All Topics / Help Needed! / Is this property considered cashflow positive?

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  • Profile photo of JZ_33JZ_33
    Participant
    @jz_33
    Join Date: 2014
    Post Count: 28

    Hi,

    I wanted to see if I’m on the right track and wondering if these figures seem plausible to the more seasoned investor.

    I’ve got my eye on a 1 bedder unit for $320K that looks like it might be able to fetch around $320 per week rent. If I spend another $5K on reno’s to swap out the carpet and lighting, give the place a new coat of paint, I’m hoping I’ll be able to rent it out for $340 per week (maybe more?).

    According to this Investment Calculator spreadsheet, after I punch in a bunch of other numbers including things such strata, council, legal fees, agent fees etc, I’ll be negatively gearing this place at $40 a week.

    But if I deposit extra cash into an offset account, say $70K, it will bring the property to a slight CF+ of $2 :) BTW this will be on a 95% LVR loan.

    So my question is, am I going about this the right way? Does the above purchase fit the bill of what you would consider CF+ or a good buy? Also would using my extra savings in an offset account like the above example, be encourage?

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi JZ,

    1 bedder unit for $320K that looks like it might be able to fetch around $320 per week rent.

    Those base numbers don’t sound like +ve cashflow to me – it is only a 5% Gross return. Surely body corp costs, Rates, Insurance, RE mgmt fees would take this into heavy -ve geared territory, wouldn’t it (??). Or is the calculator doing tricky stuff with Depreciation and Capital allowance to paint a rosy picture? I’d be looking elsewhere….

    I’d be wondering if the 1-bedder might be over-priced to start with… this would depend on just what market you are looking to buy in.

    Re using the Offset – fine, so long as the money in Offset can’t be used in a more meaningful way…. It is a good place to “park” spare cash (a 5% return, with no Tax to pay on the Interest saved – cf a savings account….).

    DO you want to share the actual numbers re Interest, Rates, body corp, etc – maybe we can help you with those,

    Benny

    Profile photo of PHPPHP
    Participant
    @php
    Join Date: 2014
    Post Count: 111

    I agree with Benny. The numbers doesn’t add up properly. If you give us more details, we can surely show you how its calculated.

    Regarding a 1 bedder unit for 320k? Don’t you think its a bit overpriced? Your target market is very limited with 1 bedder.
    What’s your due diligence telling you about this property? Have you confirmed the rent at $320k a week?

    PHP | Mortgage Station Pty Ltd
    http://www.mortgagestation.com.au
    Email Me | Phone Me

    Give us a call or send us an email for a free residex report.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hiya

    I haven’t crunched the numbers but a couple of things.

    – What interest rate are you using to come up with these results? I’d use an inflated rate to account for future increases.

    – Even if it is CF+ doesn’t necessarily mean it’s going to make for a good investment.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of JZ_33JZ_33
    Participant
    @jz_33
    Join Date: 2014
    Post Count: 28

    DO you want to share the actual numbers re Interest, Rates, body corp, etc – maybe we can help you with those

    Ok here are the numbers I’m working off. The below calculations give me a negative cashflow of $43.49.

    Property: $320K
    Deposit: $16K
    LMI: $12,800
    Stamp Duty: $12K
    Interest Rate: 5.1%

    Strata: $1360 ($340pq)
    Council: $1040 ($260pq)
    Water $720 ($180pq)

    Capital Deductions: $1K (Not sure if this is reasonable?)
    Rent: $320 p/w

    What interest rate are you using to come up with these results? I’d use an inflated rate to account for future increases.

    I’m using a 5.1% interest rate which isn’t inflated. Should I use an inflated figure like 7% instead to run my numbers?

    • This reply was modified 7 years ago by Profile photo of JZ_33 JZ_33.
    Profile photo of ChrisA1ChrisA1
    Participant
    @chrisa1
    Join Date: 2011
    Post Count: 172

    Would you be self managing? What about PM fees. Are your ‘capital deductions’ maintenance costs?

    I usually add $2,000 for incidentals (I just had to pay $500 for a few tiles to be fixed in an IP – always one off type costs).

    Agree with Jamie – rates won’t stay this rate forever.

    ChrisA1

    Persistence is 'to keep on keeping on, no matter how hard the going may be'

    Profile photo of JZ_33JZ_33
    Participant
    @jz_33
    Join Date: 2014
    Post Count: 28

    No I won’t be self managing but letting a real estate agent do it. The spreadsheet has 5.5% as agent fees and commissions in the calculations. Are you supposed to factor in projected growth when calculating cashflow?

    Anyways seems that I might pass up on this place as it doesn’t sound like that great an investment anymore. I know the general consensus in Sydney is that you won’t find any CF+ properties unless you’re willing to add value but I can’t seem to find anything that comes even remotely close to fitting the bill.

    Is it a sound strategy to find the right property and negative gear it for 2-5 years before it becomes a CF+ property?

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi JZ,

    Is it a sound strategy to find the right property and negative gear it for 2-5 years before it becomes a CF+ property?

    That can work too – but so much depends on your situation. Negative gearing in an area of good growth can see Equity growth that makes up for the loss over time. But it helps to have an Income that can “ride a few storms”, otherwise you might be putting yourself at risk going that way. Especially good to buy something which can be made better and rents increased – reno, granny flat, subdivide/develop, change to a higher use, etc.

    Main thing early on is to discuss your whole financial situation with an adviser who can then tell/show you where your limits might be, and even how to overcome them. Know where your ship is heading before leaving port…. ;)

    Benny

    Profile photo of JZ_33JZ_33
    Participant
    @jz_33
    Join Date: 2014
    Post Count: 28

    Main thing early on is to discuss your whole financial situation with an adviser who can then tell/show you where your limits might be, and even how to overcome them. Know where your ship is heading before leaving port…. ;)

    What kind of adviser are you referring to? A Financial Adviser? Property Accountant? I’m keen to speak to someone who can run through my financial situation and give me advice on what kind of investment strategy I should be looking at.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Check out some on here – a Mortgage Broker will be able to identify your lending limits, and an experienced one will have all kinds of useful knowledge that may not be advice per se, but will no doubt be useful.

    Some on here are certified to give advice too – pick someone who posts here regularly, whose posts appeal to you, and have a chat with them. The effort will pay you dividends.

    An accountant might not be useful right now, but for sure, you will need to find a good one at some stage.

    Financial Advisers come in Heinz 57 varieties – so be sure to go for one who IS into Property Investing. Otherwise, if you use Yellow Pages, you might be talking to someone who will steer you into other areas which may or may not be what you are wanting.
    Or go with a Mortgage Broker who is also a Fin Adviser – problem solved.

    Benny

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