Hi All,
(note – this is rather long but please stick it out as I need to understand this so I can move on)
I purchased the book on Saturday and read it in 24hrs. Then after finding my road map to wealth I hit spent the next 4 hours looking for +ve cash deals on realestate.com.au in my home state. What a let down!! The closest thing I could find was some units for $80k that are achieving $120 p/week rent. So they don’t pass the 11 second rule.
I have spent 3 hours tonight reading posts on this forum and I am now trying to level out the emotional roller coaster of the last 48hrs. Ok, so I am not going to be rich overnight but with some real effort if nothing else I should be able to improve my chances of retiring before I’m 60.
Oh, I was supposed to be asking a question! Here it is.
I am normally good with numbers but I don’t understand why the book doesn’t place much value on the asset at the end of the 25 years. Can somebody (steve) please help explain.
Take a break even proposition. If rent – costs = loan payments over a 25 years then hasn’t one ended up with a cheap say $100k asset at the end of the 25 year that has only cost say a $20k deposit. Isn’t the tennant paying some of the 100k asset for you.
Using these numbers if I started an investment bank account with 20k on 5% interest which was credited bi-annually I would end up with around $65k in 25 years. If brought property on even terms I would end up with $100k at end of 25years and then would return good $’s once it was paid off. Obviously with tax savings and capital growth should be a lot better off. To achieve a $100k balance in $25 year in the bank account senario I would need to ad $15 per week to the initial $20k which effectively means to be on even terms with property I could afford to be negatively geared by $15 per week. And would still have some capital growth and tax savings to put me ahead of the bank senario.
I know that positive cash flows can allow you to buy more property quicker but if there is not a lot property around that qualifies is one better off lowering their expectations. I am only 27 own the title of a $150k house (45k private loan) so I could access say $100k to invest, use it as 5 x $20k deposits and buy 5 x $100k properties with equal cash flow outcomes. I could then let them pay themselves off and in 25 years they should be worth a total of $1,000k and provide a $1k/week income. I could also purchase additional properties out of savings from my wage. Is this a reasonale option or am I selling myself short?Regards,
Craig P
Hi Craig
OK stick with me here I need to keep readingover your post so I can remember it all.
First, welcome to the forum.
A general answer to your post is, “most” people on this forum invest for cashflow not capital gains. Whilst we haven’t got a problem earning both but first and foremost the cash is the goal.
Yes it is hard to find them but with some experience you will learn to identify opportunities that will make you money from day one. I beleive that an investment is ment to make money.
Ultimately there is no real right or wrong way so long as you are doing it according to your own goals and level of comfort. So by following the example you used if it gets you to your goal ina time frame that suits you then that sounds like a plan to me.
However … just because you can’t see one on RE.com don’t think they don’t exist.
Cheers
Leigh K[biggrin]“However … just because you can’t see one on RE.com don’t think they don’t exist. “
You just need to look harder. Get in the car and speak to agents. Find an area and focus on it. Learn property values and market rent for that area. Burn some boot leather. There will always be opportunities.
Remember Craig, that when you are dealing with RE, you are dealing with one person, who is also two people. That is, when we buy we want to buy cheaply and get high rents. But when we sell, we want to sell for as high a price as we can.
Most of us who have sold properties have not sold CF+ properties. On the contrary, many of them have probably been highly negatively geared for the *new* buyer. So my property that might have been CF+ when I bought it is now neg geared (due to CG from the RE boom).
Not many people are selling up CF+ props, because everyone is trying to make huge CG on their properties.
1 investor = two very different creatures when it comes to buying or selling. Everyone wants to buy low and sell high. That RE fundamental means you have to understand the seller’s mind and probably look at markets where there’s less demand, fewer tenants, less desirable properties etc.
kay henry
Craig, welcome.
Firstly, I would like to say that you have done very well for someone so young (I can say that cos you’re two years younger than me[exhappy])
You are in a good position to use some of your equity to start your portfolio. Remember that there will be some tax benefits involved, so you may be able to start off with a neutrally geared property (or slightly negative) pre tax, and end up with money in your pocket afterwards.
Your plan sounds very conservative, but is a really great starting point. Once you get into it, you will probably ‘get the bug’ and realise that 25 years is way too long away, and will look at ways to move ahead quicker. But to start with, just look for that first property, as close to neutral as possible, with hopefully some growth prospects. At your age, you can probably afford to do some negative gearing with growth properties, which can propel your wealth a whole lot quicker than your $100K CF+, no growth places.
Cheers
MelThanks guys, you all make good points. I can see with the help of the members of this forum I should be able to steer my way though the property jungle and make some money. (p.s. Thanks Mel for the ‘young’ comment, I was just starting old when I started looking for financial security)
sorry my p.s. should ‘say starting to feel old’, not a good idea to make posts this early in the morning.
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