I have opportunity to purchase home for $140,000 with rental fetching $160 per week. Is this a good deal? Personally I think it is borderline. In my opinion chances of capital gain are very good. What do you guys think? Need a bit of advice here.
Not enough info
Are you planning to finance 80% of the purchase price? If you’re financing 80%, the weekly (interest only) borrowing costs would be about 145 per week before holding costs.
Over a year, that would be less than $800 cash flow – not nearly enough to cover holding costs of rates, repairs, management fees etc.
If you left a 20% deposit of 28,000 in a bank term deposit you’d get about 1,600 (before tax)
And I haven’t even considered transaction costs of buying.
On a cash flow basis, this looks cash flow negative
Can you afford to carry the losses until there is a capital gain?
Only you can decide.
Hi cyclist
I’m with swampy30 , You will only make money if the property appreciates in value. Once you add Stamp duty etc and then Agents selling costs it will take some growth to even break even.
Best to do all your sums, I’m not privey to all the details but on the face of it , this deal wouldn’t be something that i’d be chacing
regards westan
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I think the location and thus potential for CG is key here.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
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Thanks for all replies. I feel I am a beginner and wish to run my ideas & thoughts past a few people.
Hi,
I know I will probably get shot down in flames for saying this, but if the property is in good condition and more importantly, in a good position, I would go for it, assuming you can service the small loss. When I look at a purchase price I multiply the purchase price x interest rate and divide the answer by 52 weeks. In this case $140,000 x 6.5% divided by 52 = $175. If it is fetching $160 per week now, it is nearly there. I know, I know, this is very simplistic, but IF IT IS IN A GOOD POSITION WITH CAPITAL GAIN POTENTIAL that would be close enough for me.
I don’t bother adding all the costs in because I have only once bought a CF+ house. Nearly neutral is good enough for me IF THE POSITION IS GOOD and the growth potential is there and if you can support the loan easily.
I don’t mean to sound laiz ai fair or imply that cash flow isn’t important to us, but the future potential would win with me every time, provided we could service the negative cash flow until rents picked up, or we could improve the rental yield by a lick of paint and polished boards, etc.
I am also not saying to rush into the first house you see, but, personally I’d rather have a slight loss with good potential growth.
Just thought I’d throw my thoughts in.
Regards, Wylie
Wylie,
I like your formula – even quicker than 11 seconds!
I would be the last person to knock CG or negative gearing, as it’s how I’ve gained my equity. Capital growth can be very important, and let’s face it, CG is what the majority of people think of when talking about property.
However I have personally come to appreciate that capital gains are not the whole picture. It’s a fact, as Steve says, most people only buy one or two -ve properties, and capital gains are somewhat more of a gamble than actual cash flow. (I know, I know, that could be argued either way!)
In the end, investors have to balance the current situation against future expectations
That’s what it’s all about; looking at each deal as a complete picture – not just cash flow or just capital gains
cheers
Swamp30
So, … Cyclist, …
wats the go?
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonThis is what the go is
The full story is that I own a block of vacant land in the same town. Put a contract on it in last January and settled early July. Purchase price $67000. I reckon I could reasonably sell it now for $75000. So after expenses I probably made $2000 profit in 4 months. Not bad 4 a beginner. However I am at the moment really straining the budget and just making ends meet. I have decided to keep the vacant block cause I believe values will continue to rise. Too much hassle to sell the block and to buy the house for $140000 although owning a house someone else would be making a large contribution towards paying ot off.
I like all previous feedbacks so I can get idea of opinions.
Cyclist
Why not pop something on the block, rather than ditch it and buy a house & block ??
Yes thats another good option. I really like this forum . Great.
Cyclist
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