Hi All,
I’m new at property investing with an eye to buy my first property very soon and multiple properties in the long term. My strategy is “buy and hold†and I’m putting a plan together on how to do this.
My number one concern is CASH FLOW.
I want to spend a maximum of $250K on my first property and rent it out, but the repayments work out to be approx $450 (including annual costs). Even if the tenants return, at best, a rental of $250 I’m still putting $200 out of my pocket per week.
For the first property, I can probably survive. However, once I want to buy the 2nd, 3rd, etc property, the difference between my rental income and loan repayments will be too much for me to afford.
I must be missing something because there are people out there doing it. Can someone please help me out?
N Lam [biggrin]
Hi N_Lam,
Welcome to the forum! My first tip would be to look at the huge amount of information on this forum (if you have not already) to get some ideas about how others have been successful in property investing, a lot of us have had the same queries as you at one time or another!
My number one concern is CASH FLOW.I want to spend a maximum of $250K on my first property and rent it out, but the repayments work out to be approx $450 (including annual costs). Even if the tenants return, at best, a rental of $250 I’m still putting $200 out of my pocket per week.Most people cannot afford to buy more than about three investment properties (I say most) because they max themselves out with lenders. If you are interested in purchasing multiple properties then I suggest that you look at setting up a structure (for example a discretionary or hybrid trust)to allow you to continue your investing beyond a few properties. In the search mechanism on this forum type in “trusts” and you will receive a wealth of information on their benefits when looking at purchasing multiple properties.[aacool]
Good luck!
krsQuote:Originally posted by N_Lam:Hi All,
I’m new at property investing with an eye to buy my first property very soon and multiple properties in the long term. My strategy is “buy and hold†and I’m putting a plan together on how to do this.
My number one concern is CASH FLOW.
I want to spend a maximum of $250K on my first property and rent it out, but the repayments work out to be approx $450 (including annual costs). Even if the tenants return, at best, a rental of $250 I’m still putting $200 out of my pocket per week.
For the first property, I can probably survive. However, once I want to buy the 2nd, 3rd, etc property, the difference between my rental income and loan repayments will be too much for me to afford.
I must be missing something because there are people out there doing it. Can someone please help me out?
N Lam [biggrin]
/quote]
Hi N Lam,
Nowaday, cash flow residential properties are rare as hen teeth. May be in some tiny remote mining towns, you can find quite a number of them if you don’t mind to make a long distance to check them out. But major banks may not able to give good LVR loan for this sort of properties. Could you try commercial property ? perhaps, it could be easier for you to find what you want. Good luck !
My opinion
NichelbenThanks Krs and nickelben
Thanks for the advice. I have been looking in the forums but not under “trusts” – I’ll give it a go. However, I believe the structure is a separate discussion all together (I’m already talking to accountants about this).
Before researching any further, I’ve already got two ideas in mind, but I’m still not sure if either will pull through for me given their drawbacks.
1st Idea: Buy an apartment(s) which is positive cash flow or neutrully geared. I get equity and good cash flow as per my strategy but the main draw back is that lenders who I have spoken to won’t give me a loan and I won’t be able to get the second property for a while.
2nd Idea: Buy a researched property which I think will appreciate. I can draw on the equity from this property as it goes up in value, but only if it goes up in value. The main drawbacks are that cash flow will be negative and I’m relying on my research for the property to appreciate.
I will continue to look more in the forums posted online and eventually come to a decision. Thanks for your help!!
N Lam
Hi N_Lam,
the main draw back is that lenders who I have spoken to won’t give me a loanHave you tried more than one lender? I have learnt in this game that it is important not to give up if a wall is in your way…there is probably always another way around that wall…… but you need to take action to ensure this. However, if you are maxed out, is there another way, maybe by finding a partner who has the capital if you have the time……?
2nd Idea: Buy a researched property which I think will appreciate.You need to have a goal yes, but be careful about basing your ideas on the fact that you think the property “might” appreciate (it may take 10 years!?). Why not back yourself and find a property in the area that you have researched and “add value” to that property that will ensure that it will appreciate?
Anyway just some thoughts, comments welcome.
Cheers
KrsI agree with KRS ! And also be careful with apartment as the factor of land value is always smaller. When a property appreciate in value, it is the land that appreciate in value. And another disadvantage is to pay endless corp fee, sinking fund and you can do very little to improve the value of the property by adding on something. Why not buy a lowset detached house instead ? For me, i never touch apartment for my investment .
Hope that will help
NichelbenLast week I settled on a property for $40k with a 90% LVR leased the day of settlement for $120 per week.
I am still buying property as an individual (not in trust) and I am up to double digits in the number of properties me and the bank own together.
The deals are still out there to be found.
I know it is starting to sound like a looped recording, but you will make money when you solve a problem.
I went to an auction on the W/E a four B/R house with A/C, on three acres 40 Minutes to Dubbo I could lease it any day of the week for $140 per week. The bidding reached $30k. At that time the winning bidder was left to negotiate with the auctioneer. It was a mortgagee sale.
The problem that needed solving?
The land was leasehold and the property needed tidying up.
Solve those two problems and you would have been able to make a clean $80k out of the transaction, or just keep it as a rental.
Hope this helps.Thanks jenwren, nickelben and krs
You are right about “there is always ways around the problem”
I’ve already decided that I am going to do this on my own. There was an attempt to do this in venture with my brother and sister, but we all agreed that earning 1/3rd of the income and carrying the debt of the venture makes each of our indvidual servicability ratings bad.
I’ve had a good think about it and my strategy so far without figures is:
1) Buy the first 2 or 3 properties as +ve cash flow properties using a buyers agent to get into the game and understand the process. I will not limit myself to just apartments (If jenwren is buying acres of land, why cant i
)2) For the 3rd or 4th property moving forward, I want to diversify my portfolio through bluechip properties that will appreciate in value (i.e. -ve cash flow), but also continue to purchase +ve cash flow properties.
Justifying my strategy,
1) I get to keep on buying properties
2) I build wealth and equity
3) the proceeds from the +ve cashflow properties can be used to fund the -ve geared properties and
4) I get diversity in my portfolioDo you see how my strategy could be flawed?
Nam [biggrin]
In the current climate you really need to look at commercial property if you want positive cashflow. Read some of Dazzling’s posts if you want some entertaining stories on this subject.
Regards
AlistairAnother alternative is to look at Lease Options or Installment Contracts for positive cash flow.
The demand today is greater than it was 18 months ago.
If you use a Shared Equity scheme with a Lease Option then you will get the best of both worlds.
Cheers Richard
Ph: 07 3720 1888
[email protected]
http://www.yourstatefinance.comSpecialising in US & IP finance.
Richard Taylor | Australia's leading private lender
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