buying first property

Hi Guys. You should read 0 to 260 Properties in 7 Years, which follows on from what you're reading now.

If good cash flow properties were easy to find everyone would have them. I'm still only a beginner but it seems to work that CF+ deals are generally in places where people don't want to buy and live long term themselves, ie smaller regional towns OR you have to do a bit of work and think outside the square to make it CF+ in or near to major cities or infrastructure.

We only have our PPOR  and 2 IPs but working on more; but our strategy is –

1) Buy within 20 km of CBD close to transport and businesses that has good a strong rental return, that is generally a middle class suburb.
2) Buy well under the median price, something thats structurally sound but looking ugly and unloved (preferrably a functional and sound kitchen and bathroom) and buy cheap. Something that allows for an extra room to be added is ideal and more easily made cf+.
3) Do a basic reno to make it look less ugly and unloved, doing most things yourself where possible: Repaint the house with modern but unobtrusive colours. Bathroom – Tile paint, new towel rails, taps and shower head, dual flush loo. Kitchen – New benchtops and cupboard doors, tile paint any tiled splashbacks. Converting a double garage to a single with the other becoming a room is great, but is hard to do well. A 4 bedroom will rent for more than a 3 bedroom. Then a good tidy of the yard and lay down mulch in the gardens.

We've been able to get 2 properties slightly CF+ with this. The beauty is we're seeing good capital growth as well. Most CF+ deals, particularly in the regional towns, don't see much growth. We're only young and working full time, so the long term plan is to build a low/no cost portfolio, then draw off the equity to buy more and move to bigger projects. Eventually we'll do something with property full time.

All the best.

As far as I remember the 11 second rule says: minimum rent for cashflow positive = (property cost /1000) * 2. This rule basically assumes you want about 10% gross yield on the property to become cashflow positive.

So depending on what your holding costs will be you might be ok with less e.g. 8%. You have to do the math as it depends on many things e.g. what LVR will you use, body corporate costs, maintenance costs etc etc and this varies enourmously from one property (type) to the other. I've looked at some student accomodation in the past, attracted by the high gross yield of 14% quoted in the realestate.com.au advertsiement only to find out that after taking in all the costs the deal was not that cashflow +ve at all, not more than some dual occupancy accomodation within 10km of the CBD, which had much much better capital appreciation prospects.

These rules of thumb are handy but you do need to get a spreadsheet and crunch the numbers for a whole range of properties and you'll soon start to see what kind of yield you need/want in what kind of situation.

About interest, yes the current lower interest will drop the treshold yiled at which a property will become cashflow +ve, how much depends on your LVR. But remember, interest rates will go back up even though they're likely to keep coming down for now.

Hi Soro121,

I would also recommend you find a really good broker who has experience in dealing with the property investment market and also has knowledge of Trust and different structures. As the right finance structures and putting in the ground work will save you both time and money in the future. And can also help reduce the amount of CGT you pay.

James Grady

Mortgage Planner

0401 052 209

http://www.theNEXThomeloan.com

Hi,
Just keep reading books as well.

As many as you can.
Margaret Lomas has many books well worth reading.
Good to read a variety as they can differ greatly on stratergies, etc.
Eventually you will have a better  understanding on all.
But, saying that, i think you can never stop learning, as times keep on changing.
Your willingness to learn and invest at your age is the best thing on your side at the moment.

Good luck,
Frosty