Hi all, i am new to this forum and am interested in positve cashflow investment. However I have one nagging concern somebody may be able to help me with.
i][/i]Positve cashflow is fine while the loan repayments and assoc. costs are less than the income; but how do you deal with the scenario when interest rates rise pushing your loan repayments beyond the income you recieve? So now you are in a cash negative situation and since most cash positive properties have slow appriciation they will be difficult to sell for a profit in an inflating environment.
Any advice on this would be appreciated because I need this issue resolved before I proceed.
Kind Regards
Mr_D
[Hi Mr_D,
You have to limit your risks. One option you can try is having the loan on fixed-terms so that if Interest rates increased, it wouldn’t affect you.
Another option is to calculate the CoCR of your investmenst on an extra 2-4% Interest rate than what your being offered – that way, if it does go up by 2%, you’re still safe.
Don’t forget that the rental should increase every year or two by a few dollars a week, thus covering the risk of an interest rate rise.
You could also make the rental agreement, ‘subject to increase according to the increase of interest rate rise’.
Hope this helps
Kind Regards,
George.I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how
Hey Mr_D (cute avatar, by the way),
I don’t think people necessarily need to worry about increased IR’s. I think you’re right in that a slight rise in IR’s (they’re thought to only rise by .25% some time this year) might change the status of CF+… but does it really matter whether your property *makes* $20 or loses $20? It’s such a small amount, I can’t see that it would matter.
I’m not really into CoCR- I think it’s a furphy of RE. Anyone can put in a large deposit to get a better return on a buck… I go on the purchase price and rental return- it seems like a better way to calculate real returns.
Anyone who is buying RE without capital gains in mind- in the 2004 flatter market- might end up losing a lot of money.
As for me, I would rather *invest* megabucks (I don’t consider it “losing” money- I consider it making an investment into my future)… so I would rather my IP’s cost me a hundred bucks a week with potential for CG, than go for the $30 a week on a property that’s CG potential is dubious…
On that note, if we’re waiting for the next cycle to realise gains… what is a run-down property (pretty much the only CF+ ones left in the Aussie market) going to look like after 7 years of tenant wear and tear? Will it have gains? Or will it just require more and more repairs so it doesn’t fall down?
kay henry
Thanks for your comments Kay and Geo, some good advice there.
Mr D
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