Hi
how are we all ?
Well i am about 1/2 through reading steve’s book.
anyway i have a question to ask. i have noticed a couple of people on here speak about positive geared property etc. alot of posts i have read have spoken about the property being positive geared after paying the deposit ie 20%. is this the general consensus for how people are looking for positive geared property.
or is it on the whole 100%.
thanks
Hi pmaurice,
It really depends, property can be either positive geared on the full purchase price or with cash deposit.
The main idea is, trying to purchase a property with the minimal cash from your pocket for the purchase and cost, but also proving and allowing the property to be +ve cashflow, while using limited dollars from your pocket, or funds allocated.
cheers,
s.i.sHi pmaurice
Welcome to the forum. I too am finally enjoying Stevos book, it was given to me by a good friend for Christmas when he found out that I had already bought 3 copies for other people and none for myself yet. Actually the last copy I bought prompted a lady in the checkout queue to tell how wonderful the book was and that I should really get a lot out of it. I just smiled and thanked her.
Anyways, just for my 2 cents, we look for property that is cashflow positive (so makes money from day one) based on teh purchase price, but we still put in the 20% deposit as our bank likes us when we do that and we know they will be happier lending to us while we do that.
My advice is to spend a good amount of time here learning all you can so that you can develope your own set of guidelines or rules for your investing future.
Best of luck.
Cheers
Leigh K[
]Carve your own path and lead the way …
pmaurice,
I don’t see paying a 20% deposit as part of a pozz cashflow calculation. we could all pay 50% deposit, but does that mean the return is positive? I don’t think so.
Cashflow is based upon full price of the purchase- plus expenses. You get a bigger income than that and you’re doing well
)kay henry
and how do you guys look at a property which you built for say $100k, could sell for $200k but would pay $50k tax if you sold, so a net sale price of $150k ?
I would say the cost of the property is $150k, but would you guys consider it to be $100k? i guess if you used $150k, then on the same logic you would have to constantly evaluate your returns on all your properties based on their latest valuation, but then maybe you should do that anyway
Ausprop,
I am discussing rental returns. And yes, i work on the purchase price paid to calculate return, not on current valuation. The current valuation is only of concern when i resell. So if my property is bought for 100k and recieves 200 rent, then it is a 10% return (on price, not price plus expenses). If the property is at a future date worth 200k and still rented at 200 bucks a week, the return is 5% for the new owner- but for me, the return is still 10% until I sell.
kay henry
The thing that concerns me about these cheap properties is the quality of tenants you will attract and any hassles that may accompany that approach, compared to buying more expensive IPs and attracting more “quality tenants” I mean it should not be that way and Im not sure if it is but it does concern me a bit. As the saying goes you get what you pay for. This is a more generalised hypothesis and not always applicable but I cant help but wonder if people who buy cheap properties have many more tenant hassles. i.e. those with less money generally have lower standards of living and social problems etc… I know they say that wealthy people have the same sorts of problems so I guess Im just trying to get a feel for what others think about this aspect. I mean you are surely catering for a different market demographic.
Hi hwd007,
I also agree, by your words that you use too, though one good way that i have been able to avoid annoying tenants, and tenants with a bad history is by, when selecting a PM to manage the properties, i offer them and negotiate a deal of were we both will have a win win situation, through pre organised agreements.
If they dont hold up there end of the bargain, they lose my service, and any other properties currently being managed by them.
Maybe harsh, but i do provide them with excellent incentives.
cheers,
s.i.shwd007,
Some of my experiences as a PM. I have rented dozens of properties of lower quality (55 – 20 yr old units) to Bosnian refugees and could not ask for a better tenant. They keep the units immaculate and their rent is ALWAYS paid on the exact date. At the same time I have rented $400 a week homes to doctors and the would never do it agaiin. They have lived like pigs and for ever chasing rent, say they are to busy to pay it.
Guess my theory is that a properties from the lower to mmedium bracket the tenants generally stay longer and because they may take longer to save for deposit to buy their own place, they tend to treat the rental like it was their own as they usually stay longer.
Just my observation.
ooh, I like this fast reply business. It’s fast!
i calculate the gross yield (rental income divided by purchase price) and then the net yield (less annual costs such as vacancy, repairs, management, rates, and insurance.)
In the price range and areas i have bought in, it’s been that 20 percent gross works out to 10 percent in the hand.
factoring in borrowing, you figure that if you are getting 10 percent and paying 8 percent to borrow, that your margin/profit is 2 percent of the purchase price. Not bad if you are lucky enough to finance the whole thing from existing equity. And quite good too if all you had to put in was the deposit and closing costs. (cash on cash return.)
In the end i wouldn’t bother with a supposed cashflow positive property unless it was yielding 10 percent after costs, because if it isn’t twice as good as a term deposit considering the work and risk involved, why bother? And i wouldn’t be buying property hoping for capital gain at the supposed top of a property boom either.
I think the people who have done well with positive cashflow properties are the ones that haven’t settled for lame yields. Too many people call 10 percent gross yielding properties ‘cashflow positive’ but if borrowing is 7-8 percent, 2 percent isn’t often enough to cover the costs of owning the property. i reckon a lot of people forget about the holding costs when calculating their potential returns. Don’t be in denial about them. i reckon when doing your number-crunching, overestimate what the costs will be and then be pleasantly surprised, rather than the other way around.
cheers-
mini
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