All Topics / Help Needed! / Answers to “Where to Find CF+ Deals”

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  • Profile photo of DerekDerek
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    @derek
    Join Date: 2004
    Post Count: 3,544

    Hi VK,

    Cannot agree with that statement at all,

    As a property investor looking to build a portfolio you need equity and cashflow.

    Some would argue you can use the surplus cashflow to pay off your loans but to do this in a reasonable time frame your cashflow needs to be extremely high (relative to property price). In reality for most people they need growth too. Without growth your portfolio building will stall.

    The other question you need to consider is what is your end goal?

    imagine your target is $200K/annum (using a number from another post by someone else) how will you get there?

    Obvioulsy you will need to replace the $200K with your number but the same process applies. .

    Profile photo of think big to be bigthink big to be big
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    @think-big-to-be-big
    Join Date: 2011
    Post Count: 1

     ADAM… WOW.
    this  was the 2nd forum topic ive read since joining up.
    Dazzling… great stuff.
    really learning a lot … :)
     I have just finished reading steve mcknights book, and im absolutely hooked.
     I will be definately using this site to gather more knowledge before i begin my quest to financial freedom.

    thanks,

    blaise

    Profile photo of EPI_DenEPI_Den
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    @epi_den
    Join Date: 2010
    Post Count: 71

    I agree with Derek, you need both cashflow AND capital growth.

    Cashflow gets you into the market and keeps you there, but capital growth gets you out of the market in a profitable way. If you, like me, are looking at growing a portfolio and then selling a portion of it to pay off the debt then you need both. The cashflow will help you buy and build your portfolio while keeping you afloat and keeping food in the fridge, and the capital growth will mean that you need to sell as few properties as possible to wipe out your debts and live independently.

    You can be more sure of good cashflow because you can do all the sums and work it out. The unknowns are future interest rates and future rents, but it’s a fair bet that if something is positive cashflow now, it will continue to be (unless interest rates rise significantly to push it into the negative).
    Problem is, you can never be sure what capital growth will be – that’s crystal ball stuff. You can hedge your bets and do your area analyses, but there’s always an element of uncertainty.

    Good luck with your investing!

    Profile photo of Kiwi Property GuyKiwi Property Guy
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    @kiwi-property-guy
    Join Date: 2009
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    Yep Derek and Den are onto it.

    Your wealth is definitely created via the capital growth of a portfolio. But to be able to actually build a large enough portfolio to begin with, and secondly be able to afford to hold it long enough to realise that capital gain – You need to have a positive cashflow over all in your portfolio.

    Over the years i have written a few blogs on the subject of Cash flow vs Capital growth, Property Investment strategies and building a balanced and sustainable property portfolio with a ‘Cashflow base’.

    Links to just a couple of them below:

    Blog – Positive cash flow or negatively geared capital growth? http://www.propertyinvestorcentre.co.nz/blog.php?blog_id=18

    Blog – Property Investment Strategies http://www.propertyinvestorcentre.co.nz/blog.php?blog_id=104

    Blog – Is Property still a good Investment in New Zealand? http://www.propertyinvestorcentre.co.nz/blog.php?blog_id=102

    Blog – Positive Cash Flow Property in New Zealand, now more important than ever. http://www.propertyinvestorcentre.co.nz/blog.php?blog_id=41

    Happy reading! ;-)

    Profile photo of quickchickquickchick
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    @quickchick
    Join Date: 2004
    Post Count: 168

    Hey Von Krumm…

    You will notice a leaning in the last few posts, towards buying for capital growth.
    "Not that there's anything wrong with that."

    But this post is about cashflow positive property!
    When buying for cashflow, you want to buy in an area that's not likely to go backwards eg one industry small town and they close the main factory. And you may want to determine a minimum size population, so you're not somewhere tiny.

    I would want to find property that is more than 2% return higher than the current interest rate you'll pay, after costs.
    No use buying for cashflow and the $200,000 property gives you $1000 cashflow per year, after expenses, unless you are convinced that the rents are way under-valued for the local area, and demand is high. I don't look for marginal cashflow, but something worth my while paying stamp duty on.

    Cashflow for cashflow's sake, NOT expecting a high capital growth, is still a very good strategy for creating wealth and even becoming financially free. (ie not reliant on income from your job!)     

    Profile photo of TRADEEBATRADEEBA
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    @tradeeba
    Join Date: 2011
    Post Count: 10
    Von Krumm wrote:
    Want to know where CF+ properties exist?

    CAIRNS!
     
    I have been doing some research and cairns has properties (1-2 bedroom units) that are CF+ straight out the blocks.
    But there are many properties on the market, often cheaper than 2+ years ago and what's not to keep them from falling further…

    I am lucky enough to have APM data nation wide and there is one property id like to discuss…

    1 Bedroom apartment in cairns suburbs

    Heres the price history:
    1993: $83,000
    2003: $49,000
    2004: $87,500
    2005: $106,000
    Then it went on the market for $130,000 in 2009

    Dropped in 2010 then again this year…
    On the market for 2 years it finnaly sold private treaty for around $75,000

    This has to be the time to buy something right?

    My only concern is when it went back to $49k in 2003. Wow that's insane.

    Be carefull, insurance in North Qld has gone through the roof, and this is why units are so cheap. The cost to keep one has just trebled. Read http://www.couriermail.com.au/ipad/unit-insurance-in-north-skyrockets/story-fn6ck51p-1226050758899

    I recently viewed a one bed unit in Cairns city centre that was listed at $65k. Insurance in this building was about to go from $8,000 to $50,000+ according to the on-site manager.

    Profile photo of CeeKayCeeKay
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    @ceekay
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    What a great post – thanks for that Adam

    Profile photo of mattstamattsta
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    @mattsta
    Join Date: 2011
    Post Count: 604

    I've been reading up more and more on CF+ properties as I focus on this as my first phase of my investing strategy.

    For CF+ deals, I'd suggest checking out mining towns, regional towns and areas outside capital cities.

    Profile photo of EPI_DenEPI_Den
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    @epi_den
    Join Date: 2010
    Post Count: 71

    You're right mattsta, regional areas tend to offer a higher percentage of CF+ properties.

    You do need to be careful, however, that the area you're looking in is a viable community. Some mining towns may be booming now but they lose their "boom" and can become ghost towns in a few years. It's worth checking to see that there are enough other industries to keep the town going in the case that the major industry busts. It's these single-industry towns that are very risky – some people invest there and do extremely well, and others fare far worse.

    I'm too conservative to take such risks. I tend to look for certain indicators – a McDonald's, a Bunnings and an airport that offers passenger flights, and not because of my penchant for burgers, hardware and travel. Generally, I have found that if a town is good enough for Ronald McDonald to set up shop, it's worth investigating.

    I hope this helps, and good luck with your investing!

    Profile photo of mattstamattsta
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    @mattsta
    Join Date: 2011
    Post Count: 604

    Hey EPI Den,

    Yes, mining and regional towns can be great for CF+ properties (even though many may still think that CF+ are impossible nowadays).
    I agree that investors need to ensure that there are other industries, just in case one of the big industries (such as mining) pulls out. Your property will still be fine as other businesses in other industries around the area will ensure employment and tenants.

    Profile photo of paladinpaladin
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    @paladin
    Join Date: 2012
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    Is anybody know where can I get the Steve's "Buyer Beware" templates?? I've been looked all over the Internet, just couldn't find that…. So Frustrated….

    Profile photo of Newby23Newby23
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    @newby23
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    Thank you Adambc. Really helpful post for the humble beginner.

    Jarrah, I had trouble finding your 'Ask and you shall receive'. Sounds interesting though.

    I am yet to invest in my first IP. I have thought about it for years and even to be a WEA course where one of the first things the "teacher" said, was that it is possible to buy a CF+ property now. That shut me up for a few years, yet now I feel compelled to make it work. I have been reading/listening to a handfull of 'guru's' for a month or so now and feel ready.

    What I am doing now is finding places that I think could be CF+ and calculating how they might work and practicing DD and how I could possibly increase value. Practice makes perfect, right? I am finding that most of the ones that may work are in the lower socio ecinomical areas that are more 'undesirable. Now while I don't consider myself a real estate snob, I find they clash with one of the golden 3 rules I read on this site… Product saleability.

    This family is single income with young tackers, PPR value about 400k with Mortgage of 180k. Not keen on getting too much cash out in equity and raising out repayments by a lot. I had assumed we'd need 20% cash deposit on property which I assume limits us to 200 – 250K first purchase. Was hoping to keep it simple as it is our first dabble in Real estate

    What is your thoughts on buying a property in an 'undesirable area'. I wonder if issues with problematic tennants and crime rule these places out.

    Profile photo of Kristin Simondson PBREKristin Simondson PBRE
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    @kristin-simondson-pbre
    Join Date: 2012
    Post Count: 86

    A usually overlooked option – serviced apartments.

    They can offer fantastic yields, secure tenants, little to no outgoings (depending on the lease structure) and I've seen some great ones in Melbourne over the past year for under $160,000

    The down side – very little CG, can be difficult to get finance from some lenders.

    Profile photo of Newby23Newby23
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    @newby23
    Join Date: 2012
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    Sorry, my above post should have said that I was told that it is NOT possible to buy +CF property…. oops… :) That was what put me off for a while. Thanks Kristin for your suggestion.

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
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    Kristin Simondson PBRE wrote:
    A usually overlooked option – serviced apartments.

    They can offer fantastic yields, secure tenants, little to no outgoings (depending on the lease structure) and I've seen some great ones in Melbourne over the past year for under $160,000

    The down side – very little CG, can be difficult to get finance from some lenders.

    DO NOT buy serviced apartments. As mentioned they have very little CG. So what's the point? On the surface they look high yielding but look closer at the management fees, cleaning fees, vacancy rates etc etc and they are not CF+.

    Newby23 wrote:
    Thank you Adambc.
    What I am doing now is finding places that I think could be CF+ and calculating how they might work and practicing DD and how I could possibly increase value. Practice makes perfect, right? I am finding that most of the ones that may work are in the lower socio ecinomical areas that are more 'undesirable. Now while I don't consider myself a real estate snob, I find they clash with one of the golden 3 rules I read on this site… Product saleability.

    What is your thoughts on buying a property in an 'undesirable area'. I wonder if issues with problematic tennants and crime rule these places out.

    You're not going to find CF+ places on the North Shore. Know your area, pick your streets and you'll be fine. Not everyone in an "undesirable area" is undesirable- same as not everyone in a rich area is rich.

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
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    Catalyst wrote:
    Kristin Simondson PBRE wrote:
    A usually overlooked option – serviced apartments.

    They can offer fantastic yields, secure tenants, little to no outgoings (depending on the lease structure) and I've seen some great ones in Melbourne over the past year for under $160,000

    The down side – very little CG, can be difficult to get finance from some lenders.

    DO NOT buy serviced apartments. As mentioned they have very little CG. So what's the point? On the surface they look high yielding but look closer at the management fees, cleaning fees, vacancy rates etc etc and they are not CF+.

    Newby23 wrote:
    Thank you Adambc.
    What I am doing now is finding places that I think could be CF+ and calculating how they might work and practicing DD and how I could possibly increase value. Practice makes perfect, right? I am finding that most of the ones that may work are in the lower socio ecinomical areas that are more 'undesirable. Now while I don't consider myself a real estate snob, I find they clash with one of the golden 3 rules I read on this site… Product saleability.

    What is your thoughts on buying a property in an 'undesirable area'. I wonder if issues with problematic tennants and crime rule these places out.

    You're not going to find CF+ places on the North Shore. Know your area, pick your streets and you'll be fine. Not everyone in an "undesirable area" is undesirable- same as not everyone in a rich area is rich.
    Most of my portfolio is in "undesirable areas" and I've never had a problem. But I fully renovate (to make CF+ and add equity) and demand top rent and can be fussy about who I choose (because of the standard I renovate to).
    Of course if you buy a dump and it looks like a dump you'll get dubious applicants to rent.

    Profile photo of Newby23Newby23
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    @newby23
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    Cheers Catalyst!
    I live in SA and I am talking of the Northern Suburbs of Adelaide particularly. I have been targeting properties with potential for second residence. Of course, by the time I sus it out and chat with my hubbie about it… it's gone. It's all research and experience I guess.

    Sounds like this strategy has worked for you. Seems like spending a little extra time on reno's would particularly pay off in these areas, like the sound of being fussy.

    I appreciate the advice.

    Profile photo of Kristin Simondson PBREKristin Simondson PBRE
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    @kristin-simondson-pbre
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    Post Count: 86

    My apologies for not clarifying – serviced apartments on a commercial lease. No vacancy during the lease period which can be up to 25 years, no cleaning, very small management fees if you choose to have someone manage it for you (they're essentially collecting rent and overseeing the lease).

    Profile photo of gfreergfreer
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    @gfreer
    Join Date: 2011
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    Agree with Catalyst on questionable strategy of trading off capital growth for reliable yield in serviced apartments. Your resale potential is limited (selling only to other investors).  Current recommendations for C+ve are Orange (based on expansion of Cadia Gold mine) and Bowen based on $9b upgrade of Abbott Point to 8 coal loading docks and a multi cargo port. Both regional centres have populations over 10,000 and diversified economies.

    Profile photo of Nick KirlewNick Kirlew
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    @nick-kirlew
    Join Date: 2006
    Post Count: 20

    Darwin, unit costs $540k rents for $750 p/w with furniture pack.
    Regards
    Nick

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