certain point, which is = to your non cash depreciation earnings. This is the "sweet spot", so to speak. No money going out of your pocket, the tax man allowing deductible expenses and capital appreciation to boot.
+ve gearing: The first two situations could be called accumulation phrases. In the +ve gearing situation is when you enjoy the fruits of your efforts, by being retired, an expatriate, etc. Is is wise to look at different structures for these receipts, to minimise tax and maximise returns.

As always talk to a professional first, before undertaking any business venture.

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
 
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ve Melbourne suburbs

Reply: 3.1.1
From: Day Dreamer


Thank you for your advice everyone, it just
it is very hard to find cashflow +ve properties in this kind of environment, especially for a newbie like myself.
 
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ve Melbourne suburbs

Reply: 3.1.1.1
From: Mark Laszczuk


Does anyone else find it annoying when people get on the forum and espouse the virtues of one style of investing (either + or - gearing) and rubbish the other, stating that you cannot get rich using the strategy that person does not use? Arrogance, I tells ya! I had a discussion with a certain accountant about this a few weeks ago (hi Dale) and we agreed that you CAN get rich either way. Why? Because we both know people who have done it. Simple. Use the strategy that works for you. If you're uncomfortable with - gearing, go for cashflow and vise versa. The most important thing is that you are doing SOMETHING with is always better than NOTHING.

Mark
'no hat, some cattle'
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1
From: Michael Croft


Agree with the sentiment Mark, and state (the obvious) that this is a property investment forum.

So my particular issue with wraps is that it is a finance business that uses property as the medium, theoretically you can wrap just about anything. Of course one may use the cashflow generated from wraps to actually invest in property. Which is why I have had a shot a Steve McKnight, Michael G and Yuch from time to time. I respect them and they are very good at what they do; they may also invest in properties as well as their finance businesses.

I am told the average wrap lasts 3 years in the US before it is refinanced by a regular institution. So what happens when the 50 wrappees cash the wrapper out? Hopefully good money has been made but what happened to all those "investment properties"? They no longer exist and the process has to be repeated as the income has stopped or the wrapper made a squillion and retires to managed funds.


Michael Croft
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1.1
From: Colin Mills


Careful Mr Croft - thats your second negative post on wrapping in less than a week! Based on my experiences on this site last year I'd say you are skating on thin ice. The wrapping mafia will have you in their cross-hairs before you know it!
Hint: Watch out for posts that begin with the words "I'm not actually a wrapper myself but............."
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1.2
From: Michael G


MC,

Gee thanks MC :p I'll have you know Yuch and I always ensure we point out its a business like you say.

Ok, answering your question...

At the moment, one reason why wraps become the "fad" was because of the FHOG. With this money it was sometimes possible to secure a property (very cheap one mind you) where the grant money would cover all your up front expenses (deposit, fees, stamp duty etc). Or at least be structured in such a way that you would get your money back within the year.

I've had some major hiccups with some deals in the beginning that set me back, so my turn-over has been considerably slower than some out there.

Based on this alone, it was an attactive way of either doing no-money down deals, or ones with a high cash-on-cash return (COC), based on 1st year returns.

Now expanding on this theory, if the properties are marked-up, and the wrapper is getting cashed out quickly, then the theory is, the wrapper is getting their expected profits (markup price) back very quickly with little money down.

This enables them to reinvest the funds into the business.

Its a case of "how quickly do I get my money back". I some cases, 1 month, sometimes 12 months or more.

The idea here being turnover.

Now here's an interesting theory. Say one were to wrap in an up market. They leverage their funds to be able to "control" more property (due to whatever means, grant money, investor funds, etc). And are able to turn over this money frequently (lets say every 12mths).

Now assume at the end of the boom, the wrapper is cashed out of all their deals (because rising equity has allowed the wrappees to refinance). The wrapper is then left with a pool of cash, with falling property prices (we assume here its now the bust cycle).

Ok, what happens if there is no bust?

Ok, the wrapper then (in theory) has a means of generating cashflow, they could, instead of putting the cashflow back into the business (yes its a business), into renos or developments (we're talking about a decent cashflow here).

What if they make a mistake with a reno, or a development costs overrun?, then they tap into more cashflow to fix those problems.

It's like owning a restaraunt, or some other business. Develop the system, the hold those funds in something else (other businesses or buy/hold deals).

I think thats about it...

Michael G
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1.1.1
From: Michael Croft


Thanks Colin,

Just calling an implement for the extraction and relocation of dirt, a spade.

Michael Croft
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1.2.1
From: The Wife


I'm not actually a wrapper myself but....leave the poor old wrappers alone, they are just using this cashflow from wraps to buy Investment property....arent ya's??

Cheers, TW
~Before you criticize people, you should walk a mile in their shoes. That way, when you criticize them, you're a mile away. And you have their shoes~
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1.2.1.1
From: Michael G


TW,

That's the theory :) (and other businesses)

Michael G
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1.2.1.2
From: Michael Croft


Oh TW, so you're the wrapping mafia!! ;-)

Michael Croft
 
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ve Melbourne suburbs and wraps

Reply: 3.1.1.1.1.2.1.2.1
From: The Wife


MC,

Kiss my ring

:eek:)

TW
 
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+ve Melbourne suburbs

Reply: 3.1.1.1.2
From: Kevin Forster



I think that there is a misconception that if you get +ve cashflow properties then you don't get good capital growth. People achieve this consistently with buy and hold - you can do it in Melbourne.

The key is that they know their market like the back of their hand. The market is not the whole of Melbourne but a section of Melbourne that may consist of only 3-4 suburbs. If you know that area intimately then you can identify areas within those suburbs that achieve good capital growth and can still pick up positive cashflow properties. Also you know what's FMV and what's actually undervalued and worth getting. I only know one area of Melbourne but I'm sure the principles could apply across the board.

If you believe that +ve cashflow properties don't provide good capital growth then that will be your reality. If you believe that +ve cashflow properties can provide good capital growth your reality can be markedly different.
 
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+ve Melbourne suburbs

Reply: 3.1.1.1.2.1
From: Dirk Diggler


I'll probably get ridiculed by the - gearer fraternity, but you can still get + cashflow in melbourne and surrounds if you are prepared to let go of your investor snobbery and look in the so called unfashionable areas. eg Frankston North, Werribbee, Melton, Corio and Norlane in Geelong. I wish I has my time over when I could of bought 10 crappy ex ministry of housing homes in Norlane 18 months ago for 40k each. They are now fetching 80k plus and are still + cashflow. (just) Damn it I only bought 5!
Just last month, I bought one in Norlane for 69k, needs a coat of paint and new carpet. I'll get it revaled for 95k, no problems.
Beats buying in Melbourne, where you can buy a house for 300k, that rents for a crappy $300 per week.
Werribee, houses are 105k and rent for 170 per week and only 15 minutes from the CBD. Its a joke. Tell that to a Sydneysider, they will laugh at you
 
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+ve Melbourne suburbs

Reply: 3.1.1.1.2.1.1
From: Dan Theman


Well you guys should look at Canberra. 9 months ago I bought my town house for $140k. These 3 bedroom ensuite townhouses return rents of $200-$230pw ! My loan repayments are $210pw.
What's more, in those 9 months the value has increased to $180k and soon I'll have enough equity with my savings to buy another property somewhere else in Canberra.
The area I am talking of is the Central Belconnen area, totterdell st in particular. 10mins to CBD, but it has it's own CBD and westfield as well.
If you are interested in Canberra check out www.allhomes.com.au, it even has the past 10 years sales figures and average suburb income etc.
 
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+ve Melbourne suburbs

Reply: 3.1.1.1.2.1.1.1
From: Michael Croft


Don't tell em nuting Dan, gotta keep these damn forumites outta Canberra ;-)

Michael Croft

p.s. welcome to the forum.
 
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