Hi,
I am based in WA and have my own home and an investment property, both in WA. Since I have felt the pains of negative gearing, I have decided to turn to positive cash flow investing to help me support my negative cash flow from the investment property and to work towards quitting my job for good.
I have done Rick Otton's course but a slight dismay later on due to some restrictions on strategies shown/taught by him. I have attended many seminars, read books and have gathered information to help me get started. Since I reside in WA and am taking my first step, I thought it would be ideal to search in WA as I can even travel within WA to inspect/buy the property when required.
With a deposit around $15k on hand and negligible equity from my properties as they were purchased within the last 2 years on 95% LVR, my steps so far have been as follows:
1. To start searching for populations in towns in WA greater than 10,000 people (I have this on hand now) – DONE
2. Search for properties via realestate.com.au in each location one by one (say Town A) – DONE
3. Call some real estate agents within the Town to find properties on their books – OUTSTANDING
4. Do the figures on the properties to see if you can have more positive cash flow – OUTSTANDING
5. Send Contract Offers on those that meet the positive criteria i.e. properties yielding >7% or 8%
Please help me if I am wrong in the above steps. What am I missing in the above scenario? Where I feel stuck is knowing how to find a property in a town which is positive cash flow. Will gladly appreciate any help to further my journey to freedom.
You are equating yield = good. Yield is just one factor, capital growth potential would be the main one in my book, and there are many others.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Agree with Terry. I can understand the need to balance your negative cashflow but without any growth, it's hard to get ahead in property investing.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Terryw.
Thanks for your comments. I acknowledge that capital growth potential is the main wealth creation avenue, however at this stage, I am trying to look for ways to supplement/replace my work income so that I can leave work and continue investing in capital growth properties. The replacement of income is why I thought of buying positive cash flow properties. Any feedback?
Thanks Jamie. I have checked the value of the property i am residing which i bought 2 years ago, The value has gone up by approx $60k, however that has only taken my LVR from 95% to 86%. Not much to use from equity. The 2nd property,I purchased about 4 months ago, more like development potential due to potential rezoning to occur in 2-3 years where I can build 6 units on a block of land, where currently, there is an old house through which i am getting some rent. Any thoughts?
Raasta wrote:Hi Terryw.Thanks for your comments. I acknowledge that capital growth potential is the main wealth creation avenue, however at this stage, I am trying to look for ways to supplement/replace my work income so that I can leave work and continue investing in capital growth properties. The replacement of income is why I thought of buying positive cash flow properties. Any feedback?
Hmm, how much per week would these properties bring in? How many would you need to replace your job income? What potential are there for the rents to icnrease over time etc?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
My thoughts are that cashflow is great – if a property is putting more money in your pocket than it's taking, that's fantastic. However, if the property isn't likely to go up in value – then it can be difficult to reach your goals.
Unless your investing in a mining area with high yeilds (but come with their own risk) or properties that are generating more than one source of cashflow (such as multiple dwellings – granny flats, etc) then it's going to be difficult in this day and age to accumulate enough CF+ properties to live off. It's not impossible – but it's not easy.
Lenders are also starting to cap the yields that can be used from IP rents – which presents another hurdle for some investors.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Probably have a slightly different view to the boys as my investment debt is less than 5% of the property values so needless to say the rents are extremely positive and more than enough to live forever and a day.
Capital Growth is important however assuming we see a general slow down in the overall property market for a period of years you need to ensure that your property has good ongoing cash flow to counter balance this.
My question to you would be with only 15K deposit how are you going to finance your next deal.
If you take away acquisition costs, legals etc there doesn't leave much.
Certainly you could consider a 100% blended loan but going to be limited to where you purchase.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
No shortage of people who have bought into negatively geared property for the capital growth they believed would happen. Whether it does or not (happen, that is), you still have to be able to fund the shortfall along the way. It is interesting (albeit not surprising) to do the math on how much of the capital growth is cancelled out by all the money you have to bucket in each year just to prop a property up.
I agree – yield is very important. Ideally if achieved in an area that also offers growth.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Property being the long term investment it is I think you can invest for both.
There are some fantastic markets around Australia that offer great yields and have all the growth driver's that support capital growth over the long term.
Affordability is an issue as is serviceability and goals and it needs to be tailored to suit each particular investors circumstances. My long term goals and circumstances dictate that when I look at a property it has to have a high yield but also exposure to population growth, transport infrastructure, investment in industry and commerce.
I also have a family to support so I require yields that support my lifestyle.
There always seems to be an argument between investing for yield opposed to capital growth but I believe you can have both over the long term for example parts of Western Sydney and SW Brisbane along with others.
I'm now at the stage in my investing career where I need to push ahead and force yield and CG by using alternative strategies.
Jack
""The 2nd property,I purchased about 4 months ago, more like development potential due to potential rezoning to occur in 2-3 years where I can build 6 units on a block of land, where currently, there is an old house through which i am getting some rent. Any thoughts?""
You talk about the development potential due to possible rezoning of your IP. Could you investigate this further (not something that can or should be done overnight) but if you ask plenty of questions through the development section of this forum ( eg https://www.propertyinvesting.com/forums/adding/4348373) and approach this with all your homework done, you could reap benefits from developing this block. Is this why you bought this investment? (to redevelop?)
ChrisA1
Persistence is 'to keep on keeping on, no matter how hard the going may be'
Don't know if you're in a position to, but I would include a visit to the town you end up choosing prior to sending any offers away. While I have bought the occasional property sight unseen, it has only been when i was very familiar with the market, or engaged a buyers agent that was. Most of the time when I do all the research and settle on a town, the next step is to visit and stay a few days. You can learn so much more about a market by being on the ground than you can by reading about the place.
Good luck with moving forward.
After looking at various people such as Steve McKnight, Dymphna Boholt who are proposers for positive cash flow properties, I would want the properties to bring in a minimum of $100,000 and increasing time by time. Whilst this is not easy, others have achieved this and that is why I am trying to see what avenues are possible to reach this goal.
Thanks for your comments.
I agree that 15k is not enough and I am working on it to increase the initial deposit requirements. However, I was considering doing no money down deals to speed up in the meantime. The difficult part I am finding is how to find positive cash flow deals coupled with no money down deals. Just cant get my head around this in my current situation.
Thanks for your comments. Totally correct about the amount to bucket in each year. But there must be a way to get into property using no money down deals and achieve the desired yields
Thanks very much for this advice. I will incorporate your suggestion after step 4 below:
1. To start searching for populations in towns in WA greater than 10,000 people (I have this on hand now) – DONE
2. Search for properties via realestate.com.au in each location one by one (say Town A) – DONE
3. Call some real estate agents within the Town to find properties on their books – OUTSTANDING
4. Do the figures on the properties to see if you can have more positive cash flow – OUTSTANDING
5. Send Contract Offers on those that meet the positive criteria i.e. properties yielding >7% or 8%
Since I have the list of towns in WA greater than 10,000 people ready, I have opted to look at the following nearby towns with corresponding population figures:
Busselton 21,898
Bunbury 17,109
Rockingham 14,826
Kalgoorlie 13,947 (Gold mining)
After this, I am getting stuck!
Only one of the mortgage insurers will allow a a borrowed deposit > 90% (And they are very Post Code restrictive on this product) so i go back to my initial comment about how you are going to finance such a deal.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi guys
Without trying to steal Raasta 's thread I have found myself in a similar predicament and have adjusted my strategy accordingly so any advise to me would probably help him as well (bare in mind I am still yet to enter the market)
I had the initial intention of investing for CG (as Raasta did) but then as time went on and I experienced more of the lows that full time employment bring I changed my thinking and started looking at +CF. Now my situation has changed and I am working overseas so my ability to be an active investor in AUS is zero thus now I need to look at buy and hold (CG) again but at the same time I want to get out of the rat race and have a passive cash flow (different situation to Raasta but same goal/outcome).
Heres my thinking..
Invest in RE with a view for CG (handy if yields are decent but you cant have everything) but only look to properties with potential to add value (subdivide, extend, change use etc.) ultimately it would be great to find a property that you could subdivide while still having the existing property tenanted. After a couple of years of CG and paying down your offset account use equity to proceed with the decided improvements and BLAMO! you have cooked yourself a CF+ investment from a CG driven investment .. now you can enjoy the best of both worlds.
Any thoughts/advise?
Also what are peoples thoughts on commercial property for +CF, many people seem to think there is more potential..what are the downsides?
Thanks Chris. Yes, the reason I bought the investment was to demolish and build units when the rezoning occurs. The homework and due diligence on this was carried out before purchasing.
At the moment, I have 2 options: Save to gather enough deposit or vendor financing deals
You must be logged in to reply to this topic. If you don't have an account, you can register here.
