The same thing can happen even if you put in cash? In your eyes it would still be a gamble.
Prices can go well below 80% of the price you pay, too.
Where are your positively geared IPs??
- Thread starter Lauren_274
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The same thing can happen even if you put in cash? In your eyes it would still be a gamble.
Prices can go well below 80% of the price you pay, too.
Correct, risk comes with any investment. But the risk is highly amplified when one is leveraged beyond the value of the property to begin with.
Okay, I'm not sure if Antistar is aware, but NOBODY is disagreeing. There seems to be a misunderstanding as to what everyone is debating.
Anywho, as for does money need to be put in to make money. I most certainly believe there is. And this is from experience.
Here's a simple (real) example that I love which I first read on somersoft.
1. Girl goes to caf? and offers to supply cakes;
2. Girl goes to sarah lee factory and buys cakes on 30 day account;
3. Girl sells cakes to caf? and receives payment within the week;
4. Girl leaves payment in savings account accruing interest;
5. Girl pays 30 day trade account.
Sure we can argue she put money into opening the bank account, but it is essentially a Other Peoples Money (OPM) deal.
Amazon/Ebay are much bigger examples of the same concept. Replace caf? with consumer and cake with products manufactured in China. Order book online, book is sent directly from suppliers storage to consumer. No money required by owner of the website.
That would be OPM and Other Peoples Time (OPT).
Anywho, as for does money need to be put in to make money. I most certainly believe there is. And this is from experience.
Here's a simple (real) example that I love which I first read on somersoft.
1. Girl goes to caf? and offers to supply cakes;
2. Girl goes to sarah lee factory and buys cakes on 30 day account;
3. Girl sells cakes to caf? and receives payment within the week;
4. Girl leaves payment in savings account accruing interest;
5. Girl pays 30 day trade account.
Sure we can argue she put money into opening the bank account, but it is essentially a Other Peoples Money (OPM) deal.
Amazon/Ebay are much bigger examples of the same concept. Replace caf? with consumer and cake with products manufactured in China. Order book online, book is sent directly from suppliers storage to consumer. No money required by owner of the website.
That would be OPM and Other Peoples Time (OPT).
Which falls outside of the scope of defining what is investment vs. gambling - especially when talking about calculating cash flow on an investment purchase.
As previously said in this thread, 105% is used to make it easy to compare apples with apples. Otherwise you can put a 90% deposit down on a 1.2m 2.5% yield property and call it a cash flow investment, which is a distortion on reality.
105% factoring removes this distortion and takes into account opportunity costs in a simple manner.
VERY basic example:
IP Purchase
Price: 1.2M
LVR: 10%
Loan: 120k
Interest (@5%): $6,000
Rent (@2.5%): $30,000
Net CF: $24,000 p.a
If that 1.08M was instead invested directly into a 5% yielding asset (not that amazing, could be an offset account, standard IP etc):
Asset Value: 1.08M
Net Yield @ 5%: $54,000
Always factor in opportunity cost, otherwise you're blurring the true investment cost.
Antistar, this is ALL the 105% is. Its not about actual borrowing. Its just to compare apples with applies. Nothing more, nothing less. Its the same reason why gross yield is mentioned as a PERCENTAGE and not a dollar figure.
Regarding the LVR argument, each to their own. There is no right or wrong. It depends on one's circumstances.
If the tenants leave, then you just put more tenants in. I've never had a prolonged time without tenants & I've got more than a handful of IP's spread across this land. And with values, yes, they go up & they go down, but mostly they go up, unless you buy at the height of the market.
Yes, it might be a gamble if you buy out in timbucktoo, but for the most part, the people responding to this thread have positively geared properties in very large regionals, or on the outskirts of major cities. There's no shortages of tenants in these areas and there's also capital gain over the long term.
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You can now get a 5 year fixed loan for less than 5%.
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Offer accepted on another today, was $147k freestanding house renting for 250/wk. Might be positive
Dave, can you share what area you just bought in for 147K?
Cheers,
Pos
Parkside SA
Got any pictures, descriptions?? I'm sure it's a rough diamond?
I may have accidentally said parkside and meant beside a park, in the far outer northern suburbs.
My IP's are a mix of Sydney, Regional NSW, Regional VIC and metro Adelaide
