[wideeyed]
I just read this book……then… but I was just about to consider buying an Inner city 2 apartment terence for $350K with $250×2 rent with cash of $175K borrow the rest. So What do I do? I just read this book! can you shed some light!!!!Cheers MichelleWhat do you want to do?
_____________________________________________
[withstupid]
The forumite formally known as Big Rob[drummer]Good question
???
[wacko]Is to positve gear 1 property enough reason to go ahead and purchase [baaa]
Hi Michelle,
Hmmm…
Well, to add to the discussion, the first question you need to ask is “what outcome do you primarily want from investment?”
The two options, at this stage, are either positive cashflow (this is, income) or capital gains (that is, growth).
Inner City Apartments whould normally fit into the growth model given most are negative cashflow. Therefore, the name of the startegy is to get more cap gains than any income loss.
That said then, let’s quickly crunch the numbers:
Rent: $26,000 (fully rented)
Loan payment: $12,250 ($175k @ 7% I/O)
Management: $1,820 (7%)
Body Corporate: $2,500 (say)
Repairs: $500 (say)
Other: $500 (say)Net Cashflow: $8,430
Cash In:
Deposit: $175,000
Clsoing costs: $18,750 (5% of PP)
Total: $193,750Cash on cash return (CoCR): 4.3%
Capital gains: ???
The reason this is +ve cashflow is because you have contributed so much cash. On the flip side, doing this kills your CoCR.
You can get 4.3% at the bank no-risk, so it is not enough to go into the investment considering the extra risk. As such, it will be the expected capital gains that makes the deal sweet.
Having said that, I’m not too sure if Inner City Apartments are well placed to earn cap. gains… but you need to make up your own mind.
I hope this has helped.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thank-you for doing the figures.
It would be nice to have positve cash flow this time around thou capital gains is where we made our money.
So I will look again at cash on cash return in the book and also look more into capital gains areas.
One house in (? secret) would be where I will look into and the other ( an offer worth looking more into.
I have just only begun[buz2]HI Hobart, look north young man, not too far either as Launceston, with another 260 jobs from the Optus sim card activation centre relocating there will add impetus to this market. All local indicators there are that another $20-30k surge for the entry level $100k market will occur soon.
One indicator was 57 land blocks sold at $125k each in a 3 week peried a few months ago, north of the city. With existing houses available now for this price range and building costs increasing, I would expect that $20k cap rise in the next year looks quite reasonable.
OK so with your $175k to spend, get 7 x $100k houses with a $20k deposit and this leaves $35k for costs. Loan on each would then be 80k each with rent achievable of $160/wk this means 10% gross to cover your butt for the next years speculation.
At the end of 12 months your capital gains tax is only on 50% of the profit so should this market have peaked by then sell some and pay down the others to make them more positive.
Steve, the management of properties in Launceston averages about 8.5% +GST so you may need to adjust your cash on cash a bit from that. I achieve 7.7% inclusive for my clients but thats a special deal there and not the standard.
Good Luck Hobart, hope this helps.
DD
PS146 Certified Financial Planner
Don’t sweat the small stuff,and it’s all small stuff!!
You must be logged in to reply to this topic. If you don't have an account, you can register here.
