10 Tips For Investing In Cash-Flow Positive Property
10 Tips For Investing In Cash-Flow Positive Property
1. Be clear on how much return you need to make the property positive!
The first thing you need to define is, what sort of return you need to make a property cash-flow positive. This may depend on your income, your tax position, and your level of comfort with debt, but once you know, you can look at the best finance for it and whether the likely rent will be enough.
2. Using debt to fund a positive cash flow property
If debt is something you’re comfortable with, and can manage well, you may consider using equity to fund the short-fall in high growth potential properties. Make sure you understand the pros and cons of these sorts of tips for investing, before you choose this option. You may also use equity in funding the property. Be aware that most investors that fail have simply pushed themselves too close to the edge, and any changes in interest rates or rent – have them against the wall. Talk to a mortgage broker and good tax accountant to establish your best position.
3. Do your homework – eg RP Data, investment magazines etc
Between RP Data and investment magazines you will have access to statistics showing average rental returns, property values and sales history for most areas. If you find the highest ‘average’ on rental return and then research properties in that general location or just outside of it, then you have at least a good starting point to work from.
4. Do your research on-line to pick up tips for investing
The ability to find suitable properties online, in your own backyard and all over the world, is magnificent. You have the ability to shop and research 24/7, which can give you access to a host of opportunities. Doing your research for specific property types, prices, locations, and styles of housing this way, means very efficient use of your time. Using alerts can give you access to new listings within your search criteria delivered right to your inbox. Consider looking for lower value properties (often the best returns), blocks of units as well as motels, hotels, boarding houses and lucrative student accommodation. You could even find more handy tips for investing online!
5. Check out a property without leaving home (Google earth)
Of all these tips for investing, this could be the most handy one. This is a fantastic free program which helps you survey an area using satellite technology. It’s great for looking at properties which aren’t in your backyard. You can get a fair idea of the layout of the area and look at the properties you’ve found on the internet.
6. Speak to as many local agents as possible
Talking to a number of real estate agents in an area can give you an overall picture of the area, help you understand the growth potentials relating to the local economy and what areas potentially to avoid – these are useful tips for investing. However, sometimes the areas they tell you to avoid can still be good to invest in. This can be done completely remotely by telephone and email. Many agents are quick to respond to emails, but an initial telephone call can be quite effective too. Sometimes it is more beneficial to have face-to-face conversations if you are close by, giving you a better basis to establish a good rapport with the agent. Remember, agents want to make sales, so as a potential investor, they are likely to keep you posted on any suitable properties on the market, properties that are coming up and maybe more helpful tips for investing.
7. Get the low-down on the local rental market (property managers)
If you’re looking to invest in an area, speak to property managers, as they usually know the rental market better than the sales people and have a good idea on rental demand and returns. They understand where the tenant demand is, what they’re likely to pay for specific style and location of housing. So if you are looking to pick up a few more tips for investing, property managers are the right people to talk to.
8. Employment, transport, shopping and schools
As an investor, look closely at existing employment centres such as factories, shopping centres as well as easy access to public transport. Where there is work, there are people. It is worth finding out about any infrastructure works in planning as this can make properties more attractive for tenants and re-sale later on. Also, look at shopping centres and schools in close proximity to the property, which will make it more attractive for families and ensures better rentability.
9. Always start your offers ‘low’
Once you have found a potential property that has a higher than usual return or potential for growth, calculate what price you could pay to have it work for you – then make your initial offer low. It may seem like a very low offer, but what do you risk? Remember it’s a buyer’s market and a rejection is an opening for further negotiation.
If a property has been for sale for a while, the vendor may be particularly motivated to sell even at a lower price. Investing is all about numbers – the more offers you make, eventually you will be successful in buying a property at a price that ‘adds up’.
10. Look for properties that are different or unusual
Consider unusual properties where you can potentially get a better than average yield. For example:
Look at old ‘Queenslanders’ or other properties that can be renovated; the potential of turning a block into two lots; or a simple creation of space eg. separate living areas. Consider granny flats as a potential for double tenancies. In NSW there are new laws that allow for multiple rental properties on one title in order to meet the growing rental demand and the ever present housing shortage. Consider an old Motel that might be able to be renovated to provide individual permanent rental for students. This can work particularly well near training hospitals and universities. Be creative, some properties may have a back-lane access holding opportunity to rent out sheds for storage to trades people or to accommodate boats and RVs.
Robert Projeski is the MD of award-winning independent mortgage management firm Australian Mortgage Options. AMO has developed unique loan products specifically suited for property investors such as the Zero Deposit Home Loan, Equity Loan and the new Cannex award-winning Future Proof Home Loan. For more details, log onto www.amo.com.au
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I think real estate is the best way to invest in these days, as property and land rates are rising real estate investors are making strategic planning for their investment. This is fact that investing in real estate for current can give good returns in future. Department of Homeland security has been established as there are many investors are interested in properties and land dealing.This department will help property managers and investors to make proper deal. This will be very useful for those who are interested in real estate.
Personal Finance Management
I nice 10 point summary – I think that regional areas offer more scope for cashflow positive properties than the major cities do, However with various creative strategies it is becoming a greater possibility to achieve this in the suburbs – EG Granny flats, subdivisions and dual occupancy to name a couple of Strategies
Really a good article, if somebody wants to get benefit in the cash-flow positive property then he/ she should follow these tips. Keep on posting such kind of good information.
very good points thank you. Though I am not sure about starting low on an offer. If the property is really good, you may loose out to someone who may make a better offer than you.
Enjoyed the article. on point 9
Perhaps 11. Make multiple offers. If you are as part of your strategy trying to purchase property with some built in equity (or in other words buy at a discount) history shows us that you are probably going to need to make multiple offers. Perhaps one vendor in 20 to 25 in a stable market would be willing to sell at a genuine discount to valuation. There are many reasons that fall under the “life” category and when life happens vendors will need to act quickly. If you are looking for discounts the ability to act quickly may be your ticket to creating equity at purchase. Generally, (and without trying to cause to much debate) cash flow positive properties will generate equity growth at a slower rate so buying with built in equity or potential to create equity may be how you move your portfolio forward. With this strategy you have the option to (given time) look at refinancing that investment property and using the equity toward future purchases either with the same lender or another.
Making multiple offers will train you to become detached emotionally from the purchase (or offer) and allow you to negotiate within your target range. Cavet this with a commitment not to waste anyone’s time whether it be a sales agent or vendor. Act quickly and within your limits. Stay away from deals you can’t finance and be transparent with sales agents. If you have made three offers in a week then it may be prudent to disclose the fact if you intend on working with an agent closely. Do not in any circumstance be involved in a multiple offer scenario or auction situation and if your jurisdiction (country or state) allows it make an offer subject to it being presented to the vendor with a conditional time period and on its own.
I think the important part of any investment is the buying stage, that is where all the money is made. Submitting low offers, although will tend to lead to rejection more often, is the best way to make money, it may take time and a little bit of a luck to get a low offer accepted, but it is better than wasting money.