I have just started reading Steve’s book 0 to 130 properties in 3.5 years.
As an exercise I spent several hours last night just seeing if there were properties in my state that had cashflow positive returns.
I couldnt find one that even can close to meeting his 11 second rule.
With so many people now trying this technique and with the recent housing boom, is it a case that such properties no longer exist, or is it just a case of harder searching.
Personally, it sounds to me that for a renter to be willing to pay so far above the mortgage repayments on a property they have to be either a) stupid, or b) in an area where rental properties are in extreme short supply and have no saving ability.
Seriously, in the example, who would possibly pay over $100 a week rent on a property worth only $50k. In almost every case I could find, the reverse is more likely true and this applied from suburban to country towns.
Does anyone out there find cashflow positive properties now, or has the market changed now that it is a thing of the past (and possibly the future).
You are forgetting those with bad credit history, cash income without the ability to verify the source, non-residents, students, and the list goes on…
There is always a rental market.
In answer to your question, these properties do exist but you need to know how to find them. Look around the forum a bit more and you will also find alternative investments to the buy and rent positively geared strategy. It just takes a little more work.
Robert Bou-Hamdan
Mortgage AdviserAs a broad general statement I’ve found that units and apartments have higher rental yields than do houses.
I’ve also noted there is a bit of a cycle with these properties; they have a high yield, high enough to be positive after mortgage payments so people buy them. As they are bought up and traded again the rental yield is squeezed down. (supply and demand). With low yields and high prices no one wants to buy them so the yields slowly come back up (either as a result of more cheap units on the market or just a matter of time) until a critical point where they are bought again and prices rise.
I remember 5 years ago looking at a unit well located in Canberra selling for $45,000. It’s rent was $95/week. I wasn’t very well educated in this department at the time or I would have bought it. But I looked last year and a unit just next door to that one was selling for $90,000 and renting for $100/week.
So at the moment I would tend to agree that it is harder to find the pot of gold unit. But! that is only taking into account a beginner with only starting knowledge and resources.
For example: If a person had enough money to back them initially they could: buy a large lot. Build 4 units, sell 2 to pay for the other 2 and voila! You have 2 very much cashflow positive properties in your portfolio. (there are other things you could do as well).
But in my position I don’t have any cashflow positive property. I have some very good CG earners though and shortly I’ll be doing the above which will have a ripple effect on my other properties. That is once the above one is complete and I’m no longer paying it’s mortgage and receiving income from it I can afford to develop a block of land near the beach I’m holding onto, sell it and pay out a nice family home so that one is positive. Then I’ve got 3 properties, all cashflow positive (very, not just a little) and with lots of equity to rinse and repeat. Buy another 3 properties, develope (or reno) one, sell it to pay for the others and so on.
That is just my strategy and it is working so far (and looks good on paper). There are other strategies people use, like relocatable homes on cheap holiday location lots, student group houses, backpacker accomodation, commercial development and so on.
It’s a big field and takes some effort (that’s why it’s worth money to do, if it was obvious and easy it wouldn’t make much money).
Making money in real estate is not just buy, rent and hold. Today you have to find a market and supply that market with a solution to their problem/need, matching properties to people’s needs. You get your profits through cash flow or by selling. There are always deals and profits to be made; today you have to look at what need or problem out there you can solve.
If ypou wish to buy in one horse country towns maybe, however this is a dangerous stratagy. It is all about timing. Personally I look for property that can achieve some capital growth. When steve purchased a lot of his properties thae market was at a different point. To be a good investor is about being able to ajust your stratagies to suit the market. If you want positive cashflow properties with growth New Zealand is still the place to buy. You can purchase in a city and still recieve returns of 7-12% depending on the property. Because there is no stamp duty in New Zealand or capital gains tax you can establish a structure that will help you buy a number of properties and recieve cashflow and growth. This proves that you can have the best of both worlds
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Buyers advocate
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You’re right in that it is sure going to take you more than a few hours searching the net to find cf+ positive properties.
However, they are out there. March issue of property investor has some Residex stats of the year leading up till September 2004 for rental returns postcode by postcode. Plenty are cf+.
But, as mentioned by others, there are higher associated risks to capital gain/loss. These are mostly small rural areas that make the population more volitile and reactive to any change in the economy. With a large proportion of the country in drought (and the El Nino drought due to hit us again soon) you need to be aware of any area that relies on agribusiness.
Population decline is also a major issue outside of metropolitan areas, with the young moving off to the cities and often not returning, and the established growing old.
You have to weigh up the pros and cons for yourself – but it will take more than a few hours on the internet!
And there are many reasons why people don’t buy – also already listed. If you move to a mining town on a two year contract, are you going to fork out thousands of dollars in fees, interest and tax to own your own house (and possibly lose capital value when you sell) – or will you rent?
In small towns incomes are generally smaller, so people find it harder to save a deposit to buy their own home. Young people generally don’t want the commitment of owning until they’re ready to ‘settle down’. People who work as ‘casual’ may have trouble gaining mortgage approval even if they are on a good income, as banks won’t consider it a ‘stable’ income. The self employed are in the same boat. It won’t even occur to some people to consider ‘buying’- they may enjoy switching houses every few years as their lifestyle changes.
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