Read lots of books-have a few questions

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From: Alan Thorburn


Hi everyone.
Ive read lots of books over the past 12 months(Robert Kiyosaki, Jan Somers, Craig Turnbull, Dolf DeRoos and Margaret Lomas) and now Im in need of some help.
Jan Somers talks about buying in the bottom quarter of the market for various reasons that I understand ( Easier to find tenants, better rate of return with 2 100K properties that 1 200K). Robert Kiyosaki and Margaret Lomas talk about positive cashflow properties and treat capital gain as a bonus. Most seem to say to buy in a better than average suburb.

Question One: I live on the Gold Coast and have spent several weeks looking through the paper for positive cashflow properties in Decent areas and cant find One that is producing a positive cashflow before depreciation (Using PIA). Some do after depreciation. Im looking at areas within 5km of the beach like mermaid, broadbeach, labrador, Paradise point. Is it necessary to be in these sorts of areas? To achieve a positive cashflow property seems to mean choosing a low growth area. (My main goal is to be able to stop working for a living hence the positive cashflow) Am I better to negative gear and go for growth?
 
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Reply: 1
From: J Parker


Alan,

It really depends on what your goals are and in what timeframe you set out to achieve them. You state that you wish to stop work. You need to focus and work towards a WHEN here. Are you happy to continue in your job for another 2 or 10 yrs? Do you want to replace your income totally or partially? Work out what you want to retire on, and go from there.

Keep in mind that holding a property long term for capital growth will not usually provide you with any cashflow, especially if the place is negatively geared for a long period. The rewards may be greater in 5,10 or even 20 years, but again it depends on your plan and what you want to be doing work wise. If you go down this path, buying only in growth areas that have poor returns, you may find yourself tied to your job for longer to simply afford the running costs!

Positive cashflow property is terrific and there are many fans of it on this forum, but keep in mind that you are generally foregoing one (cap growth) for the other (cash). Not many places around that will give you great growth and an income before tax benefits, that's for sure! Not unless you get creative, anyway! Some tactics for increasing your cashflow from the start include subdivisions, renovating, developing, using L/O's and wraps. The list goes on. In property, there are so many ways to make money. It's a matter of sorting out which way is best for you and your individual situation. You also need to be able to sleep at night and be comfortable with your level of risk. There are some people out there who can't even stomach the thought of any loan, whilst others are happy to keep borrowing forever!

The most important thing here is that you're making a start- and property investing can be so much fun!!
Good luck and let us know of your progress.
Cheers, Jacque :)
 
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Reply: 1.1
From: Alan Thorburn


Hi Jacque,
Thanks for your reply. I am aged 36 and would like to be able to stop work in 10 -15 years. Im self employed in the building game and have never invested as such however I have had good experiences with 2 spec homes that I have done. Ive lived on the Gold Coast for about 10 years and during that time property has been pretty flat until about 10 -12 months ago when it started to rise sharply. Im not certain where to invest and whether to choose a house or units. Most books I have read seem to lack the specifics and get caught up in the numbers. Positive cashflow - Negative cashflow - Some say Negative gearing is stupid, Others say the opposite.


Any help appreciated

Thanks

Alan
 
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Reply: 1.1.1
From: Tibor Bode


Alan,

Jacque already made all the points. It i s great that you took the time and educate yourself. Here just one more thing I'd like to add. talk to an accountant and read about trusts. You might want to consider to set up one BEFORE
you purchase.

If you are living in the gold coast, did you ever considered Logan? It is not far from you, good yields and recently it has also shown some reasonable capital growth. It is a place where CFP can go hand in hand with cap growth (at this time and after several years of stagnation). Cash flow positive properties getting harder to find even in SE QLD, but taking into consideration several factors (population growth, economic growth, lifestyle trends, infrastructure, etc, etc) it is still easier to find something there than for example in Sydney. It does not mean they don't exist, but it is harder and you have to be smarter.

Tibor
 
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Ross on the Gold Coast

Reply: 1.1.2
From: Ross Sondergeld


Hi Alan,


Found you via the somersoft real estate forum.

I'm gc based therefore... if you ever want to talk... i'mm willing to talk
to anyone...




Ross Sondergeld ~ Buyer Agent

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
" Imagine buying real estate the easy way...
...with a Buyer Agent on your side!!! "

Buyerside Real Estate Mobile 0412 289 464
Office 9b, 34 Glenferrie Drive Office (07) 5562 1555
East Quay Corporate Park Fax (07) 5562 1248
Robina QLD 4226, Gold Coast Buyerside@hotmail.com
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


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Ross on the Gold Coast

Reply: 1.1.2.1
From: Wei Ng


Had the exact same dilemma as you did. If you notice what all the books say, they have a common theme- never sell! If you agree, how are you going to tap into the growth?

I basically picked up the phone & called my dad (who has a substantial property portfolio) for advice. He is not a fantastic investor (EXTREMELY conservative!), but his answer left me without a doubt which way I'd go. Cashflow gives you cash TODAY, whereas growth may or may not happen. It's impossible to predict.

His portfolio grew & grew over time, but to him that doesn't matter one bit. The growth was a bonus- he basically used the cashflow to retire at age 50.

Hope this provides some insight.
 
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Ross on the Gold Coast

Reply: 1.1.2.1.1
From: Rolf Latham


Hi Wei

Great for dad that he has been able to retire on the postive cashflow of his property portfolio.

Targetting positve cashflow only makes it hard though because the only deposit and costs money for your next deal comes out of savings and/or improvements that you may make. If one earns well and saves well on an average income then one can retire in say 15 to 30 years.

A 15 to 30 year investment horizon will therefore provide some guarantee on growth.

A mixed strategy is likely to produce more balanced results with options.

A part neutral or even cash loss strategy is NOT bad in itself. The net worth of an investor who is heavily into growth properties in capital cities has grown faster than one that has a similar value portfolio that is entirely focussed on income today only.

The proviso here is that the investor can fund the ongoing cash loss and has good rate risk, and income risk management in place.

There are a number of finance strategies to make a negatively geared property that has good cap growth actually put money in your pocket rather than take it out.

Of course the ideal would be property that grows at 10 % per annum and puts money in your pocket without fancy finance methods, and yes these deals are around.

Ta
Rolf
 
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Ross on the Gold Coast

Reply: 1.1.2.1.1.1
From: Tibor Bode


Rolf,

I completely agree with you. While I am very strongly favour cash flow positive properties, it does not mean that in a CFP portfolio one can not put a -ve geared property after careful research and the right place and right time as the growth will assist to speed up the process of acquiring more properties quicker. As long as the portfolio total is still CFP and self supporting (it also gives a buffer against events that are out of your control) it can be a very good strategy for seasoned investors. When one comes across not a such good deal, CFP is still not impossible to achieve, but one needs to be a bit more sophisticated and use various other options like wraps, lease options, subdivision, value add reno, etc. Some of these are not beginners game and have their own rules. While I am aware of them and currently learning about the various other methods in more detail before I'd jump in, the basic rule for me is still that the property portfolio (irrespective of the number of properties in it) should be self supporting. This takes off reliance from my income and also helps to purchase further properties as I am not only having sufficient collateral, but serviceability of the new debt as well, but you know it much better than I do.

Tibor
 
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Ross on the Gold Coast

Reply: 1.1.2.1.1.2
From: V L


>>There are a number of finance strategies to make a negatively geared property that has good cap growth actually put money in your pocket rather than take it out.

Hi Rolf,

Sorry for being naive, but can you please elaborate a little on the above strategies for a newbie?


Vanny
 
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Ross on the Gold Coast

Reply: 1.1.2.1.1.2.1
From: Rolf Latham


Hiya

Actually not a naive question at all. Many people think they have hit their borrow limits when really all they have limiting them is their financial structure and mindset.

Different ways of achieving similar outcomes include:

1. Understand that capital growth is as good as cash in your pocket IF you can access the equity growth. By using a combination of lenders and loan products tailored to the portfolio and financial standing of the borrower. This means using a mix of A and B Grade Lenders and then once we are out of "serviceability" using no or lo doc loans. While these were once fringe products with high entry costs and with rate loadings of 1 to 2 % above standard, the new breed of these "products" allows Loan to valuation ratios of 80 % and with rates comparable to standard loans, these are know as lo doc processes.

The lender looks at you wholistically rather than being able to tick all boxes, they are OK if you have clean CRAA, good work or self employed history and serviceability does not matter.

2. www.navrainvest.com.au will give you an idea of annuity based structures. Difficult to explain here. I'll leave it to Uncle Steve and the site to explain, seeing its almost the IP of Steve Navra.

3. Sell up and reinvest. Liquidate the capital growth, pay your CGT. Take some of your cash, have a life and then use some of it to buy another geared asset.

4. Equity is KING/Queen. If you have equity you can get private funds to pull equity. There are solicitor mortgages that compete with no doc loans.

So many different ways to make a dollar yet none is right or wrong.

Ta


Rolf
 
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Reply: 2
From: Peter Henery


Alan,
Don't forget to go out and buy some property !! and since you are on the GC , the time is NOW because the Qld. cycle is upon you . You have already noted (terrific!) that the GC market (in fact the SE Qld market) has not moved for some years and now it's moving. So ....while you are debating all the finer points, remember the market is not waiting for you to decide . I have so many mates who are still deciding on their first IP.

Get in the swim is my advice.
Peter H.
 
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Reply: 2.1
From: Michael G


Peter,

Just a word of caution, its best not to give advice. The Financial Services Review Act, requires "financial advisors" to be licensed.

What is more ideal is to offer "opinions", or "thoughts", or "ideas", then suggest that the receiver obtain their own "independent advice" to come to their own conclusions.

By all means, voice your views, but its my OPINION, that you don't you the word "advice" :)

Just a thought...
Michael G
 
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Reply: 2.1.1
From: Tibor Bode


Michael,

You are 100% correct in our brave new world, one has to be careful about the words one is using.

Just regarding to the financial advice, I loved Jan Somer's full explanation is her latest book, about who can really advise you about property. It is not the average financial planner! I did not know it, albeit based on past experiences I would not ask them about too many things, but rather talk to active property investors and talk to their accountants who are also active investors.

Tibor
 
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Ross on the Gold Coast

Reply: 1.1.2.1.1.2.1.1
From: V L


Hi Rolf,

Thank you for your tips which I very much appreciate.

Vanny
 
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