Who has bought a GENUINE cashflow+ IP in the past 12 months under $300,000?

[jatt]

China how can you assume 105% interest costs when the borrowing was only 90% and actual cash flow now is only on 90% of loan?

First year the property is definitely Cash Flow Neg since the deposit + purchasing cost was paid in that year. Future years are cash flow positive. Overall cash flow for most properties will not be positive for quite a few years until the deposit is repaid and even then would have to look at it using Net present value formula to discount income over a period of time due to inflation.

I think for an IP to be truly CF + for the purposes of this thread, we need to have the loan to be 105% of the purchase price to cover the costs of the transaction without the investor using one cent of their own money. And these are hard to find.

 

[Brady]

China how can you assume 105% interest costs when the borrowing was only 90% and actual cash flow now is only on 90% of loan?

First year the property is definitely Cash Flow Neg since the deposit + purchasing cost was paid in that year. Future years are cash flow positive. Overall cash flow for most properties will not be positive for quite a few years until the deposit is repaid and even then would have to look at it using Net present value formula to discount income over a period of time due to inflation.

Sorry Jatt but I'm going to have to agree with china for the 1st part... You should take into account 105% as it shows the full costs of funds.

But I disagree with China saying that they are hard to find. With interest rates at ~5% they are everywhere.

 

[Angel]

China how can you assume 105% interest costs when the borrowing was only 90% and actual cash flow now is only on 90% of loan?

First year the property is definitely Cash Flow Neg since the deposit + purchasing cost was paid in that year. Future years are cash flow positive. Overall cash flow for most properties will not be positive for quite a few years until the deposit is repaid and even then would have to look at it using Net present value formula to discount income over a period of time due to inflation.

This argument proves that the same house can be both Cash Flow Positive and CF Negative according to the buyer's circumstances. I always knew that spuikers will advertise a property as CF+ and in the fine print you'll find the asterix and "Depending on your individual circumstances". All properties could be CF+ if we are in the highest tax bracket or we have a lazy $100K cash lying around for the deposit and Stamps.

 

[jatt]

cash flow is the amount of money in or out during a period of time, so yes over time most people will end up with a positively geared property.
but you cant make the assumption you borrow 105% of property when you actually only borrowed 90%. The deposit is the initial outlay and there would be an opportunity cost lost as you wont earn interest or whatever. But you cant expense that over a period of 30 years, when you have paid for it when you purchase the house. Thats a cash outflow at the time, which would make most properties cash flow negative for the first few years!

This argument proves that the same house can be both Cash Flow Positive and CF Negative according to the buyer's circumstances. I always knew that spuikers will advertise a property as CF+ and in the fine print you'll find the asterix and "Depending on your individual circumstances". All properties could be CF+ if we are in the highest tax bracket or we have a lazy $100K cash lying around for the deposit and Stamps.

 

[geoffw]

But putting 105% into the figures is fair. That's the only way of comparing like with like.

"Let's make the assumption that you are borrowing everything. No money down. How does my deal compare with your deal?"

Without this, as has been said, any deal, even the worst available, can be cAsh flow positive.

Frequently, even if the loan for a new property is say 90% borrowing, equity from another property is being used to find the deposit for the new property. So we actually end up borrowing 105%.

 

[Deltaberry]

Putting 105% is fair.

Another way to do it is to look at the net cashflows (real cashflows, not what agents/calculators tell you) and see what that is as a percentage of total equity invested (house price, lawyer fees, stamp duty all aded together).

If it's over 5%, it's not too shabby. If it's say 1%, well, you're chasing cap growth and rental growth.

 

[china]

Sorry Jatt but I'm going to have to agree with china for the 1st part... You should take into account 105% as it shows the full costs of funds.

But I disagree with China saying that they are hard to find. With interest rates at ~5% they are everywhere.

To be truly CF positive at 105% purchase price, you will need a gross rental yield of at least 8% plus. These are definitely hard to find within cooee of big cities. With units, the strata levies will usually sap any positive CF.

 

[Deltaberry]

How so when you borrow at 4.6% and council rates are $1k-$3k and land tax is $1k-3k?

 

[nhg]

To be truly CF positive at 105% purchase price, you will need a gross rental yield of at least 8% plus.

I agree on the 105% used in the calcs. Though using 5% as the interest rate doesn't strike me as particularly sauvvy. Should we not be aiming for CF+ over the average interest rate which is 7-8%?

There would be a lot of positive geared properties at 5% interest. I'd hate to see what the newly minted investors do as rates rise.

 

[Deltaberry]

At 8%, it would mean most new buyers couldn't be cashflow positive.

That said, for interest rates to rise to 8%, something's pushing up inflation. And rental is usually a big driver.

If you follow trend graphs, you'll find that rent tends to move in line albeit laggedly with interest rates.

 

[china]

How so when you borrow at 4.6% and council rates are $1k-$3k and land tax is $1k-3k?

The cheapest fixed rate for resi for three years is about 4.9% right now. Then there is water, insurances, sundries, PM fees, etc.

 

[Deltaberry]

Still wouldn't be CF negative.

 

[Lissica]

Not sure if this counts (it's in NZ), but seeing as I have IPs in both countries:

City/town where you bought (address is not needed for privacy reasons): Wellington, New Zealand
1 bdrm unit in Northern Suburbs (8km from city)

Purchase price: NZ $156,000 in April last year
Income: $240/wk= $12,480 vs

Expenses
Interest rate: 4.99% (fixed 1yr)
Loan amount: $156,000
Rates: About $950
Insurance: $500
Landlord insurance: is there such a thing in NZ?
Prop Management fees: pay for Mums holiday
Misc expenses, maintenance etc: $500-700

CASHFLOW+ : ~$2500

Probably a bit less this year because I've fixed the interest rate for 2yrs now at 5.15%, and also I spent about $8000 on repainting and new carpet/vinyl this year. Haven't increased rent but needed to be done, and have attracted a better quality tenant as a result.

I have a couple of other IPs, which became cashflow positive over time. (first was a 4brdrm house in Wgtn bought 2003 for $250k, under-rented but returning $360/wk). Other is in Perth bought 2011 $510k, renting $495/wk. I'm happy to hold or buy cashflow neutral properties (before tax and other deductions), if I can lock in a sub 5% rate for 3yrs. I'll let inflation eat into the mortgage and hopefully increase rents over time.

 

[CHAOS]

How much is mum's holiday?

 

[Lissica]

I agree on the 105% used in the calcs. Though using 5% as the interest rate doesn't strike me as particularly sauvvy. Should we not be aiming for CF+ over the average interest rate which is 7-8%?

There would be a lot of positive geared properties at 5% interest. I'd hate to see what the newly minted investors do as rates rise.

Yes, but these are calculations based on borrowing 100%. Most of us would still put in 20% to avoid paying mortgage insurance, and to act as a buffer.

On that 20%, if you are getting net 5% rent, it is still earning more than most bank deposits.

Unfortunately, most of the high yielding properties I've found are that way for a reason...usually in awful areas with bad tenants, which makes it a false economy. It's like banks charging higher interest rates for people with bad credit records...they do that for a reason.

 

[Lissica]

How much is mum's holiday?

Not much, I used my leftover frequent flyer points to fly her to Oz

 

[HD_ACE]

Insurance: $500
Landlord insurance: is there such a thing in NZ?
.

Yes. Theres a couple of good cover policys. And then theres the aa or ami etc policys which are ****house.

Cheers

 

[Peter 14.7]

Great Thread

Posting so i can come back and read with time.

Peter

 

[bbmick]

I want to see how many people on this large forum are buying properties that are cashflow+. Everyone raves about them but I cannot see many investors ACTUALLY BUYING THEM. As China pointed out, they're hard to find.

There's your problem.

You don't find them, you have to make them.

You're right on there I think HotRod.

I've purchased 2 ex Commish places (2 years ago) - reno'd, then refinanced for 80% of new valuation which happened to be 100% of the costs + reno. No mortgage insurance req'd - did need a LOC in the interim though.

Obviously old bad tenants gone, now there is new GOOD tenants with about 25-30% rent increase from the original market price RE had quoted for a reno'd house (prior to reno).

 

[spludgey]

I'm just in the process of purchasing another cashflow positive property. The numbers below are what I think it will be, but it might end up being a little different.

City/town where you bought (address is not needed for privacy reasons): Undisclosed till it goes unconditional

Purchase price: $255000

Income: $400*52= $20800 vs

Expenses
Interest rate: 5%
Loan amount: Have to assume full amount plus costs to make it cash flow positive, so $265000. So $13250
Rates: $2300
Insurance: $700
Landlord insurance: As above
Prop Management fees: $1560

CASHFLOW+ : $2990 before maintenance