Unless you are going rural you don’t find cash flow positive properties.  You have to Make them. Typically this is done by strageties suchs as subdivision, and selling off the land, a retain and build or my favourite a HMO (rent by the room).  Even better is to get a property where you can  layer in these strategies into a single purchase.

Here is an example that I purchased 3 weeks ago that has yet to settle.  Off market purchase at $670,000, house had been trashed by poor quality tenants. Owner was self managing to save $. House is filthy dirty, has fleas and a badly water damaged ceiling thanks to a faulty evaporative air conditioner.  Owner wasn’t interested in spending the 30k to sort the house out and undersold to get rid of it, leaving 70k on the table.  You buy problems and turn them into solutions.

We have yet to settle, but have already started the subdivision process. Post subdivision we will have a lot of 260-270m2 that we are going to build a good sized street front 3 x 2 on.  This is worth Mid 7’s will cost high 3’s to build  and the subdivision will be about 45k.  This process will take 21-24 months.

This will leave us with the original 4 x 2 which we will convert into a 5 bed 3 bath home which we will rent out by the room with an anticipated gross rent of $1500 a week. After costs (water, power, rates internet PM etc) we will have an income of cicia $1,100-$1,150 a week.  Conversion costs 90k DIY. Take the profit from the build, pay some tax and we will be nicely cashflow positive principal and interest in around 2 years time.

• This reply was modified 3 months ago by  David Hall.

Before purchasing, speak to a local town planner. The medium density design guide lines come into force in September (with some restrictions) you will need to tread very carefully.  Basic rule of thumb, to build a single story 3 x 2 home you will need a lot of 300-320m2.  If the lot is smaller than this you will have to build 2 story.  Whilst this will work in high socio economic suburbs, eg Doubleview or Wembley, it won’t work in suburbs such as Girraween or Balga.

there are a lot of titled sub 250m2 lots for sale (especially in the city of Joondalup/Swan) that you cannot build on profitably.

There is a saying. Yield keeps you in the game, capital growth gets you out of it.

Whilst the Initial yield on a 200k purchase may sound good, by the time you take into account land tax, council rates, typically higher vacancy rate, difficulty in getting quality property management and, the difficulty of finding reliable and affordable trades , that high yield can disappear.

Start with the end in mind and work backwards.

I

You will also need to consider that in todays environment that there is a limited pool of banks willing to lend in this space.  As a result, it comes with a high interest rate (I’ve seen 1 bank at 6%) and a much higher loan to value ratio.

Hi Alison,

If you are looking to purchase a commercial property, you can expect to encounter significant problems financing you building purchase.  Due to Covid 19, I have seen banks decline a few commercial deals, despite good serviceability.  Added to this you have an unproven business with no financials.  Borrowing will be very difficult.

If you have cash, there is going to be some sensational buying opportunities in 6 months time.  For example I have my eye on a light commercial property that is listed for $900k, which I am confident I can get for the high 300’s in a few more months time.  The location is sensational, the building isn’t.

On the positive there is about to be a lot of commercial leasing opportunities come up, with some great rents and incentives.

I hope this helps

It looks like they have just become insolvent. I think that sums up what they are like.

https://insolvencynotices.asic.gov.au/browsesearch-notices/notice-details/ASSET-PARTNERS-WA-PTY-LTD-135545729/af7c7a1f-6a3b-46cc-ba2f-fd78436bb60e

• This reply was modified 5 years, 9 months ago by  David Hall.

Hi David,

One thing to consider, prior to establishing your SMSF is the cost of your money, depending on what it is that you plan to do your interest rate will be higher 1-1.5% as will your deposit. Talk to your broker about what to expect before you establish.

There are two leading indicators that I am looking for.
1) Rental market. This is the first and leading indicator of what is happening in a market.
Is the number of properties for rent rising or falling? Are rents increasing or decreasing?
A tightening rental market is the first indicator of house price growth to come, an loosening rental market is a sign of price drops to come. Perth is a classic example. The rental market headed south 6-9 months before the sales market followed suit. The rental market is now recovering. Housing will follow, but it is always behind the rental market.

2) Stock on market. Increasing number of houses for sale = falling prices. A decrease of stock = rising prices. Stock staying the same = flat prices in line with CPI.

For example, Perth currently has 14,500 properties for sale, which is an over supplied market, hence our recent poor performance (there is a reason why it is called a buyers market!). 13,000 is a balanced market. Prices will generally increase inline with CPI. 11,500 properties for sale is a sellers market. Expect prices to rise above inflation, with strong competition for good properties. Sub 10,000 is an out of control market, with poor quality properties selling for a premium.

Hello Lauren,

I am very active in the Perth market. It has definitely come off the bottom. We have gone from a peak of 17,000 properties for sale (Buyers market) 18 months ago to a balanced market of 13,100 properties for sale (balanced market). Over the last 4 weeks this number has come up to the low 14,000’s as the spring listings hit the market. 6 months ago I was the only offer, now the majority of the offers I am making are competing.

For example, I picked up a demolish and duplex property on Friday. I have an established relationship with the selling agent. She had not priced the property for the duplex potential, as she was unaware of a recent change to the zoning rules. It was advertised on Monday. I rang on Tuesday to arrange for an inspection prior to the first open on Saturday, with a view to getting it before the first open. Initially the owners wanted to wait until the weekends open, and wouldn’t let me through. On Friday at 4:00pm the selling agent rang to advise that she had received a cash, site unseen offer. I was able to inspect with my client at 5:00pm and get a slightly better cash offer accepted prior to the first open.

If it had gone to the open home, there is no doubt in my mind it would have gone for $20,000 – $30,000 more. The best bit is, I’ve got a seller lease back for 6 months, pending credit checks.

The rental market is also beginning to recover, with the number of properties for rent dropping by 80-150 every week. If this continues we will be back into a balanced rental market in 8-12 months time. Once the rental market is balanced, this will put upward pressure on the housing market as tenants decide to buy rather than rent.

Finally the WA jobs market is recovering. 3 new iron ore mines are committed to construction (BHP, RIO and FMG) in order for these miners to maintain current production levels. Todd energy may also be about to push go on a new iron ore development. Lithium is starting to take off and gold is doing well. Jobs are the fuel of house price growth.

I hope this helps

You cannot use and or Nominee in WA without attracting stamp duty. The only exemption allowed is within a family eg change from father to a son or from a husband to a wife. This is however at the discretion of the commissioner and should not be relied upon.