All Topics / Help Needed! / Large loan & positively geared??

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  • Profile photo of IndifferenceIndifference
    Member
    @indifference
    Join Date: 2004
    Post Count: 24
    February 15, 2004 - 2:14 am

    Hi all,
    As a new comer, I am struggling to see how I can generate positive cash flow from a B&H property with a large mortgage. For instance:

    We have over $250K equity, no mortgage and wish to purchase in SEQ. New property cost about $220 – 250K. Average rental returns about $200 – 220 a wk. Obviously this means I need to look elswhere? But as I see it, property has increased disproportionaly to income so larger mortgages are needed.

    Please excuse my ignorance, but how does positive cash flow arise when property values are bordering on the ridiculous?

    Thanks

    Pete

    ps. My apologies to Steve, if I seemed terse earlier.

    …emotion clouds good judgement but is a defining element of character.

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763
    February 15, 2004 - 2:27 am

    Hi Pete,

    No offense taken.

    You make a good and accurate observation in that once a property exceeds a certain price (relative to its yield) then it will become negative cashflow due to the interest cost (on the basis of an 80% loan).

    Sure, you could leave a higher deposit (thus lower interest), but that would drop your return.

    So, what can we do?

    Well, I don’t buy property for growth so I probably wouldn’t buy in the areas where you are looking under a B&H strategy.

    However, I may decide to adopt a wrap, lease-option or reno technique (provided the circumstances were right).

    Perhaps you could also look at commercial?

    Cheers,

    Steve McKnight

    **********
    Remember that success comes from doing things differently.
    **********

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of melbearmelbear
    Member
    @melbear
    Join Date: 2003
    Post Count: 2,429
    February 17, 2004 - 12:56 pm

    Hi Indifference

    Good tips from Steve. You could also adopt the ‘wait and see’ approach, which should give you time to get some savings underway, which will of course reduce the amount you need to borrow. It will also give you more time to research etc.

    Don’t feel that you need to jump in RIGHT NOW. Just get everything ready to go – ie LOC on your home, and keep searching. Eventually you’ll find one where everything stacks up, and you can jump on it then with confidence.

    Cheers
    Mel

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