The CASHFLOW+ debate...Generally, most CF+ IPs are usually found in "crap" locations

[beachy]

From reading about other investors buying a CF+ properties, most of the time I see they're located in pretty crap locations, ie: population numbers are low, they're located out in woop woop, or in some undesirable suburb that you wouldn't get your dog to live these...basically, the way I see it, is that...

D - C-class Location
1) Nobody wants to buy here so prices are much lower
2) Tenants have got to live somewhere so "like" attracts "like" and undesirable tenants live in undesirable areas
3) Because of the low buy-in price and a median weekly rent, the return is much higher

B - A-class Location
1) Most people want to buy here so prices are usually much higher
2) Negative gearing exists mostly in most B - A-grade locations, because the weekly rents are simply not in line with the purchase prices

Yes, I know there are exceptions, where an investor bought a bargain IP at bottom price in a A-grade location or the investor put in 30% deposit or equity and now the IP is CF+, but most of the time when I'm reading or hearing about these investors, most of these properties seem to be located in undesirable locations.

 

[spludgey]

I've got a cashflow positive property in Woy Woy. I'd class this as a B location now. Yes, my tenants are on Centrelink benefits, but I find them to be very desirable!

Would I want to live in the house or granny flat myself? Not a chance in hell, but that's not the point in my opinion.

 

[D.T.]

Crap location is mostly subjective right? Personally I wouldn't want to buy in a town under 50k people, which is where most of the cf+ is.

Half of metro adelaide is cf+ though, so doesn't fit your location classes very well.

 

[Truly Exotic]

are you buying to have a pretty portfolio with lots of pretty postcodes???

if the numbers, potential CG, maintenance, vacancies, and potential issues you face are good, then it shouldnt matter where you buy

 

[beachy]

are you buying to have a pretty portfolio with lots of pretty postcodes???

Well, you don't get a Donald Trump buying in "Crapsville" do you???!!!

 

[Deltaberry]

Well that's why A grade investments with cashflow is hard to come buy. About the only stuff I buy.

 

[beachy]

Well that's why A grade investments with cashflow is hard to come buy. About the only stuff I buy.

Totally agree. Cashflow+ plus A grade property location = very hard to come by

 

[Angel]

Well that's why A grade investments with cashflow is hard to come buy. About the only stuff I buy.

That's commercial, I believe.

 

[Corey Batt]

I don't care if the area is pretty, or has a low % of Porsche drivers. I care about consistent payment of rent, strong yield, low vacancies.

Conveniently 'slum' areas for the most part can provide these without issue.

 

[handyandy]

Yes, I know there are exceptions, where an investor bought a bargain IP at bottom price in a A-grade location or the investor put in 30% deposit or equity and now the IP is CF+, but most of the time when I'm reading or hearing about these investors, most of these properties seem to be located in undesirable locations.

IMO putting a 30% deposit does not make it cf+. All that means is that you are foregoing the income of that deposit amount. Any funds used toward a purchase has an opportunity cost.

CF+ has to mean the prevailing interest on the total cost of the property plus outgoings is less than the rent received. Anything else and you are delusional.

 

[A Jeremy]

No, you're not delusional. If you have capital, you can convert a negative cashflow property into a positive one by paying down, or offsetting, your loan. Arguably, the definition is that outgoings are less than incomings and investors can use their skills to modify both. Someone could further your train of thought by saying the interest being paid must be no less than six percent and they must be paying their PM 9% plus letting fees.

In regards to the OP, my definition of an A class location is one that profits while a D class, would be one that doesn't. After analysing a property and looking at vacancy rates, yield, likelihood for tenant damage/arrears, additional costs due to geographic location and everything that will cost or make you a dollar, the bottom line is what I look at because who's doing any of this for any reason other than to make money and retire early?

 

[DaveM]

While you may see many cf+ suburbs as undesirable, the way i see it is bogans need houses too, and I am happy to take their money

 

[flightcrank]

Totally agree. Cashflow+ plus A grade property location = very hard to come by

Only to people who leverage them selfs to the hilt.

With lots of equity or savings, CF+ and a A grade location is easy to obtain.

 

[D.T.]

Only to people who leverage them selfs to the hilt.

With lots of equity or savings, CF+ and a A grade location is easy to obtain.

Refer Handyandy's post

 

[flightcrank]

Refer Handyandy's post

If an investment pays for its self it is by definition CF+.

Just because one other person says otherwise dose not make it true. Everyone has diffrent tolerance to risk

The larger deposit amount is now equity, which can be used again to invest futher in the future. Lots of strats out there, more than one way to skin a cat.

 

[westminster]

The other way to make cash flow + in a good suburb is:

1. Develop so that you get low buy price. Eg my Gwelup properties cost $475k each and will rent for $650 pw.

2. Renovate or convert a room to an extra bedroom. This takes some money and/or skill.

3. Rent out short term or by the room.

 

[D.T.]

If an investment pays for its self it is by definition CF+.

Just because one other person says otherwise dose not make it true. Everyone has diffrent tolerance to risk

The larger deposit amount is now equity, which can be used again to invest futher in the future. Lots of strats out there, more than one way to skin a cat.

You're not getting it.

 

[Singo]

Well, a property getting rent just $1 above expenses is cashflow positive, by definition. So any property can be cashflow positive if enough loan is paid off.

Cashflow is all about cash inflow and cash outflow. Opportunity costs are not included in cashflow calculations.

 

[allsuccess]

Well, a property getting rent just $1 above expenses is cashflow positive, by definition. So any property can be cashflow positive if enough loan is paid off.

One of my IPs is in this category. It's not a rural property BUT not in a high growth area. So, any maintenance issue could send it to negative territory. If it was in a high growth area, at least one paper, it's increasing value.

 

[A Jeremy]

However if the neighbour was a relative of yours and also a handyman, that might not be the case. That's why investing can allow certain people to flourish with a particular set of circumstances.

It's about finding what are the ideal circumstances that pertain to you and capitalising on them.