Let me say upfront I think this appeals as the best way to try to own property. However, implementing it in practice seems far more difficult than it appears. Sure there is an “artificial” way to do it by using a large down payment, but that’s hardly the point.
It’s no good going to some tin-pot town in the outback and saying, “yippee, look at all the PCF properties I’ve found.” You may have rental problems and what capital growth potential would there be?
Sometimes I see stuff written that almost indicates capital growth is secondary. Crap. It must form an integral reason for buying a property. If that is not the case, you might be safer putting your money into a high yielding cash account with low risk and without associated hassles of owning a house that might require maintenance. High yielding accounts will give good cash flow, but of course you must contribute the entire amount. However, the picture can change if you expect, and get, good capital growth, hence the reason for saying it is absolutely essential to buy property on this basis.
To sum up, if your sole motivation is to buy properties with good cash flow and nothing else, then I think you are misguided. The share market gets maligned when it has a rough patch, but you might be surprised to find it can provide the same, or better, PCF scenario with much more flexibility. Think of it as buying a business compared to the property you would normally think of. The business has cash flow. You might want to crunch the numbers sometime.
Wez.
Wez – I don’t think many people will argue with you. This same point (buying purely for cashflow) has been raised ad infinitum, and isn’t rocket science.
You seem a bit angry with the world – the sharemarket is not always the answer if property doesn’t work out. I find it more time intensive than property, with more variables affecting prices.
There are more than two asset classes.
Steve’s book was a success due to timing and method. He bought properties in a flatter market and then they got great CG. Had he bought in times of negative growth (I am thinking in many locations around 1994-1999)… then there were capital losses, and the book might not have been written. The victor writes history and there’s not much money to be made out of writing books which talk about losing money.
Steve bought in regional centres, but now, those properties are generally not achiving CF+ returns post-boom), so people are buying into the “tin-pot towns”. I still think there are properties to be bought that are well-located and well-priced, but to just think a “guideline” (the 11 second solution) is a “rule”… then I think some people will come a-cropper. Steve changes his strategies, and is now inesting in NZ, whereas some people are still simply following his *old* strategies to the letter, and will be in trouble.
Because RE is a buy and hold affair really (due to often prohibitive entry and exit costs), then it’s an idea to not get caught up into one “way” of doing things, but be flexible enough to read all the books and make one’s own way.
I think there are still gains to be made in the market, but I think it’s for more lifestyle properties, ones that keep up with market trends and demographics. If we’re buying (to buy and hold) in 2004, we’re really trying to preempt what australia will look like in 2011 (there are some good reports on the net which look towards demographic and industry changes for the next decade or so). A lot of CF+ properties are what Australia WAS, not what it will be.
kay henry
ANUBIS
No, I’m not angry with the world, no more so than the next person. I certainly hate injustice and deceit, but particularly hate hype in the world of investment. And there’s a @#$%@#$ lot of it! I am trying to steer clear of eggheads like this who are full of crap. I just want stuff that is real and I can work with.
I have always been more interested in the share market, so it is not as if I am disillusioned with property and now looking to shares. I believe both to be good at the appropriate time. I like the markets because of the flexibility. Buy a share in two minutes online – in two weeks determine I made a mistake – sell it in another two minutes – end of story. How long does that take in the property market? You have the power to correct mistakes in the share market quite quickly. What happens if it dawns on you you shouldn’t have bought a particular property for whatever reason?
The property transaction process (that I have written of in another thread) is a shocker compared to the share market, e.g. I can buy a parcel of shares worth $500,000 for a grand total in brokerage of $600. Tell me the cost of buying an equivalent property. I predict there will be some sort of evolution in the property transaction process because the current system is a dud and needs shaking up.
Kay alluded to a good point. Whether it be the share or property markets, people want a rigid rule to guarantee them amazing profits. That will never work. What it comes down to is we have to gain much knowledge about our chosen field of investment if we hope to succeed. If that prospect seems too difficult, then people should stop wasting time thinking they will become rich almost by accident.
Investing is difficult and knowledge about what you are doing can’t be underestimated.
Wez.
Wez we bought for cashflow only to find that if it is a CFP property it will get cap gains anyway. So by discounting this extra criteria we didnt need to take time on, we actually still achieved major success through buying cheap entry level properties which are easier to rent, have low vacancy rates and the greatest potential for rises.
Counter that with these properties always being the last affected in a property downturn, doesnt it make sense to buy based on consistently good returns rather than “I think it will have cap gains” then struggle with returns not meeting costs and leaking out of your back pocket. “oh it will go up” says the optimist who bought for cap gains even when Gold Coast has dropped 30% in 12 months. now the mortgage on some properties exceed what some lenders will offer in todays market means that if bought for cashflow first there are less risks.
Give me 5 x 100k houses in what someone said recently “woop woop” with a good cash return against a cbd based unit for 500k with low returns and good $$ in good times for cap growth.
We have won in this last boom with our buy low keep your head into entry level properties attitude without much recourse on cap gains.
It is good to get cap gains but if you havent done your maths right on the IP first then its all a waste as your cashflow determines how well you sleep at night in a quieting market.
Look for opportunities everywhere but to discount a fibro house in a cheaper suburb over a highrise with huge costs is just madness. Make informed decisions not wild speculations. Cap gains may or may not come quickly with those cheapies, but they always grow well over time.
Mt Druitt suburb of Blackett. House there 3 years ago was cashflow +ve at a 90k purchase and now would sell for $270k without blinking.so is now 1/1 ratio or 5% where the same house would have been 3/1 or 15% return if bought 3 years ago.
It is still not the most safe suburb for crime but with costs of property and rents rising it is weeding out some of the “cheap seats” attitude some had towards the place.
There is currently an oversupply in that area for units and they have several high rise developements happening south of the railway station which will not get good growth until they absorb these properties into the mix. Give it 2 years then look here for good buying and good demands.
All im trying to say is stay open to cashflow and cap gains will come.
DD
Don’t sweat the small stuff,and it’s all small stuff!!
I just like the idea that if you hold property you can actually do something to enhance the returns on your investment. With share etc you buy and hope. Its out of your control and there is nothing you can do to influence the returns…
DD
You would buy a property if history suggested there was little or no chance of capital growth, as long as it was cash flow positive? I still think you must have a reasonable expectation of growth before buying. You appear to have achieved the best of both worlds. Well done!
I would hate to be the person who paid $270k for a property that was valued at $90k only three years earlier. He/she would be in for a long wait for sustainable gains. Properties just cannot continue rising at such a rate, which means there would be a long period of stagnation at some point to balance out the huge speculation.
1hoobadriver
Why is it that people always assume buying shares is based on hope, yet property is a dead certainty? If you analyse a company and believe it to be sound with good prospects into the future based on what it has done and is doing, why is that so different to buying a property based on similar analysis? A business has cash flow just like a property also.
Property is bricks and mortar – you can touch it goes the argument. Colorado (the company), for example, is real and I can walk into a shop and touch it. Same thing. People point out that there is no control in owning shares. Maybe true, but if we don’t like what a company is doing we can sell it off in the blink of an eye (almost!). This versatility is something that property simply can’t match.
At the end of the day both property and shares have their advantages and disadvantages. And I really doubt that one can claim to be so much better than the other.
Wez.
I wouldnt say touching a fleecy jacket in Colorado is the same as touching the bricks and mortar that you can alter through renovation etc to increase value and i certainly wouldnt say property is a dead certainty either.
At the end of the day invest in what makes you feel the most comfortable be it shares , property, collectibles……Cheers.
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