positive versus negative investing

Hi Ollie

You would be surprised how many forum clients we get in the same position to yourself.

Building a sustainable long term property portfolio is more about structuring the loan correctly and then selecting the appropriate property to allow you to keep investing.

We are having more and more clients wanting us to source properties that meet this criteria and done properly there is no reason why you can’t have a healthy income come retirement.

Cheers

Yours in Finance

Hi Ollie,

I think a common goal of all investors is to make money, but few ever really stop to think ‘how’, ‘when’, and ‘why’.

So let me ask some questions, with your answers then providing guidance on what direction is best for you in respect to the property and strategy to adopt:

1. What profit do you want: income or growth (pick one)?
2. How will this profit be made (market or investor driven)?
3. How active do you want to be with your investing? Specifically, how many hours a week can you allocate?
4. How would you rate your risk tolerance: low, medium or high?
5. What time frame do you expect your profit to be made in?

Have a go at answering those points and I will reply back with further thoughts, time permitting.

– Steve

Hey Ollie,

Here’s the problem… back when I started investing in 1999 you could acquire positive cash flow properties with a small capital base.

For instance, buying $40k to $50k houses in Ballarat / La Trobe Valley meant that with $500k of capital and 80% financing, you could pick up 8 to 10 positive cash flow properties and pocket net cash flow of about $8k to $10k per month.

As you know though, prices have increased substantially, and in excess of rent increases.

For a while it was very hard to buy positive cash flow at all (when interest rates were >7%), but as interest rates have fallen (and with them interest costs), positive cash flow property opportunities have re-emerged, but at a higher price point.

So, unless you have significant capital (now $1m+), buying incremental positive cash flow residential property can take a long time.

That’s why I recommend a new approach, which as I explained in ‘From 0 To Financial Freedom’, broadly follows this path:

1. In the first instance, concentrate on value add residential property to build your capital base
2. Supplement your income with an income accelerator
3. Once you hit your required capital base, migrate out of residential into commercial property where there are higher yields.

If you’d like to know more then pick up a copy of the book from the store. From memory it is less than $20.

– Steve

Steve is the man. Follow his advice!

You have to find your own path though. I have had some success with shares (doing it the old fashioned way – Buy, it went up, I Sell!) and am now looking for cashflow positive property deals.

I have bought in Gold Coast and NZ in the past 24 months and the most expensive home I purchased was less than $140k.

The houses I’ve bought are all standalone or in a small block for the QLD case. I’ve avoided high rise with their OC fees that really eat into your income.

Also consider getting some coaching or training. You have a real opportunity to put your nest egg to use.

I was in a similar situation 10 years ago and made a few big stuff-ups that cost me. Buy Steve’s book, go to his seminar. Don’t be afraid to invest in yourself a little before you try to find a “vehicle” to make your money.

Good luck,

Dwight

Sorry Ollie don’t want to appear negative but did you say the yield post body corporate, insurance and Council Rates was in the low 4% and you were happy with that !!!!

I will assume your kidding as you get a similar amount in a Term deposit.

What happens when interest rates increase and the Body Corporate fees go up which of course they will.

I have to say we would never buy a unit for a client ( there are the odd exceptions of course ) and would focus on freehold property that generates 5.5% +.

You are never going to be able to retire on a rental income that starts that low and going forward financing number 2 will get harder.

Seriously if it is not too late review your investment decision and buy something else as you cannot live off capital growth alone.

Cheers

Yours in Finance

• This reply was modified 10 years, 6 months ago by  Richard Taylor.

Yes that is better but even at 5.1% I wouldn’t touch it.

Just make sure whichever property you go for you don’t have a single loan over the 2 properties which is something your Bank will encourage.

Loan structure is paramount especially if you are trying to build a long term income and most Bankers have no idea.

Cheers

Yours in Finance