My major concern is not possible interest rate rises but rental price increases.
The main reason it is becoming harder to find +ve cash flow properties (IMO) is that rental prices hav not increased as rapidly as property values.
I believe it will take several years for rental prices to catch up, primarily because of inertia in the market.
ie – most rental properties are owned by people who bought before the current real estate boom, and hence don’t need to raise the rent, and new investors can only increase rents marginally over current market rates.
What thoughts does anyone else have on the matter?
Dino
“If you don’t know where you are going, every road will take you there.”
Dino,
You are right. People who bought say 4 years ago have reasonable if not excellent rental retuns which cannot be duplicated in the same area, in the short term at least. Thats why the pos cash flow brigade is going rural.
Timing in property cycles is very important. Many seasoned investers have been in the game a long time and have seen at least one complete cycle.
If you are starting out you are surfing the part of the wave that has rent way below house price which is the most difficult part of the cycle to invest in.
Now of course there are still oportunities out there for both long term capital growth and cashflow but its a lot harder now. Theres no easy way.
There are many who say it doesn’t matter what part of the cycle you buy in because long term property always grows.
If you buy for cashflow your reward is instant.
The issue is can you afford to take a loss for a gain or are you prepared to go Regional or commercial or overseas for that matter.MJK
Just some numbers re the above.
In my area rents have increased on average 14-16% in the past three years, while the mean sales value has increased 25-30%.
If values stop increasing today, it will still take 2-3 years for rental prices to catch up.
Dino
“If you don’t know where you are going, every road will take you there.”
Dino,
Rents move when demand supply ratios change.
MJK
Rents also move when housing affordability decreases. The driver for this will be higher interest rates but the downside is that for an invester higher interest rates reduces the net return. High interest rate periods are the make or break for many investors.
MJK
[8D]As a recent convert of this system, I have been looking for that +ve property for a while now.
I am unable to find a place that meets the requirements to make +ve cashflow, as Dino puts it, the current rental returns are roughly around 3-5%, where we need around 8-10% to make a profit.
I don’t think now is the time to invest in property
LHARDY, Time is always right for investing in property. It’s how you do it that matters.
C2
“Is it true that the more you owe the more you grow until the bank steps in?”
Absolutely!!!
As a real Estate investor time is always right. It is just a matter of thinking outside the box and being creative(ie not like 95% of people).
Rents are not increasing fast enough? Either look elsewhere or CREATE a situation that will increase them. This is where Wraps and lease options will give you an edge.
yours in success,
I agree about rental vs prop value. I am from a regional area originally which always had strong rental returns. Finding positive cashflow props involved picking up the paper and buying the first thing you saw.
I purchased 2 props about a year ago
90k price 180 rent
115k price 250 rentRent is still the same prices but prop values are now 180k and 220k without any renos. +ve for me but -ve if purchased today. Will take a long stagnation in values for rent to catch up again.
Polar Bear,
I bet your glad you bought when you did. My experience is the same but my investments are all within 3-17 klm of CBDs. Personally I’m not comfortable with rural property. Major towns like Ballarat, Toowoomba, etc… would be OK but small towns are to risky for me.
MJK
You must be logged in to reply to this topic. If you don't have an account, you can register here.
