Positive/Neutral Geared Deals Everywhere?

[water]

So with the interest rate cuts it seems everywhere i look there is positive/neutral geard properties available....

an example

http://www.realestate.com.au/cgi-bi...er=&cc=&c=6093622&s=nsw&snf=rbs&tm=1235534506

say you get it for $220000
20% deposit makes loan $176000 @ 5.81% available from Resi 30 yr term

makes repayments

$196.65pw interest only or $238.00 pw principle and interest

Renting out at $250

http://www.realestate.com.au/cgi-bi...r=&cc=&c=51658707&s=nsw&snf=rbs&tm=1235534923

That is a simple pulled straight off Realestate.com.au no work to be done - no clevers with renovating or .... walk in walk out??

There seems to be alot of deals like this around... Good Deal no?

Am i missing something?

 

[Witzl]

yeha they are everywhere... but there were even more back in Oct-Dec last year.

I bought for $226K, rented for $270/wk.

Dont forget that you do need to include the 20% deposit in your equations, because by putting that cash down as a deposit it is costing you money elsewhere (from where you took it).
For example, if you drew down on a LOC or redraw or offset account to pay the 20% deposit, you are paying interest on that deposit as well as the 80% mortgage on the new property.

So when i do my calcs on whether a property is positive or negative, I include the interest ingoing costs + deposit + mortgage, and compare that to the rent.

In my case, the whole deal cost ~$245K with all costs (deposit, stamp duty, LMI, legals, etc). I had to pull money out of the redraw on our other IP to fund the deposit and ingoing costs... so i am paying extra interest on the other IP.
I pay 5.06% interest... which is $238/wk.
Rent is $270/wk... which more than covers the interest bill.
Add another $30-40/wk for your rates, water, insurance etc... and my property is just tipping the positive side of the scales.

I'm not saying you havent found a good deal... im just using my example to show that you should probably look at the numbers a little closer than what you have done there to work out if a property is +ve or -ve or neutral.

There are plenty that are neutral or near neutral properties though, and you dont even have to look at a regional city to find them. Plenty available in capital cities still.

 

[want2bewealthy]

No, no catch, there are some great deals to be had at the moment, knock yourself out

This is a time where investors can set themselves up completely for life if you play your cards right.

 

[Jacque]

Just taking Witzl's example as a case study, you can clearly see the impact of lower rates on your cashflow. Rates last year at around 8.5% (pretty much the norm) would have made his payments $400 per wk instead of the $238 he's paying now. Enormous difference especially when you are chasing yields.

 

[devo76]

A property im looking at at the moment. Got them down to $250,000 but want it for $235,000. I will work it out at the upper price.

Property purchase price $250,000
Purchasing cost at 6% $15,000
Small reno already priced $4000

Total = $269,000
Now the costs per year

Interest cost at WBC 3 year fixed @ 5.19 IO $13,962
Insurance $500
Rates and water $1,350
Realestate costs $1700

Total= $17512

RENT at what it is achieving now.

$440 per week by 52 weeks $22,880

CASHFLOW

Rent minus costs equals $5,368 or $103 in your pocket PW

Even at higher rates it still looks good.

They are out there.

 

[Ajax]

There was a 2 bedroom unit in Auburn which sold for $200k last November...rented at the time for $320/week.

Reckon that might be cashflow +ve now.

 

[asdf]

There was a 2 bedroom unit in Auburn which sold for $200k last November...rented at the time for $320/week.

Reckon that might be cashflow +ve now.

Dont forget to add the strata rates, council fees, insurance, PM fees, postage, PM fees, plumber and sparky call out fees. Lets hope the oven or stove doesn't need replacing or a polite request to increase the sinking fund. But deals are out there.

Just choose wisely cos the banks are no longer going to throw money at you. Once you're full doc quota is reached, sayonara to IPs for a while. In the current market, I'd be going the capital cities at 4-5% yield than waiting for a prayer with the regionals on a higher yield. You never get wealthy on yield alone plus what you make on the additional yield you end up spending 10 years later on sprucing the place up anyway after all the tenants wear and tear.

 

[Aaron Sice]

yeha they are everywhere... but there were even more back in Oct-Dec last year.

I bought for $226K, rented for $270/wk.

Dont forget that you do need to include the 20% deposit in your equations, because by putting that cash down as a deposit it is costing you money elsewhere (from where you took it).
For example, if you drew down on a LOC or redraw or offset account to pay the 20% deposit, you are paying interest on that deposit as well as the 80% mortgage on the new property.

So when i do my calcs on whether a property is positive or negative, I include the interest ingoing costs + deposit + mortgage, and compare that to the rent.

In my case, the whole deal cost ~$245K with all costs (deposit, stamp duty, LMI, legals, etc). I had to pull money out of the redraw on our other IP to fund the deposit and ingoing costs... so i am paying extra interest on the other IP.
I pay 5.06% interest... which is $238/wk.
Rent is $270/wk... which more than covers the interest bill.
Add another $30-40/wk for your rates, water, insurance etc... and my property is just tipping the positive side of the scales.

I'm not saying you havent found a good deal... im just using my example to show that you should probably look at the numbers a little closer than what you have done there to work out if a property is +ve or -ve or neutral.

There are plenty that are neutral or near neutral properties though, and you dont even have to look at a regional city to find them. Plenty available in capital cities still.

YAY! i see so many agents tout a property at +ve geared, when it's only on 80% of the value. thanks for bringing this up - you still have to come up with 20%. if you've got cash, then great - use the 80% for your figures. if you're borrowing the 20% from somewhere else, then you should add it to your equations.

i like to make properties cashflow +ve AFTER rates, maintenance, fees, insurance and IO payments combined. then it truly is a worry-free investment.

 

[HandyAndy888]

So with the interest rate cuts it seems everywhere i look there is positive/neutral geard properties available....

an example

http://www.realestate.com.au/cgi-bi...er=&cc=&c=6093622&s=nsw&snf=rbs&tm=1235534506

say you get it for $220000
20% deposit makes loan $176000 @ 5.81% available from Resi 30 yr term

makes repayments

$196.65pw interest only or $238.00 pw principle and interest

Renting out at $250

http://www.realestate.com.au/cgi-bi...r=&cc=&c=51658707&s=nsw&snf=rbs&tm=1235534923

That is a simple pulled straight off Realestate.com.au no work to be done - no clevers with renovating or .... walk in walk out??

There seems to be alot of deals like this around... Good Deal no?

Am i missing something?

This example is not positively/cf neutral geared...

 

[Nathan]

few points you are missing...

first of all is only expense isnt interest...

you have land tax, strata, council, insurances, maintainance, management fees. best way is to work these figures out then divide by 52 + that with your interest then minus the rent.

probably around $100pw for these expenses.

also something else very important is opportunity cost of your 20% deposit.. lets say that $44k is in the bank @ 4% thats around $40pw that $ would be earning, or if it was put on your home loan it would be greater... so there is hidden expenses... some may say the deposit is savings, hwever its still the opportunity cost.

*i like my money working hard for me, in my dreams i see all my $1 coins doing weights, working out, sweating, patching up walls, $50 notes painting, building brick walls etc.. i would never ride $44k off at no cost, thats saying all my money is sitting @ the pub drinking or @ the beach bludging...*


that property is between $60-80pw negative at guestimate calcs.

 

[evand]

Isnt this investing 101?

YAY! i see so many agents tout a property at +ve geared, when it's only on 80% of the value. thanks for bringing this up - you still have to come up with 20%. if you've got cash, then great - use the 80% for your figures. if you're borrowing the 20% from somewhere else, then you should add it to your equations.

i like to make properties cashflow +ve AFTER rates, maintenance, fees, insurance and IO payments combined. then it truly is a worry-free investment.

True cash flow +ve should be based on 100% lend. Regardless where the money is coming from.

And yes, you include all expenses, why wouldn't you?

 

[stumunro]

True cash flow +ve should be based on 100% lend. Regardless where the money is coming from.

Not sure I agree with you evand.
While i do calculate 100% lends personally (because I fund new deposits from LOC's)

If someone buying a property is putting up a 20% deposit, he is gearing the mortgage this way.

Why would he calculate it on a 100% lend when he isn't borrowing the 100%?

Shouldn't the calculations reflect the deal at hand?

 

[stumunro]

also something else very important is opportunity cost of your 20% deposit.. lets say that $44k is in the bank @ 4% thats around $40pw that $ would be earning, or if it was put on your home loan it would be greater... so there is hidden expenses... some may say the deposit is savings, hwever its still the opportunity cost.

the deposit is invested @ the interest rate on the home loan from day 1.

While I don't advocate large deposits for "property investors" for mr & mrs joe paying off a PPOR or purchasing an investment on the side, having a large deposit is a great way of securing that money in a safe assett and not giving yourself any temptation to spend it on doodads.

 

[evand]

Because the cash for the 20% deposit is either coming from a LOC which interest has to be paid or it is cash at hand which could be doing something else, there fore opportunity cost.

Saying a property is cashflow +ve and not including the 20% deposit is cheating.

I think the definition of cashflow +ve or geared has to do with the price of the property compared to its yield. Not the 'borrowed' amount. So that means 100%.

Also, if you dont include the 20%, why not say its cashflow +ve with a 30%, 40% or 50% deposit and not include the 'costs' of using that deposit. I'm sure you'll agree that's not on.

And does it only apply to 20%?

Not sure I agree with you evand.
While i do calculate 100% lends personally (because I fund new deposits from LOC's)

If someone buying a property is putting up a 20% deposit, he is gearing the mortgage this way.

Why would he calculate it on a 100% lend when he isn't borrowing the 100%?

Shouldn't the calculations reflect the deal at hand?

 

[Nathan]

i agree with evan on this occasion, however it depends how you look @ it....

if your using the funds say $50k in this case, those funds come from somewhere, and could be used in another way.... weather it be a carloan @ 10% = $5k pa interest you'd save or $100 pw.

or weather you could pay $50k on PPOR @5% which is $2500pa saved, or just in the bank @ 4% = $2kpa.

i always work the deals based on 100% lend + purhase cost, this is only way you can find a true positive cashflow... anything you do have as lazy cash you put in is a bonus...

if the prop is going to cost 100pw outa pocket with 100% loan or 0pw with an 80% loan it should be approached as a neg geared...

 

[Ms Jade]

*i like my money working hard for me, in my dreams i see all my $1 coins doing weights, working out, sweating, patching up walls, $50 notes painting, building brick walls etc.. i would never ride $44k off at no cost, thats saying all my money is sitting @ the pub drinking or @ the beach bludging...*

LMFAO. I absolutely love this.

 

[Perp]

Another vote for "you have to do the calcs at 100% lend", Stu. Otherwise, as evand rightly points out, any property could be considered cashflow positive. If I pay 100% cash, and get a 2% yield which covers my rates, insurance, PM fees, etc, I may well be technically CF+, but it says nothing about the quality of the property to use the term "cashflow positive" in this context; it becomes meaningless.

So when using CF+ to describe the quality of an investment, it's really only meaningful if all calculations are done on a 100% lend basis (even if you don't ultimately use 100% borrowed funds).

And water, I don't think that property's close to CF+, either, sorry.

 

[Aaron Sice]

Isnt this investing 101?



True cash flow +ve should be based on 100% lend. Regardless where the money is coming from.

And yes, you include all expenses, why wouldn't you?

some people don't, and don't have a problem with it.

i see CF+ as CF+ and nothing else - so apply all rent, deduct expenses and if you have some left over then it's CF+.

 

[oracle]

Another vote for "you have to do the calcs at 100% lend", Stu. Otherwise, as evand rightly points out, any property could be considered cashflow positive. If I pay 100% cash, and get a 2% yield which covers my rates, insurance, PM fees, etc, I may well be technically CF+, but it says nothing about the quality of the property to use the term "cashflow positive" in this context; it becomes meaningless.

So when using CF+ to describe the quality of an investment, it's really only meaningful if all calculations are done on a 100% lend basis (even if you don't ultimately use 100% borrowed funds).

And water, I don't think that property's close to CF+, either, sorry.

Why only consider 100%? Shouldn't it be more like 105% (purchasing costs) or even 107% (purchasing costs + LMI capitalised)?

The true sense of cashflow would depend on how much of your own money + borrowed money you put in and how much you get in return. Its about risk vs reward. How much money are you risking to make more money?

I also think that you should consider neg. gearing, depreciation into account when caculating if it is cashflow positive or not.

Neg. gearing can make a big difference on a deal / holding costs for someone on high income and so would depreciation on a new property.

Cheers,
Oracle.

 

[Property Meister]

I am struggling to find properties that are yielding very high in vic...

in the lower price range under $500k, prefer $300k.

and in metro areas, and not 1 bedroom shoebox apartments... or otp

where are people finding them...

naturally it depends on the price you buy it at however, on average, if I simply assume rent vs advertised price (i know advertised price is not sale price) the yields are about about 5.2-5.3%.... basically, rental price x $1000 = purchasee price