All Topics / Help Needed! / Cash Flow Positive Property – How??

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  • Profile photo of KhalidaKhalida
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    @khalida
    Join Date: 2005
    Post Count: 4

    Hi,

    Could anyone help me to understand cash flow postive peoperty? I have found that unless I have 20% deposit, a positive cash flow is hard to achieve?

    Also, I am looking to invest in areas around Queenland particularly near Cairns, any suggestion?

    Still Learning!!
    Thanks

    Profile photo of RedhavenRedhaven
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    @redhaven
    Join Date: 2004
    Post Count: 81

    No one thread can answer your question properly.

    You need to get hold of decent investment books and read, read, read, read and then read. If you use the search button on the left under Books you’ll come up with a great review list. Someone else might be clever enough to have that link?[blush2]

    I would suggest you spend quite some time reading before you venture into a purchase. The more you read the more you will learn and things will suddenly be much clearer.[grad]

    Redhaven

    Profile photo of neo25x5neo25x5
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    @neo25x5
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    a property is cashflow positive when the incomings exceed the outgoings (interest cost, maintenance, strata etc.etc.). it really has nothing to do with what level of deposit you have. you make no mention of your current asset situation so if you dont have any equity in a property already you will need to find 20% for a property anyway, unless you you find a lender willing to lend you more (which means you may not need as much a deposit). bear in mind that you will have to pay mortgage insurance if you do go over 80%.

    hope this helps.

    Eric

    Profile photo of DerekDerek
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    @derek
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    Hi Khalida,

    As Eric indicated a cashflow property exists when income exceeds all expenses. Some people also include (others don’t) tax savings that can be available through depreciation.

    A property shouldn’t be considered for cashflow alone – there are other factors to be considered when selecting property. Also do not neglext opportunities to improve yourcashflow after purchase and/or for rent increases to incur thus making the property cashflow positive at some stage in the future.

    When buying a property you will need to have about 20% for a deposit and a further 5/6% for costs. These funds can be drawn from savings (a slow process) or from equity or from a benevolent family member/partner and so on. The 20% can, in some instances, also be reduced to considerably less if you are prepared to pay LMI.

    As for the booklist suggested by Red – here it is
    https://www.propertyinvesting.com/forum/topic/6845.html

    Derek
    [email protected]
    0409 882 958
    Property investment advice and researched property in quality locations available.

    Profile photo of Sailesh ChannanSailesh Channan
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    @sailesh-channan
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    Post Count: 26

    Yield is calculated using the following formula.

    Current Rental Yield %= annual rent recieved divide by cost of property

    You should not put in higher deposits just to make a property cash flow positive as you could be using that money to purchase other properties.

    It is also important to remember that the main reason to purchase an investment property is for capital growth. Therefore you will need to purchase in major centres…perferably capital cities and close to water or within 10km of the CBD or within 20km of a larger city like Sydney.

    Property is a long term purchase and you have to consider how it will perform in a normal market. There are many examples of nil of negative growth in many parts of Australia therefore you will need to research well.

    http://www.developersedge.com.au

    130073 5934

    Profile photo of pete rpete r
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    @pete-r
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    Post Count: 80

    Hi Khalida,

    There are numerous ways to aquire properties which can become cashlow positive. With the market the way it is at present it is very difficult, with rare exceptions, to find properties that are CF+ to start with. As Steve McKnight states in his books that these properties are “created” by adding value in some way or by developing/subdividing, or wraps, for example. Each requires its own understanding and expertise.

    I would have to disagree that the only purpose in buying a property is for capital gains. If that was the case then Steve and others would not be in the position they are now. Certainly capital gains is great, and some people do invest for that alone, but others invest quite successfully without reagrd to capital gains, which is unpredictable and not guaranteed over the short term, whereas cashflow is predictable in the short term.

    Keep learning javascript:insertsmilie(‘[thumbsup2]’)
    Thumbs Up [thumbsup2]

    Best wishes

    pr

    Profile photo of DazzlingDazzling
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    @dazzling
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    Khalida,

    Plenty of props out there off the shelf that are +CF with 100% finance plus all acquisition costs.

    Have a real good look.

    Cheers,

    Dazzling

    “No point having a cake if you can’t eat it.”

    Profile photo of DerekDerek
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    @derek
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    Originally posted by Dazzling:

    Plenty of props out there off the shelf that are +CF with 100% finance plus all acquisition costs.

    Hi Dazzling,

    You confuse me. [biggrin]Commercial or residential?

    Derek
    [email protected]
    0409 882 958
    Property investment advice and researched property in quality locations available.

    Profile photo of Sailesh ChannanSailesh Channan
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    @sailesh-channan
    Join Date: 2005
    Post Count: 26

    With rising interest rates how long will a property stay cash flow positive?

    Your actual yield will need to be 10% or greater as you will heve expenses such as property managment fees, insurances, maintenance, interest, etc.

    I think over time your property will be cash flow positive as rents rise but to expect positive cashflow from the start is a big ask.

    I feel the aim for investors is to use residental property as a vehicle to create massive equity by tergeting properties that will maximise capital growth or create equity through strategies such as renovations or property development

    You then use this equity to repeat the process until you have a substantial asset base.

    After a few years of repeating this exersice you diversify into other assets such as commercial and industrial properties or business to maximise your returns hence generate more income.

    Residental property is generally not reguarded as a high yield investment therefore you need to use your equity to find investments that will generate better yield.

    Once your income from your investments exceeds your income from your work you now can afford to stop working if you wish.

    Regards

    Sailesh

    http://www.developersedge.com.au

    130073 5934

    Profile photo of raficwwwraficwww
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    @raficwww
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    [blink] KHALIDA I TOO AM FEELING THE SAME WAY & HAVE JUST POSTED SOMETHING SIMILAR TO YOU ALTHOUGH I AM IN VICTORIA. KEEP LOOKING & LET ME KNOW IF YOU HEAR OF ANYTHING INTERESTING IN VICTORIA & I WILL DO THE SAME FOR YOU IF I SEE ANYTHING IN QUEENSLAND.

    GOOD LUCK

    Profile photo of DazzlingDazzling
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    @dazzling
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    Post Count: 1,150

    Sorry for the confusion Derek…

    There are oodles of props – some res, most comm, some industrial that are +CF. Once again, people are using the term properties and really mean residential only – which narrows their view somewhat. OK if that’s their cup of tea, just stop whining if you can’t find +CF, but refuse to check out far better alternatives.

    Once again, most of the people asking are just starting out or have a few under their belt and want all of the advantages that a large portfolio brings / allows…I’ve found financial institutions won’t allow this. You’ve gotta do the hard yards at the start and gather “momentum” I think as Steve puts it.

    Sailesh, not all Landlords pay for PM fees, insurances, rates and maintenance.

    Happy days.

    Cheers,

    Dazzling

    “No point having a cake if you can’t eat it.”

    Profile photo of DDDD
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    @dd
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    Some lenders have reduced the LVR to 60% or over to attract LMI now so dont be to upset if you get a little surprise.

    All you can hope for in SEQ now is a property that is the right price so when you do a reno it pcks it up to at least 7.5%, this with a depreciation schedule covers most costs if not all.

    With the purchase pricing on units/townhouses taking a $20k hike in the last 2 months I’m finding it increasingly hard to still get these bargains for my clients.

    Good luck

    DD

    PS146 Certified Financial Planner and Buyers Agent
    Don’t sweat the small stuff,and it’s all small stuff!!

    Profile photo of Sailesh ChannanSailesh Channan
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    @sailesh-channan
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    Post Count: 26

    [
    Sailesh, not all Landlords pay for PM fees, insurances, rates and maintenance.

    Yeah, Commercial properties are a great investment for this reason. However investors have to start building equity in residental before they can move onto bigger investments.

    Regards

    Sailesh

    http://www.developersedge.com.au

    130073 5934

    Profile photo of 1Winner1Winner
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    @1winner
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    Khalida, if you want to prosper you need to purchase income producing assets. Real estate investments in Australia has been synonym of “negative gearing” for a very long time, in normal terms means to buy liabilities for the fringe benefit of transferring the loss to another source of income.

    Cash-flow positive is the opposite to negative gearing but both are accountant terms and not investors terms. When an investor purchases an income producing asset he does so with a dual purpose, to purchase an asset that will appreciate in value over time and that produces income in the process.

    In view of the increase in market prices, due largely to investors demand, regional and rural residential properties in general do no longer fit the criteria in the short term, that does not mean that it is not possible to score the odd opportunity, it just isn’t that obvious anymore, andthe risks have increased.

    Yet residential is not the only income producing asset there is. You have commercial property, industrial units, hotels, boarding houses, not to mention the possibility to purchase the commercial operation together with the real estate that goes with it. Also the option of increasing the value of real estate by renovations, extensions, subdivision, turning residential into commercial and many other value increasing exercises.

    It goes without saying that all of the above are a higher, much higher risk operation than simply purchasing your average suburban home and hope for the best, there are also increased difficultiesto find funding for it.

    Yet income comes from adding value to other people’s life, in other words there is no such thing as something for nothing.

    You will have to get wet to catch fish, if you don’t know how, I suggest you find someone that does and is willing to share the risk and subsequent rewards.

    If you add up the income of your 5 closest friends and divide it by 5, you will have a figure equal to your income this year.

    http://www.chosen4u.com/?ace

    “What you want in your life occasionally shows up…
    what you must have… always does.”
    . . . . . Doug Firebaugh
    May God Prosper you.[biggrin]
    Marc

    Profile photo of marsdenmarsden
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    @marsden
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    Post Count: 112

    Generally speaking, cash flow positive properties are not available! So called ‘constructive’ concepts are just a play on words, for example, you can put much hard work in renovation to make a property cash flow by not counting your labour.
    The market is adjusting with many properties under pressure to lose value. We may soon see lower prices and evidence suggests that rents will also rise because of demand. This trend will start in smaller centres, that is , you will more likely find properties at lower prices with moderate rental demands. The problem will be to find tenants in these regions. The evolution will progress towards the larger centres. The suggestion is that CF+ properties will become more available as prices moderate and tenancy demands cause rentals to increase. Keep an eye on the regional areas and prepare for the progression as it unfolds but it will all take time.

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