Im based in Melbourne & am 3/4 of the way through my Real Estate Licence (no on-the-job training yet as still in uni doing Commerce <– boring!) I understand that the aim of +ve C.F IP’s really takes out the seasonality factor of the Real Estate industry (boom-bust cycle) as capital appreciation is really a bonus… However… unless you wanted to buy a property just for the sake of it, be happy with your maginal return and suffer a loss capital-wise, why the hell would you buy now?! Ive been thinking about it for a while now, as though Im missing something simple, and as though it’s all going to make sense all of a sudden, but the facts (in general) are as follows:
– Purchasing a +ve C.F IP (good)
– Purchasing at inflated price (bad)
– Returns may be up to 15% C.F-wise p.a (good)
– Need to wait until the next boom to perhaps only just realise your price originally paid due to REAL property prices (with inflation removed) -(bad)I understand there must be deals out there that are bargains, or just great opportunities, however I would Love some feedback about what you professionals have to say/think on the above!
Thanks,
[suave3] holdencommodore [suave3]holdencommodore,
The aim of +ve investing is as far as I can understand is to get access to passive income immediately. Cyclical factors will affect most properties, there is no discrimination as to +ve or -ve. If return on any asset is yield plus capital growth, then merely a higher yield is only half the story. Higher yield also means higher risk.
Your assumption about buying a property today, is that they will reduce in value given where we are in the cycle. I don’t think buying today means you are necessarily going to suffer a capital-loss. That depends on many other property-specific factors. In anycase investing in R/E is not a short-term strategy either.
I disagree with your statement that capital appreciation is a bonus. Ultimately this is where you make your money in r/e over the long-term.
The ability to service loan commitments, whether +/- CF is merely, in my opinion, a vehicle to hold properties for their appreciation in value, whether by adding value yourself or gaining from market growth.
You could buy poorly and pay for it for many years. The mid-late 80’s purchases of property in Qld are one example. If you have a simple buy and hope strategy and waiting for immediate appreciation today, then you might create a rod for your own back.
James
your on the right track and you understand the concepts well – good on you
Kind Regards,
george.If You never never ask, you’ll never never know”
<<<<<<<
– Purchasing a +ve C.F IP (good)
– Purchasing at inflated price (bad)
– Returns may be up to 15% C.F-wise p.a (good)
– Need to wait until the next boom to perhaps only just realise your price originally paid due to REAL property prices (with inflation removed) -(bad)>>>>>>You have summed it up well. I have been trying to say this, but you have said it in a good straight forward way.
Good Stuff.
Purchasing +ve CF property in small twon with limited capital growth, static population growth, and no job growth is BAD
Yield is only one part of the return equation. (Greater the return, the greater the risk as well)
Historically, if you look at property prices, their returns are around 2-3% above inflation anyway (similar to shares). If you are confident enought to know when the next boom starts, then good luck to you.
Just another perspective
James
I must be looking at things in a different light.You seem to be saying that no cap. gain is bad.In my eyes its not the gain thats so important but the c.o.c.r. for eg.purchase price $25000.deposit and fees $4630. Rent in $90 p/w.Monies in $4680 p/a Monies out$3034. Profit $1646. C.O.C.R = 35.5% Thats what its all about .The bottom line.Who cares about capital gain with returns like this !!!!
So many +CF properties out there.Let me help you and achieve a win win situation.Russ.
Hi RussH,
didnt see any expenses to be subsidise, but with your figures it all stacks up well, but heres the problem, if your going to base your figures on cocr, what about the irr when the property is still renting at $90pw, in 5 years or even 10 years…
…but lets assume the rental has gone up from $90 a week to say $120, and the value of goods that were $90 at the same time, have gone up to $180 over the 5 years, is your asset really still making money or is it now running at a blinded loss? a cocr is no good, in factoring inflation and cpi, if you the property does not grow in value or even if you cant onsell it for a profit…
Cheers,
sisTell me, how does one achieve financial freedom on $1646 profit per year and the probability of a very small or negligable capital return. Even a 10% increase on $25000 is only $2500.
James
Originally posted by georgisj:Tell me, how does one achieve financial freedom on $1646 profit per year and the probability of a very small or negligable capital return. Even a 10% increase on $25000 is only $2500.
James
Agree, a property that maybe +ve cashflow today, may look like an excellent deal…
…but if the irr does not stack up over time or increase at the same as the currnet cpi…
…may still seem to be providing a +ve cashflow, but in actually fact will be running and providing a blinded loss.
Cheers,
sisMaybe i,m missing something here.You dont live off the proceeds of one property.Dont you work towards a 130+ in 5 or so years.And then look at the passive income generated buy all the property put together.I,m sure thats what the book was all about.[confused2]
So many +CF properties out there.Let me help you and achieve a win win situation.Russ.
My accountant likes property over shares.
shares are higher risks but should be higher returns (I found this with mine).However, when we talk about property and in hindsight we can look at the sales and what things cost, and now we concern ourselves with inflates properties and not being able to afford them, in 5 years time I bet we say the same thing….”I wish I had bought they house back then!”
I just think do what you can, without going over the top, hold on and try not to sell unless it is to help with other investments.
Certianly spreading the risk and having a balanced portfolio is the ideal, but it may not suit everyone.
No point worrying about tomorrow, as tomorrow never comes….
Elves
Hey everyone,
Thanks for the input, and it’s interesting to see people’s different opinions and insights into some strategies, but really, why would you buy property now? Aren’t Real Property prices the thing we need to be looking at now, and trying to study in the future? — By the way, if anyone knows a good site to be able to get these graphs for free(real property prices, not just median prices for each Cap.city, etc), plz let me know! — Why would we buy now, when the only way we can go is down? Now, I agree with Georgisj – property isn’s usually a short-term investment, but to lower your risk, you would want to buy in a market where you know that you would at least be able to cover costs (or close to it) e.g a trough in the property cycle. Plz let me know if anyone can think of why knowledgable investors such as most members on this site would purchase property in such a market. There must be a way to make money at this time in the cycle, because I’m sure successful property investors don’t just buy regardless of market conditions (cycle), yet I’m also sure they don’t just sit around & wait & have a break for a few years. Now I know successful investors (big shot… I’m talking the big league of Residential IP’s) wouldn’t just sit there & do nothing, or take their focus of Res.IP’s, and they would be out there finding those deals that exist in any market, but how do they do it?!
Anyone who’s been to one of Steve’s seminars may be able to help… plz?! I know they’re expensive & you probably don’t want to offload your techniques to other investors, however I would really like to know what/how other people think about this situation/problem.
It’s all about learning from each other!
Lil’ help?!
Thanks,
holdencommodoreI think the idea is like Russ says to build a portfolio. Just CF+ and you won’t get the growth to go fast, and just negative gearing Cap growth properties, and you’ll max out and won’t be able to service any more. So the way i figure it, you need both, but i think you need about 3-5 CF+ve properties to one neg geared property to balance out, because neg geared properties are usually more expensive; it’s cause of the land, which is what goes up, anyway, not the building.
hopefully my property portfolio will always remain positively geared overall – more so the closer i get to stopping working completely.
“+ve C.F IP’s really takes out the seasonality factor of the Real Estate industry (boom-bust cycle) as capital appreciation is really a bonus… However… unless you wanted to buy a property just for the sake of it, be happy with your maginal return”
I just re-read this. I like the first bit you wrote, up to the word ‘however’.
i reckon 10 percent yield after costs (make that 20 gross) is not to be sneezed at. i mean people get excited about 6 to 8 percent yielding commercial properties and mine make more than that, plus they were a tenth of the price and therefore accessible to me right now. The other thing that people forget is that rents rise. A cash return of 10 percent for a term deposit in the bank, say you stick 100K in to make 10k a year, is only going to seem lamer over time as next year inflation means it’s worth less. but rents will go up over time.
i’ve seen data that proves this, for example a house bought in 1991 for 5k rented for $20 a week is now worth 40-50K and rented for 130 per week. the individual returns from one isn’t great, but once you have ten or twenty, and because they don’t cost much, it’s not such a big deal to buy another one quickly, you can get going quite quickly. And then later you can sell 10 of them or whatever, and get into apartment blocks or commercial property. sounds like a plan…
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