Over the last 9months I’ve spent hundreds of hours reading books, browsing websites and trying to learn everything I can about investing in real estate.
The one question I keep asking myself is if I should invest in cashflow positive real estate (>8-9% return gross) which would more than likely mean I would have to look in regional towns? Or whether I should invest in a capital city and hope for capital growth, but a smaller yield (~5%)?
What is people’s preferred options? I’m looking at which option would be more viable for a young investor (22yrs old)? Which strategy is likely to be more beneficial in long term (10 years time)? What sort of properties does everyone have?
P.S. How would one go about trying to predict what area will be the next boom is housing prices?Nigel KibelParticipant@nigel-kibelJoin Date: 2005Post Count: 1,425
Have the best of both worlds. I am moving to the United States because in Texas you can acquire properties that have both high cashflow and capital growth. As an investor it is always worth exploring other markets
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http://www.changingplaces.com.au Buyers advocate.usiMember@usiJoin Date: 2006Post Count: 15
Nigel is absolutely right…have the best of both worlds! Like you, I am 22 and have a number of positive cash flow properties. Pick the right one in the right area and it will also experience great growth. For example, I purchased a property for $75 000 in late 2004 which has been rented for $150 over this period of time. 18 months later. I have sinced refinanced it and now in the process of selling it for $130 000.
I n only 18 months it grew $55 000…and had positive cash flow. You do the sums on that!
In the long term, if you are looking for financial independence, I believe positive cash flow is the way to go. Managed correctly, it will fund you for life.
Let me know if you need any assistance.
CrystalXeniaMember@xeniaJoin Date: 2002Post Count: 1,231
I agree with Nigel, a balanced potfolio is best. [biggrin]
I don’t like buying in remote areas, if there is no capital appreciation you are exposed to the risk of debt. I like manufactured cash flow in good growth properties using creative strategies such as lease options.
Extra cash flow is then used to fund negative cash flow in higher growth properties
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http://www.adprop.com.auTerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
Its great if you can get both. But if you had a choice, I would certainly go for capital growth.
Buying cheap property in an area with little prospects of increasing in value is not worth it. You will be faced with many problems and high costs. what if you are making $50 pw +ve cashflow and rates rise, or the hotwater system busts. This could eat away all benefits.
Capital Growth is not guaranteed, but in certain areas, it is more likely than others. This is what will make you rich.
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Thanks for all the responses. Crystal, surely if you bought a property for only $75,000 then it would have been in a small regional town? How did you know that your particular regional town would experience such fast capital growth as well as cashflow positive?
Is it a good idea to try and find towns with a population of >5000?
Or should I be looking at small towns within an hour drive of a capital city or large regional town?
Whats the best way to identify a town with cashflow positive properties and likely to experience capital growth? i.e. With <1.0% vacancy rates for example?
Paul [suave2]usiMember@usiJoin Date: 2006Post Count: 15
It was a regional town, but certainly not small. I think it comes down to doing your research but most importantly, talking to the people in the area and getting a feel for it. Better still, you may want to stay there for a day and get an impression of the place.
Realistically, a property for only $75 000 really is only ever going to go up, 6 months ago there were plenty of properties for under $70 000, now days you have a hard time trying to find properties worth $90 000.
Talk to agents, ask them about rentals if your not sure. I really have never had problems with getting tenants in if the demand is there. Everyone needs a place over their heads and its surprising these days how many people would prefer to rent rather than buy, especially considering the minimal costs of these properties.
Thanks for your response.
When you talk about doing your research, do you tend to do your
research on the internet when looking for potential towns/regions for IP’s and then once you’ve identified a promising area you visit the place? Or do you look for very cheap properties and then find out information about the town it is located in?
Also, how do you go about finding information such as vacancy rates and the current market value of particular areas? [you can PM if want]
Paul [suave2]Meeg The DeegMember@meeg-the-deegJoin Date: 2006Post Count: 13
I live in northwest NSW, in a country town. Because we know the area, we have chosen to invest in the region. Not only in our town but in another. Because we are here we know what is going on, how the area works, and what we can expect. We have experienced strong growth on a place we bought for 65000, then spent 10000 on several years back. We have great tenants, but i think we could sell for 130000 tomorrow if need be. The new place we just settled on has 1000sq m to subdivide off the top if we wanted to – right close in town where building blocks are scarce. There is a lot happening out her with mining and natural gas lines and business expansion. Because we live here we are comfortable with our choices. You must do your research whether you do your towns first or your price availability – at the end of the day you want to sleep at night and not be bald with panic. Be comfortable with your choices and your level of debt. And this will become more of a reality and easier to do over time.
MeegcrusherParticipant@crusherJoin Date: 2002Post Count: 186
Thanks for your reply. I’ve checked out the website and it appears very interesting. I will have to read through the reports in more depth when i’m not at work. Although, the information (and tables) are very generalised. I also noticed that all the report is isolated the capital cities and large regional towns in Qld and NSW. Do you have similar information for SA and VIC for example? Or is QLD and east-coast NSW seem as the places to invest at the moment.
Paul[suave2]talsMember@talsJoin Date: 2006Post Count: 1
1) Find a property that you believe will have good growth
2) Find a loan product that allows you to pay some of the interest and capitalize the rest.
This can give you growth and neutral/positve cash flow.
Thanks for your response. What do you mean when you say get a loan that allows you to pay some of the interest and capitalize the rest?
Also, I read a news article about 3 months ago that talked about someone trying to patent an idea that allows you to just pay off your principal only and once you’ve paid that off you can pay that remaining interest?? Has anyone heard of this idea?
ThanksctaingParticipant@ctaingJoin Date: 2006Post Count: 111
Hey Dare, I think heard this one before. It goes something like this – you signed up a No Doc Interest Only loan AND pay only a portion of interest and capitalised the remainder of interest to a later date.
That is to say, the method rely on deferring the payment of interest to a later date. Imagine rolling interest on interest; and thus resulting compounding interest effect at the end of each year. Sure, it looks good for for +CF and claiming tax for finance cost. But is it a viable method in the current ‘soft-landing’ of the property market in general?
Bearing in mind the Principal is NOT reduced at any stage until some time in the future when you refinance the loan (heavily banking on capital growth) to actually build any equity.
Mind you, there is no free lunch, the broker will come out grinning to be in repeat service to you. I’ll rather be a tortoise than the hare caught napping. There is a lot of spin out there, Dare, they are not acting in our interests as investors.