Neg. Geared - How long till positive?

Hi Guys,

I'm looking at an IP primary for capital growth but at some stage i'd like the property to be +geared. I'm wondering what others look for when doing the numbers as far as time frame for their IP's to go from being - to +?

At the moment this property looks like it will take 17 years.
 
Snort, can I suggest you provide some more general details about the IP you are looking at? 17 years is too long in my view to put handing over money on an IP. It would want to have a stack of land for me to be happy doing that.

The figure I try and use is between 5 and 10 years but there are so many variables at play some more information on the sort of place you are trying to buy would be handy.

Gools
 
I don't buy -CF properties but have looked at ones that would take 6-12 months maybe 18 to become +CF. Still need to be tempted into the -CF side of things. One that did catch my eye would take about 12 months but did have along lease in place (DHA). Normally shy away from DHA but this one is a little different with excellent CGG. If wasn't having hassles with St.G probably would have grabbed it as it would make a nice PPOR due to city location and suits future plans.
 
I buy properties which offer potential CG as well as CP+.

Initially they are negatively geared to the tune of about $20pw after depreciation and taxes.

It takes about 2 years for my properties to be Neutral of Cash Flow Positive.:D

17 years is way too long....anything over 4 years is too long in my opinion.

Hi Guys,

I'm looking at an IP primary for capital growth but at some stage i'd like the property to be +geared. I'm wondering what others look for when doing the numbers as far as time frame for their IP's to go from being - to +?

At the moment this property looks like it will take 17 years.
 
Correct, but problem with this is, you gotta take into account interest rates and more importantly future rises. I guess that's part of the risk assessment before you buy.

my property is CF+ but will make sure my calculations for the next one are with a much higher interest rate than the current rate. But yes, 17 years is too long.
 
From my experience over the last 10 years, good quality well located property in mainland metro areas about 4-5 years to become positive geared. Cf+ alot sooner.
 
When you consider how long it takes to go CF+, do you look at opportunity cost of your deposit?

For example I'm doing some number crunching on potential IP #1. It's CF+ already due to very high yield. However if I were to include the opportunity cost of my deposit (almost $150k), it doesn't go truly CF+ until 10 years time.
 
Auror, I always look at the CF result on the full price of the property. That is then meaning the opportunity cost of the deposit moneys is the mortgage interest rate. No point ignoring the deposit as though the money comes from nowhere and can't be used for anything else.

Finding "CF+" property would be easy with a $150k deposit if you didn't include the opportunity cost of the money, the hard bit is getting the property to stand up by itself and yes a lot would take 10 years to do that.

Lots of people make it sound easy to find CF+ property in capital cities. It isn't!!
Sash, are you working out the CF based on the full purchase price + costs, the full purchase price or the purchase price less the deposit? Working on them being CF+ within 2 years is awesome. Do you have trouble finding them in the current market??

Gools
 
Purchase price brand new construction - $340,000
Bank Val - $387,000 so immediate $47,000 equity
Rent return expected $380 p/w
 
Do you seriously believe that simply by buying a new home you will IMMEDIATELY be $47k richer? Why doesn't the builder do it as a spec and pocket the money himself? Does the builder see a risk here? Does the builder know more about the housing market than you do?

Just questions, only you can give the answers.
 
I concur with Softmonkey.

Originally Posted by Sunfish:
Do you seriously believe that simply by buying a new home you will IMMEDIATELY be $47k richer? Why doesn't the builder do it as a spec and pocket the money himself? Does the builder see a risk here? Does the builder know more about the housing market than you do?

Just questions, only you can give the answers.

Though I'd ordinarily caution away from off the plan properties, if the bank valuation has come back $47k higher - then it might warrant a second look.

Assuming it has good growth prospects, it should reach the 20% equity mark in a couple of years meaning you won't have to cross collateralise it with anything else for very long.
 
The other thing about when for cfp is if you keep plowing extra funds into the loan to decrease it.

This will swing it your way much faster.
 
I work on the purchase price.

Finding cashflow positive is nearly impossible immediately in a capital city though small regional areas offer some potential. However, if you are a little creative you can turn a property to be CF+ in 2-4 years via some renovations. The trick is to just do comestics...I try to keep renos below 7K.

Usually you can get 10-40% more in rent after a quick reno.

I just bought on a small regional area where I expect to get about 9% return. At current rates it is CF+. And on top I bought the property for about 40-45K under the market . I can't reveal where this as I plan to buy more in the area...I plan to do a quick reno for about 5K! ;)

Sash, are you working out the CF based on the full purchase price + costs, the full purchase price or the purchase price less the deposit? Working on them being CF+ within 2 years is awesome. Do you have trouble finding them in the current market??

Gools
 
Do you seriously believe that simply by buying a new home you will IMMEDIATELY be $47k richer? Why doesn't the builder do it as a spec and pocket the money himself? Does the builder see a risk here? Does the builder know more about the housing market than you do?

Just questions, only you can give the answers.

access to capital would be one idea... even if the builder had it they probably have dozens of opportunities that may yield higher. When i was flogging real estate I use to get similar objections "if it is so profitable why not do it yourself"... answer.. I am just one man, I can't do everything
 
The reality is i negotiated really well on the land because i knew the cost of the land (didn't really take a lot of negotiation to be honest). Also Because i am employed by the builder and get a significant staff discount i will end up with immediate equity vs the 13 other units being bought next door for full asking price. That's why i seriously believe that simply buying a new home will give me $47k equity...
 
I work on the purchase price.
I just bought on a small regional area where I expect to get about 9% return. At current rates it is CF+. And on top I bought the property for about 40-45K under the market . I can't reveal where this as I plan to buy more in the area...I plan to do a quick reno for about 5K! ;)

I'll have 2,:D:D

thanks!!!
 
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