Lets step into a renters shoes? I have just moved to a new city and i need to find accomadation! The first thing i do is sort out the amount i am prepared to pay, secondly i find a real estate agent and organise inspections. I am given 5 sets of key and go to all 5 properties, Now if i have a budget of say $200 per week that means most houses are going to be worth between 170k and 200k, now for it to be cash positive to recieve $200 rental per week you would have had to purchase the property for 100k. Surely a renter will be ably to see the difference between a property worth 100k and 200k.
And your question is… what?
Regards,
Brett [
]“Even if you’re on the right track you’ll get run over if you just sit there.”
But what if you buy in a town where most properties return 8-9%? Provided the vacancy rate is low, the tenant therefore has little choice but to pay these rents.
I stepped into the renter’s shoes when selecting my IP. It is along a well-known CBD street, and is 10 min walk from the centre of town and closer than that to the supermarket and university. There are no busy roads or railway overpasses to cross to get there. It’s well-presented, 3 bedrooms and brick construction. It also has ducted air conditioning and a sat TV dish. The tenant could either rent a place like mine, close to town and low maintenance, or rent an old fibro house in a poorer location for the same price.
Thus even if there is a downturn and my tenant leaves, I’ve selected a place that is highly attractive to tenants yet returns 9% pa.
My approach is not just ‘buy it if it’s cashflow positive’. Instead I’ve made cashflow positive a necessary but not only condition that makes a property worthy of consideration. I am convinced that this is necessary to ensure that even during a downturn tenants will chose my property over someone else’s.
Peter
Can some please give me an answer to who out of 5 properties is going to select your property that is 1/2 the value as the other 4 properties. Steve this would be a good one for you to answer, please see first post.
Hi Paul,
Peter is right, value depends on what the renter is looking for. I still am unsure what your question is?
Cheers
Sooshie [
]There are no problems, only solutions
Soshie, I will make it simple for you. Why would any one pay $200 for something when they can get the same thing for $100,???? Do you understand now???
Hey Paul,
I think I see what you are getting at but I am unsure where such an option exists.
Most renters choose an area they wish to rent in and then find the property that best suits them. In any given area that a renter will choose to live there are predetermined rental prices. If they cannot afford to live in that area then they downgrade to a slightly cheaper house. Whether houses are worth 200K or 100K in my experience means nothing to a renter. People choose where to rent and then rent what they can to their budget.Just my thoughts.[^]
Enjoy
AD [:0)]
(Andrew)“”Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
Albert EinsteinNone of you are answering my questions, most houses return around 5% p/a for their investors, while with a cash positive property you need around 10% return on investment p/a. 5% of 200k is 10k, while 10% of 100k is 10k. both return $200 p/w, I think even a renter would be able to see the difference in a property in the same area the cost two times as much. My question is how do you compete with a house that is worth twice as much as your property???
Paul,
I think I see what you are saying but the honest truth is that two properties in the same area that were $100K different would probably rent for different money. On the flip side if ou can show me a house in a suburb that sells for half the price as the next house and rents for the same money I’ll buy three !!!
As to competing with the other property….. Who needs to compete. I personally have properties that rent for much better than 5%. I “compete” only with the other properties in my area. The worst return I have is 10.4% and that property has grown 50% since I purchased it 10 months ago. The best I have is 13.35% which has grown 30% after I did minor works to improve it.
Markets in different areas can sustain different prices. For example my neighbours rent for $170/week and the house would be worth $350K, but I own a house that cost me $70K and $10K reno that also rents for $170/week in a different town.
These sort of opportunities are out there, they are often hard to find but well worth the finding when they appear.
I guess the aim of this site is to open peoples minds to possibilities. It is possible to find cashflow positive property that rents to people like you and I.
The people who rent my properties are people with families and are good people. Everybody needs somewhere to live and people choose different places for their own reasons.Positive geared properties exist because of circumstance, eg.
1. In mining towns returns are very high because of the cash rich transient population.2. Places that may have a stigma atached to them that often change their culture before the prices.
3. Places that have had economic setbacks but changed their outlook.
4. Time – We all know of properties that 2, 3,4, etc years ago where far cheaper than they are now. I know of places in Sandgate in Brisbane that 5 years ago where cash positive but now are well and truly negative if you were to buy.
When this cycle turns full circle again who knows what opportunities may be present for cash positive property. I will certainly keep my mind open to the possibility and I think everyone should.
When you are receptive to the possibility it is amazing what you can find. If you don’t want such properties….that’s fine too as people have to do what they are comfortable with.
You’ve made me think again Paul…Thanks.
Enjoy
AD [:0)]
(Andrew)“”Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
Albert EinsteinHi Paul,
Firstly, very simply put, it’s Sooshie or Soosh if that’s easier to spell. In fairness to you, spelling is not my forte either [
], so I forgive you.
I don’t think that you would be happy with anyone’s answer because it is my guess that the question has no substance for your personal situation.
What I mean, put simply, is that it is my belief that you have NOT looked for a positive cash flow property, nor bought one, nor will you, nor are you likely to want to buy one.
Yet, you want the answers for your questions to prove a point. Perhaps, be honest with the point you are making, as it appears you genuinely have people trying to answer your theoretical ‘question’, but you are not for whatever reason of yours, listening to the people who have kindly responded to your post.
Personally, I have not done as many positive cash flow properties as I would have liked to, but since getting out of hospital and being able to actually sit infront of the computer, I have started doing my groundwork all over again, researching suburb by suburb, price by price, value for money, calling agents etc. etc. It’s the hard slog now.
Prices have jumped in the last month and I have a family of 10 waiting on me to find them a wrap house, on which they can afford repayments. Meaning they want last years price of houses.Okay so it’s almost five in the morning, but please try to read between the lines of those people who have kindly answered your post.
Happy Easter and stay safe
Sooshie [
]There are no problems, only solutions
Hi Paul – I’ll rephrase my answer, which I think more clearly answers your question.
Q. ‘surely a renter can see the difference between a $100k and $200k property for the same rent’
A. I would think they could too, though factors such as convenience, number of bedrooms, access to transport & parking would be more significant considerations than sale value.
Note that renters are normally wanting to move into a particular area. As AD said, different areas have different yields. Rents seem to be comparatively constant across Australia. Prices and therefore yields are less so.
It’s unlikely you will find a 4% property right next door to a 10% property. But you will find cities/towns with many 4% properties and others with 8-10% properties. AD has already pointed out the reasons for this.
Thus unless you strike lucky and buy super cheap (ie half-price), you will find comparatively little variation between yields in a particular area. As tenants have already decided their town/suburb, you will not have 4% yield properties competing with 10% properties. The situation you described will not arise.
In other words, unless you’ve got the bargain of the century, you will find that the % yield variations from town to town (6%) are more significant than those within towns (1-2%).
Big investors who have the inside running on cheap properties in expensive areas may differ, but for me, the first step was to find an area that has good average yields (ie 8%) and look for a keenly-priced property in this area. Even with the small variations between properties, you should be able to get something that returns 9-10%.
Peter
Soshie, Do you have any idea of what you are talking about. I have never read a post as long as yours that is about nothing, please answer the question or dont bother posting and wasting the forums time, thank you.
Hi Paul,
[
][][][][]I read your post and Plutzed myself laughing. My children have more diplomacy!
The point of my post, was to inform you that, your posts are not to ask questions in order to learn, but in order to be argumentative and disagreeable
, so my point was, that it wouldn’t matter what forum you were on or posting at, aslong as you got some “air” time.For example, It wouldn’t matter if you were on a forum about cooking, would it??? The chef would suggest butter and you would insist on margerine.
Your anger towards my post, confirmed my suspicions.So I have a couple of suggestions for you
1) I recommend some Sam-e.
2) You need a stage, how about auditioning for a musical? [:0)]As to my answer to your original question, okay I’ll humour you.
Why would someone rent the cheaper house over the more expensive one if the rent was the same?
From the ‘Far Side’ : Well, the cheaper house (100K)allows renters with pets, so you pay for their accomodations too.
Okay, so I’ve split more sutures after reading your hillarious post Paul, but this warning should be clear enough.
Feel free to post away, but be nice about it. The
thank youat the end of your post went a long way. [^] There is always hope.
Cheers
I must be soaring tonight [
], the unflappable
Sooshie [:0)]There are no problems, only solutions
Hi,
Apologies for not responding sooner but I am on a deadline for the book.
Paul277, to answer your post directly as requested…
The point where I get confused is where you write:
Now if i have a budget of say $200 per week that means most houses are going to be worth between 170k and 200kAt this amount the property would not be cashflow positive since rent would maybe only just cover interest. As such I would not buy the property.
The properties I focus on are generally cheaper in regional areas. When I began investing, what I found was that the property where I rented cost us $200 p/w in rent and was worth approx $270k, yet in Ballarat, I could buy a house where the market (not inflated) rent was $120 per week for just $44,000.
Because my focus was yield rather than capital gains I decided to invest in Ballarat rather than Melbourne.
now for it to be cash positive to recieve $200 rental per week you would have had to purchase the property for 100k.Yes, this is right in theory when you apply the 11 sec solution. Just be careful though… as property becomes more expensive, borrowing more money might cause the property to be -ve cashflow. It’s important to do your due diligence.
Surely a renter will be ably to see the difference between a property worth 100k and 200k.I agree with you. However, the difference is in the market where the properties are. A $100 p/w property in a market where rents are normally $200 p/w/ might mean that the dwelling is of lower quality.
On the other hand, a property rented at $200 p/w in a market where the rents are $100 p/w suggests that it would be of superior quality.
In the end, the point of the matter comes down to what market are you investing in.
The REIA has data for median rentals for houses and units in most markets.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
]
], so I forgive you.
][
, so my point was, that it wouldn’t matter what forum you were on or posting at, aslong as you got some “air” time.
], the unflappable
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