ediot123Participant@ediot123Join Date: 2007Post Count: 54
Hi guys im just abit confused when some mentions or says they’ve found a positve cashflow property.
I know any property can be positive as long as long as the repayments are less than the rent.
My question is how do you determine if a property is +CF and a good “buy”? Are you guys calculating the returns based on 100% loan or do u only base it on a 80% loan?
Maybe it doesn’t matter??? Real confused
Sorry if my question sounds abit odd.ducksterParticipant@ducksterJoin Date: 2004Post Count: 1,674
Depends on are you working out on interest only or P & I repayments
Formula I would use
Income = Rent income (PA) – loan interest (PA) – $3000 to factor in for guess on (insurance , council rates, water rates)
You look at similar properties in area to get an idea what sort of rent or base it on 4.5 % Yield on average.
if LVR >80% then mortgage insurance is needed to be paid
Stamp duty is another expense when buying
if income is a + number it is cash flow positive.
If P & I you may want to use repayment as figure for interest cost to work out cash flow.CatalystParticipant@catalystJoin Date: 2008Post Count: 1,404
Some people base it on what they borrowed (eg 80%). I think you are fooling yourself. If I only borrow 50% then all mine are CF+.
I base my figures on ALL costs.
Ie 100% purchase cost + Solicitors fees + stamp duty etc etc. Work out the interest rate on this for a year then add insurance, rates, strata (if any) etc. If this is less than the rent it's CF+. You can also take into account depreciation.
If you only wait to buy CF+ properties you may be waiting a long time. Also a property mightn't be CF+ when you buy it but by doing a reno etc can make it so. Sometimes you need to be creative.
Sometimes a property may not have a wonderful yield but can have instant equity. Sometimes you can't have both but sometimes you can get lucky.ediot123Participant@ediot123Join Date: 2007Post Count: 54
Thanks for your response guys.
I would have based my calculations on a 100% loan + ALL costs as well. It is quite challenging finding a property that is +CF when considering 100% loan + ALL costs.
Just wasn't sure what people mean when they mention that they've found a "bargain" or +CF property, when in reality they've bought it on (using catalyst's example) a 50% loan.JamesSampsonMember@jamessampsonJoin Date: 2010Post Count: 54
unfortunatley the cash flow days are gone. but all markets go in cycles so we will see them return again one day.CatalystParticipant@catalystJoin Date: 2008Post Count: 1,404JamesSampson wrote:unfortunatley the cash flow days are gone. but all markets go in cycles so we will see them return again one day.
REALLY??? I'd say they are harder to find but definitely not GONE!!!
Buy a run down place under market value (usually up for auction). Do a reno and presto there you have it, instant equity AND cash flow. That's what I did for my last 2. One in Sydney this year.JamesSampsonMember@jamessampsonJoin Date: 2010Post Count: 54
sorry should clarify they still exist, but not in the areas they used to like close to our big cities or work nodes. Today i don't invest in positive cash flow properties for the main reason they are located (usually) on the fringes of our cities or regional areas. It is always best to invest where there will be constant demand