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I agree that you shouldn’t sit on your hands too long. In fact I don’t think you should sit on your hands at all. However, that doesn’t mean jumping into the first thing that comes along. The first step is always to do your homework and understand what it is you’re doing. If you’re not getting to the point where you can proceed with confidence then either you don’t have the apptitude or don’t have a mentor to guide you. You can fix both of these things if you want to. Depends on your circumstance but I maintain it’s better to proceed with caution and make some profit rather than jump from one great opportunity to another, chasing the big deals but never hanging around long enough to see something through.
(Part 2)
Comparing this to “normal” rental returns:
$194*52/$75,000 = 13.5% (rent pa / purchase price)
If the “normal” expected rental return is 5% then 13.5% sounds like a big ask.To justify the above average rental retun on our purchase price we could say that we bought the property at a discount and base the rental retun on the “real” value of the property. If we say that the “noraml” rental return on purchase price is 5% then we get:
Rent: $10,088 (194*52)
Rental Return: 5%
Real Property Value: $201,760 (10,088 / 5%)So in summary, we’ve bought the property at a 63% discount.
No wonder these properties are hard to find!
This example provides a 10% return which while better than the bank doesn’t seem to flash considering the risks.
Next thing is we want +ve cash flow so let’s assume zero growth. With zero growth I wouldn’t be banking on the rent to be rising to fast. On the basis that we are already receiving an above market rent it might make it even more difficult to increase the rent each year. If the rent doesn’t rise each year then the time value of money principle means that our real return is decreasing each year.
It seems to me that buy and hold for positive cash flow is a bit unrealistic unless you are doing this full time. Doing it full time means that you have large amounts of time to see lots of properties which makes it more likely that you’ll uncover the prpoperties that will work. i.e. Let’s say you find 1 that will work out of every 100 qualified properties that you see. If you can only look at 5 a week it could take 6 months to find a property. If you can look at 10 a day you’ll find at least one per month.
Does that mean that wrapping is the only viable option for people who still have to work full time? Does any of this make sense or am I completely off track?
