The CASHFLOW+ debate...Generally, most CF+ IPs are usually found in "crap" locations
- Thread starter beachy
- Start date
And most of us either don't have to work anymore, while the others are well on their way.
um.....so what is your strategy, buy 50 x properties at $1000 cash flow positive per year, to give you $1000 per week passive income??!?!?!?
Do you mean solely as a strategy with no other factors?
Yes there are people that still do.
I'm not one of them - I use capital growth as part of my format but not the sole component.
After my first development I cottoned on that it was no more expensive to build in a blueish chip area than crapsville - the specification might be different but the core price was the same.
So I now aim for a better area to try and ride the CG gravy train as well as the CF+ gravy train.
Of course it is viable... in fact I only look at properties and areas that have good capital growth. The cashflow/value add etc comes as a secondary consideration. If there's no capital growth potential, I don't even bother.
One of my mates has a suite of outer suburb properties - extremely high yield, think well into double digits - and he's experienced negligible growth in the past few booms. The sort of stuff some of the investors here look for.
In contrast, with a combination of leverage and picking good properties and getting the market timing right, I've replicated the aggregate of that cashflow if not more over 10 years in just 12 months. Faster (1/10th the time), less headache (I haven't even included the cashflow, which by the way is still positive gearing at reasonable gearing), albeit riskier.
If I was after cashflow, I would've bought Telstra at 9% fully franked dividends. Higher return than whatever some of you guys are investing in out in the fringes, minus the vacancy risk/pipe blew up/non-paying tenant/tenant trashing your house troubles. And I don't even pay agent fees on that 9%.
TMNT,
My strategy is to develop, creating equity and positive cashflow relative to the size of the project. As my equity and serviceability grows, so do the size of the projects. This is exponential.
Deltaberry,
Without knowing how taxation plays into your strategy, do banks take your consistent capital gains into consideration when calculating serviceability or are you limited by your income, dividends, (royalties??), rents and potential rents of a property you are looking at?
My strategy is to develop, creating equity and positive cashflow relative to the size of the project. As my equity and serviceability grows, so do the size of the projects. This is exponential.
Deltaberry,
Without knowing how taxation plays into your strategy, do banks take your consistent capital gains into consideration when calculating serviceability or are you limited by your income, dividends, (royalties??), rents and potential rents of a property you are looking at?
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It's horses for courses. When we started, we couldn't afford to buy anything that wasn't positive geared, as we were broke. The IPs were all in larger places, some outer Sydney, some regional. Over time, rent increases and they got growth, which in turn meant more money for more IPs.
We've also got some where there's been minimal to no capital growth, but they've got good cash flow. There's no point in us selling them, and they've always been fully let, so they just sit there.
If we were young go-getters, like Westminster, we'd unload them & look at doing something different, but we're old now, and really can't be bothered.
I think there will always be capital growth for well located property, but not everyone can afford to hold onto something that is largely negatively geared. At the end of the day, if you've found something that works for you, in your situation, then just go with it and don't listen to the noise from others telling you that you're doing it wrong, just because its not the same as everyone else.
Just take a look around at the successful people around here, and you will find that they've all done things their own way. There is no "one size fits all" in investing, only what suits you. The main thing the successful have that the unsuccessful don't is determination and drive. The ability to keep on keeping on. The will and the faith in themselves to hold on through a bad patch, and sometimes the get up and go to start again and learn from mistakes.
You also need to realise that success means different things to different people. It could be a six figure passive income, it could mean enough to retire overseas, or it could simply mean an extra couple of hundred $ pw to see you through retirement. So long as you have met your goal, you are a success.
Very well said, can't agree more!
Banks take your capital growth into consideration by refinancing. If you sold, you would've realised the gain, so it's just cash any way. Banks don't take "projected" capital growth into consideraton when calculating serviceability, if that's what you mean, so at some point you hit a brick wall if you are gearing highly. Depending on what you buy, if you are not gearing highly, banks don't really care about your serviceability.
As skater said, it all depends what your situation is to see if a strategy is suitable for you. If you are at the end of your working life, you don't have much time to wait for capital growth in the event you timed the market incorrectly. If you are struggling to get by each week, maybe you do want some hugely positive cashflow investments at the expense of any capital growth.
My situation is peculiar to me beause I have a higher risk tendency than a lot of people here - partly because I have a higher income to solve the serviceability issue; I'm 28 so can afford to fail/start again/ride out the troughs; if I really needed it, I can probably have my family bail me out, but obviously I don't go into any investment with that as a backstop.
Also I have built up a pool of investors to draw on, so can vary my investment size (ie my own personal exposure) but still retain almost full control over any investment. I can take "notional" stakes in various investments while still keeping my powder quite dry.
I'm inherently lazy, but at the same time, time poor (go figure), and figured out that early that CF+ would suit my requirements exactly.
Wife and I went on a buying spree up in the Pilbara regions of WA about 10 years ago. Call it dumb luck, but that looked like the thing to do at the time when it was not the trendy thing to do. Companies were quitting their building stock and mining was on a bit of a slide at the time. Counter cyclical. At the time the Pilbara was a "crap" place to invest. Dingy ***** boxes being trashes by burley, dirty, dusty workers and their kids.
I see the same thing happening right now in the Pilbara. Mining is not the flavour of the month and people want out. They'll be a time in the next 5 years or so to get back in when the next "boom" kicks off.
Others might find that a more hands on method (like development) might be their cup of tea.
I guess when I finally decide to give up my consulting day job (which I currently do enjoy) when the kids are finally out of their expensive private schools I might decide to give development a bit of a dabble.
So, horses for courses.
Ok so lets say you have an A grade property - what is your definition of decent cash-flow (either by way of gross or net yield)?
I'm a Young go-getter - love you!
I totally agree with your sentiments that there is no one size fits all answer because our needs/wants are all so different and will continue to change as our lives and requirements change.
skater: Nice, very nice post.
willair:
In terms of capital gains being accepted as serviceability: The bank manager of my most recent lender said that if I sold a place, the capital gains would likely be deducted from my tax return when calculating serviceability because it would be a one off and not sustainable. I guess if I was selling properties at least every year it would be visibly ongoing and a different story.
willair:
In terms of capital gains being accepted as serviceability: The bank manager of my most recent lender said that if I sold a place, the capital gains would likely be deducted from my tax return when calculating serviceability because it would be a one off and not sustainable. I guess if I was selling properties at least every year it would be visibly ongoing and a different story.
Guessed right.
Basically it comes down to your investment strategy of what you want to achieve, what your financial situation is like, what is your risk, what kind of investor you are passive or active (how much time you have), etc....
I think we all played the Monopoly game so if you take that as an example it should help you with your strategy I hope...
I like to buy below or at average for the suburb that most people can rent in tough times too, where 30% of average male earnings would suffice for the rent... So like in monopoly if you start buying average houses, after 4 houses you could buy or upgrade to a better one. The choice is yours based on the strategy that works for you.
But in the end I too believe that capital growth makes you rich if your goal is never to sell, right? Good luck with your strategy!
Depends on your ability to fund the speculation and the sureity of the capital gain. If you dont get the expected gain you could be forking out $15k pa in holding costs for a rise that does not come or is not as high as expected.
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