Which type of property is best to avoid ?
Considering the present state of the housing market as well as all the turmoil going on in the world, I am wondering whether the cashflow positive properties (costing say $ 50 K to $ 150 K) are still worthwhile bothering about.
Now don’t have a closed mind about this and jump immediately on my back to defend what you at some stage decided is your ticket to financial freedom.
I am merely asking a simple question and it is your task to decide to give your reasons as to whether you agree or disagree that it still is today’s pie.
Pisces
hi
cashflow properties are still attractive. i think income rather than growth is the best bet for the next few years – big generalisation but what you dont want is little income (low yield) and poor if not negative capital growth.
I would prefer to sit on my bum and do nothing than buy $50k-$100k properties that give me a $1,000 positive cash flow.
There will be some good opportunities in the future. I would rather sit tight now than waste my time with the hassles of these rural properties.
Hi Pisces
i agree with yack
but i’d buy true cash flow properties, ones that will give me 20% return on the cash i put into the deal, and ones that will appreciate in value.
Cash flow properties (i mean real ones not $1000 profit a year on $100,000 invested as Yack says thats not cash positive) have a number of advantages. One is the ability to aquire and control large portfolios, i bought 10 in my first year in 1997 on an income of 30000 with very little equity. Only cash positive properties actually improve your servicability. I would have stuffed up my serviceability with one negative geared property.
acsh positive properties need to rise in value though thats why i wouldn’t buy in very small places say under 2000 unless there was something special about the place.
thats enough for now been on the computer too much today the wife is getting crancky.
bye westanI find +ve cashflow deals in New Zealand which I sell to other investors. To be on my database send an e-mail to [email protected]
I am surprised there has not been much debate on this topic
Pisces
I would still like to get properties under 100K- preferably under 80K- that’s my comfort/risk level. I am into buying units, but i don’t wanna buy places that are built pre-1980- it’s buying into trouble, in my opinion. So I’m pretty limited in what I can buy now.
As for CF+ properties, well, I can see the benefits, obviously :o) But at the end of the day, I still look for “value” and CF+ doesn’t necessarily fit there. I also look at pop’n growth, property maintenance (the lower amount of capital the better), age of the building, location etc. I’m happy with 6% return- and anything more is a bonus- that’s just me.
I like the “sleep flow positive” measurement.
Now, if I had millions to throw around… I would definitely buy up in good parts of sydney, or coastal cities- like my old fave, wollongong- except it just blew up :o((
Or I’d buy unique properties- golf course apartments, churches :o) Anything that didn’t scream “generic”.
kay henry
CF+ houses are great imo, but they must be in a good location, you don`t just go out and buy due to price and the fact the house currently has a tenant.
Consider if you had 100 CF+ houses, now say for instance you buy these 100 homes and get a cash flow of whatever amount, it`s most likely not going to be a heck of a lot if you were not rich to begin with, you must consider that if a decent % of your houses on average are vacant for two weeks (not to mention 2 months or longer)in the year you may have no cash flow at all, then you can`t sell or find tenants, and the place needs work, what do you do now?.
You have 100 houses in poor condition in bad areas and all of a sudden they are not generating any profit worth squat, or even worse they begin costing you money.[V][V]
You could end up in the poor house quick smart.
You have to consider this is entirely possible, it could in fact turn out much worse, given even that you made money with the market rise you could still end up in trouble due to costs etc.Westan hit the nail right on the head I would say i.e. that cashflow properties are fine if they produce say 15% but if it is just $ 1,000 a year then what will it be the moment the roof needs replacing ?
I really believe that just buying for buying’s sake is ludicrous.
Isn’t it better to buy one Westan type of property (high +ve return) than ten rubbishy ones ?
If anyone’s feelings are hurt I am sorry but the truth must be told.
The only possible objection could be if one were to say that they cannot be found (which isn’t true).
Pisces
REAL CASHFLOW PROPERTIES – CMON GUYS 15-20 PCT. WE KNOW THE ONLY PLACE YOU CAN GET THEM IS NZ AND THATS IF YR LUCKY. ITS LIKE SAYING THAT MY STRATEGY IS TO ONLY BUY STOCKS THAT WILL GIVE ME 10 PCT DIVIDENDS AND SIM CAPITAL GROWTH. IF YOU CAN FIND 15-20 PCT DEALS IN THIS MARKET THEN FORGET ABOUT WHAT YOUR STRATEGY GOING FORWARD IS – THIS SHOULD ‘ALWAYS’ BE YOUR STRATEGY. BY SAYING 10 OR 11 PCT IS NOT GOOD ENUF THAN WHAT YOU ARE ALSO SAYING IS THAT THE 11 SECOND SOLUTION IS NOT GOOD ENUF AND THAT THE ENTIRE PREMISE OF THIS WEBSITE IS IRRELEVENT.
aussierogue
I am not sure what you are saying. Are you saying you would only buy if it met the 11 sec rule. Or are you saying you would still buy if it did not meet the 11 sec rule but was a quality property? Or are you saying there are n decent properties out there that meet the 11 sec rule. I am confused by your last post.thanks yak
you dont like rural properties and the 11 second solution – that is understood. no problem.
however the cornerstone of this website is about buying cheap rural properties that at worst fit the 11 second solution.
my point is that if you dont like the 11 second solution you never will regardless of where the market is heading. this was the question posed by pisces.
All I am really saying is that we are at a point in the property cycle where the 11 sec rule is highly unlikely to be achieved. Unless you buy a rural property where the hassles, in my view, exceed any postive cash flow you can get over the LONG TERM.
Let me give you an example of where, I wish I knew the 11 sec rule back in 1997.
In North Frankston (otherwise known as the Pines). Its a housing commission area and the reason Frankston even today has somewhat of a bad name eventhough they border on Mount Eliza and the mornington Peninsula.
Back then in 1997 you could have bought an ex-housing commission house for around $40-$60k. Rent would have been $130-150. Great return if you were prepared for the odd hassle and meets the 11 sec rule.
Now in 2004, the same properties are going for between $150-$200k and the rents now are still around $150- $180.
This is because of the property cycle we are in.
Is the 11 sec rule relevant in property investment? YES. Is it relevant today in the current state of the property market/cycle? In my opinion NO.
Property Investing is a long term proposition. I will wait because one day those properties in North Frankston will come on the market with good returns and meet the 11 sec rule. BUT IT IS NOT TODAY.
Agree/Disagree
Now let us assume that Aussierogue is correct and that they are only available in New Zealand. (which I dispute).
But you are quite right about the ‘lucky’ angle as I have heard it said that ‘The harder I work the luckier I get’.
O.K., no more smart arse remarks, Pisces.
So let us work from the premise that New Zealand is the place to be.
If that is so then why not go there ? Mini even advocates buying sight unseen (though with building inspection advice etc).
However, let us take it one step further. How do we find them here , right under our noses ?
Are we perhaps looking in the wrong place or at the wrong type of property ?
Let us hear some suggestions. Surely I am not the odd man out, the only one who believes in miracles ?
Only the people with closed minds are allowed to disregard this thread. [:o)]
Pisces
yack – thanks yr reply but i disagree. i agree that they are harder to find. and i also agree that what may have fitted the 11 second solution 5 years ago probably doesnt now.
but thats not the arguement. the question asked or infered relates to if positive cashflow is a good investment choice in the current market conditions. the answer is yes.
i dont understand how having more money at the end of the month can be bad for you.
then we get into a new question about portfolios, captial gain vs cashflow etc etc
I think that any property that over the long term (which is my strategy – buy and hold) has a good potential to be rented out(low vacancy) and a reasonable return which is largely dependent on what you pay for it, is a good property to consider. I personally find it extremely difficult to believe that some small rural towns will not be heavily affected at some point by unemployment and therefore higher vacancy rates. I think that regional coastal towns like NSW central and north coast towns are less influenced by employment as they have a higher level of retirees and holidaymakers. A uni in a town also helps (like Lismore) even if it is seasonal.
In summary, if the properties are in an area which has the potential to be largely affected by the economy or industry and has the potential to be a ghost town in the future, I would avoid. I would also avoid overpriced areas (most major cities at this point in time). If the property has an existing long-term tenant and is in a rural town (should be +CF) then it is very likely to be one I would look at espcially if the town is on the coast and is a major regional centre.
pisces and yack
g’day if your question is could we really be bothered trying to find +ve cashflow properties in this market, and if we do find them are they likely to be dumps – then i agree with both you and yack.
The big answer is stay within what`s comfortable for you right now, when the market took off there were many stories about people make millions by leveraging to the hilt, but those days are over, you really need to think on your feet and the only real way to do that is by having many years experience. There are too many factors to consider for someone to read a book or do a seminar and become an instant Einstein of PI.
That was a long read, I`m not sure what your argument is?, but you are basing everything on buying before/during a boom, you bought at the right time.
You cannot do this now full stop!, especially with no equity.
If you had $500,000 it would sure help though, you could undoubtedly make money still, but it would be impossible to find this many CF+ houses in the condition you seek and with a $2500 payoff every year, this borders on lunacy!.
To find +CF properties is a difficult one it can be done but the bar is being raised to the point where you are in areas likely to have all the problems I mentioned, you said you allow for this, how?, and how many years is it going to take to build an empire when prices are stagnant and you run out of equity.
Have you not built your portfolio on the market moving upwards?, perfect conditions?.
Sounds like you`ve done well but it`s like the renovation craze, once the market stops there will be precious few renovators making a profit, and a lot of not so experienced PI`s scratching thier heads and having a tough rethink.
I do still invest but I only have 2 IP`s and they are bottom of the market in great locations.The bottom line is I don`t believe there is the incentive in the current state of the market to assume you can become financially independant by buying CF+ properties as a inexperienced investor armed with very little if any equity.
Do you disagree with this opinion?.
One question, do you fix interest rates over long terms?.MINI’S BACK !!
And in fine form, as usual an interesting read [^]
While we debate, someone’s made a purchase !Wish it was me[}
]THe deals are there, just harder to find and as alway’s you have to be comfortable with the deal ( have done your research etc etc to the best of your ability )people ‘are’ purchasing + geared properties as we type……
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
I don`t buy and hold for my reasons that I do not have ambitions of being a landlord, for any amount of money.
Like I thought Mini, you haven`t done it!, you have done almost identical to what I have with the market!.
Do it first, then tell the world it was that easy, in the current market!.
As far as CF+ properties I know they are there, but to buy properties in Tassie or NZ is not a risk I will take, vacancies can run into much longer periods than you allow for.
Why do you think it is this investor is selling his 80 CF+ houses?.
You can`t tell me the ol renovate and lift the rent nonscence, this is a fallacy, I am a tradesman (multiskilled) of 20 yrs, sure it can be done but rarely, no tenant would be willing to pay an extra $5 per week for a shed unless it was a necessity.
Most work costs money and will not lead to higher rents, and also you do not feel the least bit opportunistic by charging these people like a bull?, you are merely sinking to the level of a hard money lender, but at this rate your the most cunning around on the occasions you can swing it.
The way you talk about vacancy rates reaks of an amateur Mini.
More truths rents do NOT go up every year, interest can!.
With places such as Tassie and the like prices can remain stagnant for many years, try 15, 20.
Of course you can do it, I know people who have but in the current market with little or no equity, forget it!.
Good enthusiasm though.
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