Hi All,
It seems every man and his dog are after these “positive geared” investments, but when it actually comes down to it, most people seem to be struggling to create huge amounts of equity and cashflow. So it gave me an idea (it’s only an idea, no need to kick me out or anything). Many people (including myself) seem to be having trouble for one simple reason…cashflow, these things are just too expensive for the cashflow they give. The year is 2005, not 1995 or ’85.
So why do people buy properties? For growth and cashflow (you certainly don’t buy property for the fun of doing paperwork). It’s the land, which you really want, it’s the scarce asset which is someone will always make a use of for the rest of your life (Macca’s own some of the most valuable land in the world). Buildings depreciate, land appreciates. If you want to buy a box, go to the share market. But if you want a box on a scarce piece of paper, invest in property. (BTW anyone done any research on the paper in the Adelaide area?)
So what choices are there when buying property? I have a few choices, I can go to an area that is likely to achieve growth in the short (and hopefully medium to long) term, and just take whatever yield they give me (around 3-5% these days). So I buy a property, and with my own income I help pay off the interest only loan. This is fine, there is nothing wrong with this (this is certainly better than a 4% pa savings account), but I am somewhat limited to how much I can buy.
Another choice is to go to an area where the yeilds are very high. Generally this can only be done in regional or rural areas these days. I might get a 10% yield, with an 80% loan. The rent pays all of my outgoings plus there’s a little bit left over to go into my pocket ($10-$50 per week). I consider myself an expert investor because I’m “positively geared”. Then something in the house breaks and there goes 6 months cashflow. Chances of long term consistent growth? Maybe, but probably not. I’m certainly going to need a lot of these places to do well. And if I’m trying to rent it for higher than someone can buy it for (generally people can buy a place for 8.5% per year for 25 years), there’s not going to be many people who want to rent at these high rates.
There’s an article going around called “Positive or Negative”. It uses the example of two properties. One with poor cashflow and good growth, the other with good cashflow and poor growth. It clearly shows that the growth property (negatively geared) is the better buy in the long term (and we all want to live a few decades more, not just a few years more). So of course I should go out and buy one…?
But is it comparing apples with apples? I remember reading in a Robert Kiyosaki book about him buying a negatively geared property. He went and told his Rich Dad. His Rich Dad was pleased that he took action (“because most people don’t”) but was concened about the investment. His question was,“..but how many can you buy?”
This is the key. There is nothing wrong with negatively gearing, in fact it’s a great strategy, but how many can you buy? Technically you could buy an unlimited number of positively geared properties (Steve McKnight got up to around 180 at one stage). So how do we find positively geared properties in good growth areas. For example in my area (suburbia Melb), the costs for holding an investment property would be murderous. So what’s the chance of finding something positive? No way! Not today! You can’t do that! It’s IMPOSSIBLE!!
Within the last 12 months in the same area a positively geared property was bought, in fact several were bought. And they now provide the owners excellent cashflow, and a good opportunity for growth. How?
Robert Kiyosaki talks about it in “What the Rich invest in, that the poor and middle class do not.” The rich invest in different things, hence why they are different. Everyone invests in something. Many people try to get rich by investing in middle class investments.
If I said that one of these positively geared properties was a large commercial property, people say, “Well that’s different!”EXACTLY!
That’s why they’re rich. The invest in different things. So what do we do? If I said there was a property with the following numbers, would you buy it?
Purchase price: $300,000
Weekly Rental: $560
Area: Brisbane suburb
Depreciation: Great as property is new.Would you buy it? Of course you would, you’d buy as many as you could get your hands on (BTW anyone done research on Brisbane land?). In fact this property exists, right now TODAY! But these aren’t the exact numbers, the numbers are larger than this, but the ratios are the same! So instead of only one person being able to buy the place, several people would each be buying their own $300k property in Brisbane, each with these numbers. Some people could even buy two or three! Each person would have their share in a quality property. I mean it’s not rocket science,
It’s just an idea…..[suave2]
I think it’s great though it’s reinventing the wheel!
those deals are indeed everywhere and you can buy them if you have the cashflow or can get public funds(which will come very expensive too) as banks lend you up to 70% but (and unless you’re a cashed up investor) usually lend you up to 50% LVR.
This information is first hand attempts and second hand from experienced people.
please let me know what your new angle is on this. I don’t mind being wrong as I seek only “better and best” approach, process and results.
Cheers!
Cheers
Latinoz
Purchase price: $300,000
70% Mortgage: $210,000
Deposit Required: $90,000
Cost/year: $15,000 ($210,000 x 7%)
Income/year: $29,000 ($560 x 52)
Positive cashflow: $14,000
Return on Investment: 15.5% (14/91)
(Not including depreciation and capital growth in Brisbane suburb)Any complaints? Even if you borrowed the whole deposit from another property, it would still provide $8,000 pa (still around a 9% return on this OPM)
Surely there are people out there doing this?
This looks like an ad to me- like most of Red’s posts. Mods?
kay henry
“An ad?”
All I did was see a few properties on the net, and they looked really good, and wondered if people get together to buy these things? (or just leave ’em for the mega rich?)“Most of my posts?”
I’m up to about 8 now, in about a year. A long way off 2794 (that’s a lot of time). I’d love to know what I’m advertising because I don’t have a thing (I’ve got an old bike if anyone’s interested)!Red
TimSo have you invested your hard earned in this. You said that 300k wasn’t the figure…in fact they were much larger. How much larger…and if their larger then maybe only the rich can afford such deals.
No I haven’t, like I said I saw this place (and several others) on the net, and rather than giving up and simply saying that it’s out of my price range (which it is for me and most people), I thought that there might be a way for people like me to get their hands on these deals (I challenge anyone to find a traditional single family home with these numbers). I use smaller numbers because very large numbers don’t fit into most people’s context. But what’s the difference? If there were ten properties on the net all returning this amount, people would buy them. But what if ten different people all put their money together to get these same returns on one property? To me it’s the same thing. And it beats going overseas (US, NZ etc) to get these kind of numbers.
Think outside the box (’cause the money certain ain’t in the box).Red
TimSo what your saying is you are looking for people interested in pooling their funds to buy such a property…why didn’t you just say that.
.
My next question would be…how many people do you needI’m just throwing up an idea, that’s all, and I thought this would be the best place to do it. In fact I didn’t want to do it here because it’s quite unfortunate what gets posted forums like these (Okay, I am guilty of one tongue-in-cheek post). We’re supposed to be talking about “property investing” and bouncing ideas and thoughts around.
Unfortunately for everyone, I don’t believe that the very many successful investors have any need or desire to post stuff in forums, and actually keep away from them (I have met a few successful investors, but never managed to find them in forums).
I’m not an expert, I’m hardly a novice (has anyone checked my profile, it’s fairly plain for a reason, and I’m flattered when someone suggests that I might be involved with selling something somewhere to someone). But I educate myself thoroughly on areas of investing. I understand the concepts, and I can see why some people do very well, and others don’t (and I believe that it’s got very little to do with money).
I recently saw a few potential investments (available to anyone on the internet) and they were quite expensive. But the numbers on these things were great. I thought if only I had the money I would buy it. And there are probably another dozen or so people saying the same thing (“I can’t afford it”). So I thought what if we got some people together? (“Investing is a team sport”)
Maybe set up a unit-trust (the investment mentioned would need approx ten investors), and everyone would contribute the same amount of capital, go to a bank and say let’s do this. Obviously there’s some paper work required, but what’s the alternative? (my super fund made 13% last year, but with fees it actually made a loss)
I honestly don’t know, I may be way off track, but I’m sure someone somewhere is doing this. And with no offence intended, I don’t think they’re sitting in front of a computer posting two and half thousand posts.Red
TimRedTim,
You sound like quite a sophisticated investor by what you write for someone who is concerned initially about not being able to find +CF properties, etc. I would imagine from reading your posts (quality not quantity. The number of posts are irrelevant) that you are what I would call a ‘sophisticated investor.’ Kiyosaki and other investment ‘Guru’s’ make reference to the ‘7 levels of investing’, with no.7 being the ideal investor. I’d like to add to that concept. In time, I’m sure you’ll see this figure increasing to the ‘8 levels of investing’. The requirements for sophisticated levels in each investing level won’t actually change. It’s just that under ‘level no.1’ it won’t explain anything! It will just read ‘Gatsby!’. So my point is I guess that you do obviously have the runs on the board so I can’t understand why you don’t apply your knowledge to improving your investing strategies, rather than shooting down the strategies of others? I don’t see how this is improving your investing strategies?
Cheers,
Gatsby!“Sometimes the hardest thing to do in life is often the best thing to do.”
RED,
sounds straight fwd, many small investors combining funds for larger ($) deals, just remember multiple parties = multiple issues (not all see through your eyes).(hope this works, my first imput)
Wille
JADIP [biggrin]Problem is for every one successful investor that invests jointly with others, there are ten that will never do it again.
As I see it it`s hard enough to make a profit by yourself let alone diluting profits two or more ways.
What would be the costs or risk of extra costs with your commercial proposition?, I`m thinking it would not be worth the effort to borrow so much money for such a small stake n a property where at best the profit if there is any gets split two, three or more ways.Mark,
I’m not sure diluting profits is the right thinking. You’re gaining access to a concentrated income stream from an expensive property that you alone cannot afford to control, and then diluting it amongst the owners on a pre-determined and agreed equitable basis.
Pretty basic stuff…most of the business world works like this.
In my surfing travels I remember a lovely little 11 storey property in the heart of Melbourne CBD on it’s own block of land – fully tenanted on long leases. The asking price was 69, but the rent was 9 per year (13% nett on full asking price), with generous escalation clauses in the years to follow.
In my opinion, a far better way than trying to accumulate 690 poxy $ 100K ressy houses or flats. Rents better too…and you don’t have an army of tenants or PM’s – what a nightmare.
At the time I thought, oh to be big enough to grab that. A signed up / cashed up trust would of been ideal to snaffle that up. Trust…now there’s an overused term, both the legal structural level and on the far more important human side of investing.
Talk about your +CF Melbourne props…there are lots of tasty cookies if you’re looking in the right cookie jar, and you have a ladder to get up to the top shelf. Yum yum.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Red Time,
I believe it is a good idea – next job is to find people to invest with you.Speaking of group investing – I’ll share a group investing story from 20 years ago. A local solicitor organised a group of people to put in a small amount of money each to buy a local house outright. The following year the same people bought the next house the same way and so on each year. All were in low paid jobs. Not a fast ticket to wealth – but still they did more than many people at that time and now.
So group investing is possible at all levels and times – just need to find the people. But as Steve says ‘Money follows management’.
If I were you I would do all the due dilligence on the deal and then put the word out. You may get it off the ground in time – otherwise if not, then the same people might be interested next time. Build your reputation and money will find you.
As for finding the people, I’ve not done this before, but a guess is to look for time poor high income people – doctors, lawyers etc – any realestate agents you trust who might know someone to invest?
Let us know how you go if you do decide to persue this. Good luck and enjoy.
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