Steve McKnight's new strategy - what do you think?

[MTR]

What happened to his advocacy of wrapping or lease options to generate cashflow?

Some promoters change their strategies as often as their clothes.

It's simple for speakers to suggest changing tack frequently but neither possible nor desirable for investors with illiquid assets to do same.

Spruikers are either the 'broken record' model (eg Wakelin, Lomas) or 'chop and change' model (eg McKnight). I think the latter rely on novelty to have new material at their lectures and maintain the profile for future business.

There is a risk that novelty may be required to sustain a promoter's business model rather than be in the best interests of the investor.

I agree with you, well said.


Beachgurl
I thought he was buying commercial property in US, apparently he raised over $20M for this, did he mention this at the presentation??? or purely Oz CIP.

I am just a tad over SMc, what he recommends for investors is sometimes a worry as I do see it as very high risk.

This is a guy who jumped into the Florida market buying low end feeder stuff and selling this strategy to investors who IMO do not have the resources, skill and contacts to do this. I certainly think there would be many that got burnt. Oh well, who cares, as there will always be another angle .... onwards and upwards

 

[octain]

I currently buying heaps of good cash flow positive properties. You'd think someone with his experience would suggest a time when their is low interest rates, low prices would give rise to more cash flow postive properties

Im picking them up around horsham. Round 9% seen them up to 9.9% all good long term tenants

 

[Shahin_Afarin]

I went to a seminar series last weekend and one of the speakers was Steve McKnight. He said that the days of finding cash flow positive properties are well and truly over in Australia and he has a new wealth strategy that he was spruiking. I'm not convinced it is a great strategy for brand new investors to take on but thought I'd open it for discussion.

He says that capital-growth properties should be purchased in the first few years of investing. Then once good equity is gained in the properties, you use that equity to buy commercial property. While he didn't go into the details, I interpret it to mean that fresh investors will be maxing out their LVRs in their resi properties to buy commercial, which seems very risky. The commercial property would then be cashflow positive, but what happens if there is a vacancy, does the investor lose everything?

I probably sound a bit doom and gloomish but from someone who bought very low risk type properties to make his millions he now is encouraging a much riskier strategy.

I have to slightly disagree - there are positive cashflow properties (and that is assuming the full purchase price) out there. The other option of course is creating dual income properties.

Regards

Shahin

 

[scha9799]

This afternoon I just went to an inspection in Blacktown area (NSW).

The asking price is $269,000.

Current rent is $300 pw ( but I check the area it can be easily rent out @ $320-$330)

The median price in the area is around $350,000. A similar type of house a couple of streets away is selling @ 320,000.

The house is only listing on the market less than a week.

When I walked into the house. The agent told me the house is going to be sold today! if you interest in purchasing, you need to put in your offer.

I was a bit shock. As I knew yesterday afternoon was the first open inspection and today is the second open inspection only......

After 5 mins inspection, I put in my offer $ 265,000. ( I did my desktop research, verified the estimated price on Pricefinder and OntheHouse.com and work out some strategy in my mind prior to inspection)

The agent told me someone put the offer higher than asking price !

On the way home, the agent called me that the offer close to $290,000 and the owner accepted it ( I guess the house sold @ $285,000).

So if the figure is Rent $330 * 52 = $17,160

the house is $285,000

Then the yield is about 6% ( you can get the loan at 4.99% )

I think it is a positive cash flow property. ( or neutral after all the maintenance fees).

Then after 6 months, some similar type of properties sold $320,000 some streets away, then it can be easily pull out some equity/cash.

I think it is good to listen to some idea or opinion, but it is more important to be on the ground to see it yourself.

I agree with all the comments above and respect all the strategies, end of the day if you believe you right, you right, if you believe he is right, you right.



Taylor

 

[Peter Parker]

Then the yield is about 6% ( you can get the loan at 4.99% )

I think it is a positive cash flow property. ( or neutral after all the maintenance fees).

That's a bit like saying it's positive cashflow apart from all the costs.

* There's stamp duty on the purchase price so the total outlaid is more (say $300k).

* Let's say that rent is 6%. The agent will take at least 10% of this for property management. That's 5 weeks rent.

* Insurance and rates. Together somewhere around $2000 pa. That could be 6 weeks rent easily.

* Maintenance is another cost - say 3 or 4 weeks rent.

* Vacancy/letting fees/advertising - say 2 weeks vacancy and another 2 weeks for costs. So take out 4 weeks.

There may be other costs I've overlooked but you can very easily be down 15 to 20 weeks rent per year after all these (mostly fixed) costs.

That cuts your 6% gross yield to somewhere nearer 4 or 4.5%.

Nowhere near positive cashflow. And 4.99% seems really low - there's only one direction a rate like that can go and that is up, so need to add a buffer of a few percent.

Real and reliable positive cashflow only starts after a gross yield somewhere over 10%.

Not 6%.

And even then a few unexpected costs can make it negative some years.

 

[nhg]

Agree with above. <10% gross ROI shouldnt be considered positive in a long term strategy. You would need to have a mean paying it down strategy.

Am in the states right now on vacation. Thought id poke around looking at american real estate. Ive never had so many red flags go off. Other than hedging against the high aussie dollar (the real icing on the cake IMO) the returns are way to low for the level of risk IMO. Unless I lived here id be crazy to throw cash this way (obviously you can always work on the kinks to make it worth while... there are a lot of kinks tho).