Forum Replies Created
Thanks every one for your responses. I’ll certainly take them into consideration! [grad]
Michael, i agree with your thoughts on arriving at a preferred IRR. It is very subjective and i realise this now..
MarkyMark, that’s a great idea about using a +CF property to generate the cash needed to support a negatively geared property with high capital gain… a “cash neutral” investment strategy – i like it! Given your experiance, how many +CF properties are generally required to support one neg geared property?
Thanks everyone for your comments. For someone just starting out i have definitely gained some valuable insights! [buz2]
Thanks again for your responses they have been very helpful.
However, what i’m really trying to determine is an acceptable IRR for a property over its investment life. This rate of return should take into consideraiton all forms of before tax cashflow such as the annual gross rental income and net proceeds from the eventual sale. I am hoping that i’ll be able to use this required return as a hurdle rate to determine whether investing in particular property is worthwhile or not. The other benefit of knowing what to use as a hurdle rate is that based on a predictable annual CoCR i would be able to calculate how much, in annual % terms, a positively geared property would have to fall in value for the investment to be undesirable.
Any thoughts??[buz2]
Thanks everyone for your responses!
Jeff, in relation to your statement:
“The combination of +CF and any capital gains or losses until you exit your investment must be positive.”
How positive is positive? I guess what i’m really asking is what kind of hurdle rate (%) +CF investors use to evluate a worthwhile investment (8%? 10%?). I know much of this depends on the investor’s goals (preference for risk, competing investment alternatives, etc…) but is there a benchmark return that is generally accepted as a minimum required rate of return on +CF propertives? I think Steve McKnight in his book uses a CoCR of 15%… however, to pick up on the point you made in your statement Jeff, this is a somewhat limited decision tool as it ignores what is happening on the capital side of the investing equation. Obvioiusly, if the property declines in value, the IRR of the investment would be less than 15%.
Shouldn’t any investment decision be made taking into account all future expected cashflows (ie. the IRR) and not just the annual yield on the initial cash contributed? I am wondering if any one out there would like to share with me what kind of finanicial analysis tool they use for evaluating a property investment (especially one that is positively geared) and what kind of hurdle rate they apply to his end.
Regards
Teeks
