Is the eleven second solution the only andor best way of determining if a property will be cashflow positive?
What if the property isn’t cashflow positive but you can see other potential, such as the prospect of good capital gains in the short term?Hi Simon,
There are many types of good investment.
Positive cashflow is only one of them.I guess you need to work out your goals.
– Are you wanting to buy for cashflow?
– Are you wanting to buy for capital gain?
– Are you hoping for a bit of both?If you are looking at capital gain in the “short term”, then go for it, as long as you can set yourself an exit date and strategy.
Don’t just go in for the “money pit” long haul.[
]Good luck,
Del
Thanks Del, my strategy is to buy and hold over the long term however, if I can make a good gain I will sell if I think the timing is right, and re-invest.
capital gains are awesome, but harder to duplicate unless time passes and it happens to have been in a boom, (like we’ve just had) – because usually negatively geared properties have the most capital gains and it’s hard to buy multiple negatively geared properties (once you’ve ‘saved’ all your tax and you can’t service any more debt.) Cashflow positive properties pay for themselves and have a surplus which means you can quickly buy another and your serviceability goes up not down. At the top of a boom or just after I would personally not buy any cap gain properties for a wee while, because prices will likely go down a bit before they go up again, or at least, they will stay the same, so i’m intending to buy only breaking even or better CF+ve properties for the next 3-4 years and increase my serviceability so when the property cycle looks like halfway through again, interest rates are low again and everyone starts buying property again like mad, I’ll be joining them to (hopefully) ‘ride the elevator’ up.
cheers-
MiniSimon
one word of caution if you plan to buy and make a quick $.
you will have alot of costs associated such as legal costs, stamp duty and then you will have legal and selling costs, sometimes the property would need to go up by 10% just to break even.
however if you buy well then go for it.
As robert Kyosaki says “the profit is made when you buy not when you sell”, so always buy with a bit of a profit built in.
regards 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]
Simon
remember the 11 second solution is only a “filtering” tool, to sort the wheat from the chaff, so to speak 1
researching any investment is paramount, forewarned is forearmed, so to speak ( hmmm i must’ve eaten my rollerdext of quotations and not my cereal this morning !!)
Anyway, looking at a few deals at once, on paper and working out the benefits certainly help’s put ‘individual’ properties into perspective..
Sort out what you want to achieve also.. you can’t have it all..No risk, high capital gains and high cash flow, each property may have a mix of these areas in different percentages
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Originally posted by Simon2:Is the eleven second solution the only andor best way of determining if a property will be cashflow positive?
It’s not the only way, and is really only a rough approximation. No more and no less.
Use it as a filtering tool but there is no substitute for adding up the actual figures.
Will 10.4% give you positive cf? Depends. What if the HWS or A/C fails? That would be enough to make many slightly + properties negative.
What if you borrow 90% and not 80%. Again even with 10.4% you’d probably be -ve geared before tax.
Rates tend to be a much higher proportion of property value in country areas then in the cities. (eg $800/$100 000 property vs $800 out of $300 000 property), so this will influence the cf. Other costs also seem proportionately higher for cheaper properties.
As for growth and buying undervalued property, I bought one for cf and no expectation of growth. Another had a lower yield, but was in a town I thought was undervalued.
6 mths after my purchases comparable properties were sold. Both indicate a likely cg of 10-15% in 6 mths, meaning that growth can’t be predicted as easily as cf.
My higher cf property has had many more repairs needed, so overall they’re performing about the same, both for growth and cf!
Rgds, Peter
Thanks to those who responded I now have a better understanding of how to go about using the eleven second solution. I want however more than positive cashflow from my properties, otherwise it just takes too long to acquire any wealth through them.
hi simon
i think you are on the right track, try to identify properties that are cash positive and have potential to increase in value. one stategy that i have used/still use is to find areas that will have some economic potential, such as a new industry. An example from last year was in Hamilton Vic, where a large minerals ands project was being developed. Iluka resources is building a processing plant in Hamilton that will create hundreds of jobs. as you can imagine this has created a lot of interest in Hamilton and prices at the cheaper end have doubled in the past 18 months. So keep an eye out, read the financial pages, talk to people and you will be amazed what you hear.
regards 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]
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