I may be going out on a limb here, but from viewing this website it appears people are going for cash flow positive property at all costs. I think if you are going for cash flow positive properties at this stage of the property cycle you are going to get burn’t. Anywhere cash flow positive or neutral has greatly inflated values because of the numbers of people seeking those type of properties, which are usually in marginal regional areas at this time of the property cycle. I am especially concerned for people investing in NZ regional towns. I am originally a kiwi and know how hard times are in these places when there is an economic downturn. It is completely different from the Australian property market and I feel Australian investors seem to be going in feet first without researching the history of these regional towns over 20-30 years, not just 5 years!!!. A lot of these towns are reliant on one industry…….just look at Tokoroa at the moment!!!!. All I would say it is better to look at places which will be cashflow positive in a couple of years and have future sustained capital growth. Perth comes to mind but that is only my opinion. Rents are relatively low and on the increase and there is still a lot of room for increase in values. Look forward to other peoples opinion!!!.
ned kelly
I think your spot on Ned.
It’s a joke what’s happened in small towns. Most small towns should have a rental yield of 10%. Let’s face facts, land will never be short. Most small towns near me are down to 5% yields. This is one big potential bust. Wont be a bust though, just a decade of no growth. What an investment? A decade of no growth, negative geared. Not for me. No wonder the stock market is booming.
Good luck.
What you say Ned makes sense to me as well. I have bought some land at a baech town near Townsville and aiming for capital growth.
Cheers
Cyclist
Why everyone is against negative gearing property? A property is still an investment and I am willing to paid a little bit out of my pocket every week to still have a capital gain that will cover what I paid anyway
Hi,
I don’t know about a bust or not. I do know good yields & deals are harder find, but CF+ still around in Aus, just need to be patient and keep looking, maybe think a bit differently. I personally don’t see a lot of future with neg geared – restricts no of properties over time, gearing, servicability, etc. Little capital gain currently so CF+ producing better and allows to build pertfolio using other peoples (read bank) money – not yours.
Steve BI think all of you chaps need to get down from your satellite views and general market pontifications. Sounds fantastic and all very intelligent, but what good is it to you ?? Comments about ‘the market’ and ‘stockmarket’ will rarely inflate your hip pocket. You will not find any cracking hot deals way up there.
Get down on your knees and come down into the weeds where I am and take a microscopic look at the individual lots for sale and what they can do for you – with a little bit of inspiration and a whole bunch of perspiration. Way down here is where you can actually buy and where you actually make money.
We drove past a very ugly place (7km’s from Perth CBD) late last year (as did 30 or 40 others during the previous 6 months prior to us arriving on the scene – according to the REA) and were very turned off…as was everyone else.
We saw the potential of the place and were prepared to put in the hard yards (8K of costs and 2 months of headaches, cleaning, evictions and other pleasant dramas). Picked it up for block value…7000 sqm for 780K with 6 industrial sheds on it. It was yielding 3.4% gross. It’s now doing 15.5% gross. I’d hazard a guess the capital value has gone up a tad as well due to the signed up leases.
Those people who drove past and stomped their feet and said “It’s not fair, I can’t find any +CF IP’s and I don’t want to buy in some far flung country town” are still stomping their feet, whinging and making general pontifications about the ‘market’ and how they can’t find anything.
Folks, if you are looking for high yielding places that are spick and span with no work to do, with secure signed up good tenants in a good growth large pop. city going for a bargain – well, they are right next door to where the tooth fairy and Santa Claus live.
The good deals are there…but you need to rub some of the tarnish off to see what’s inside. The ability to ‘see’, as opposed to summarily dismiss and drive on to the next one is the difference between cash in the pocket and ‘market commentary’.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Thanks for the replies. My argument is this stage in the property cycle you look for property that will be positive cashflow in 2-3 years. (and have good capital gain prospects now) Make use of the tax deductions such as depreciation in the period before it is cashflow positive. Then the cycle will evolve so there are cashflow positive properties available. (that are not over inflated in value in marginal regional areas). I believe anyone buying cashflow positive property now will get litte, none or negative capital gain in the next five years, and be paying an over inflated value for the property. Positive cashflow has it’s day a certain time in the property cycle, but open your eyes to other opportunities that are now available that are not positively geared but will provide you with capital gain before thay are positively geared.
ned kelly
big call ned.
It’s hard to convince a crowd that there is only one correct way to invest in property.
If this idea is true and good to your particular circumstances, then best of luck, go with it.
Still, is it possibly worth keeping an open mind?, Positive cashflow is a broad sweep my friend and Dazzling just gave you an example of one instance in the booming City Of Perth.
Adding value to a property is a key that can turn a growth property pos geared INSTANTLY.
:0)
Live, Learn and GrowLifexperience
Hi Ned et al,
This argument has been raising its head as long as I have been reading and contributing to this forum.
I have just started offering property spotting and other services for investors to meet there specific investing criteria (sorry for the plug) in NZ. What I amn finding is that investors know exactly what they what. They have done there research on the areas they are interested in and are well versed in the history of the areas they are investing in. They have realistic expectations and a investing business plan. Whether that be a formal document or a concrete idea yet to hit paper.
I think that as investors we need to take a position in the market. It sounds like your position may be to sit on the sidelines because you believe that there are no opportunities out there or that the risks are to high. Just be aware that while you sit on the sidelines others are doing deals every day and securing their futures. I am currently buying in NZ and Dazzling has just given you an example of cashflow in another market.
I have not purchased a property in OZ since 2002. Instead of sitting on the sidelines and saying there are no opportunities I am still actively seeking properties that meet MY criteria. In fact three days ago I made a SERIOUS enquiry to purchase and Aussie property. I would never have found this if I had a closed mind to that availablity of opportunities.
So if your position is not to invest that is great but make sure you are not sitting on the sideless out of fear or because you lack the experience on skills to make things happen.
Good Luck.
[email protected] – Experienced investors living in NZ who can find properties to meet your needs!
Project management also available – finding solutions for problem properties!
I’m with dazzling!You have to look beneath the surface to see whats there that way you get the best of both worlds,capital gains and positive gearing but you have to be patient in finding them,seek and you shall find.
Coreyjay
I am active in the market practising what I preach. Building an IP which will give me an instant capital gain of conservatively $60,000.00. Providing me with enough equity and rental return to do the same thing again straight away. It will cost me about $15 a week but should be cashflow positive in a couple of years.
All I am saying is a property does not have to be cashflow positive straight away to be a good investment and people should not seek positive cashflow at all costs especially in areas that may have had capital gain in the last few years but historically have had little or no growth over a long period.
I know their are examples on this discussion site of people buying both cash positive properties with capital gain in areas that historically have performed well…and good on you.
However it is obvious a lot of other people just buy properties because they are cashflow positive, without thoughts of future capital gain and whether the town they are buying in has a good future. They just do the figures and if it is cashflow positive the deal is done.ned kelly
True,
pos cashflow properties based on simple sums may not be the be all to end all.I think growth in the long term would tend to bring greater profits.
As you point out, there are many other things to consider when buying an investment property.
” Building an IP which will give me an instant capital gain of conservatively $60,000.00. Providing me with enough equity and rental return to do the same thing again straight away. It will cost me about $15 a week “…. sounds like a good deal, would you care to elaborate onhow you made an instant capital gain?
Devolopment in a major city?
Live, Learn and GrowLifexperience
In the northern most suburbs of Perth. Butler (aka Brighton) to be exact. It is situated near the beach about 36km north of Perth. The median price at present is about $280,000 (17.5% rise last year) . There is currently no infrastructure in the suburb to speak of. A shopping centre has just commenced being built which includes a Coles supermarket, family tavern, health centre etc. A direct road to the beach (about 800 metres) is currently being built (currently about a 2km drive to Quinns Rocks beach), the train is due to come through to Butler in 2008.Add to this the developer Satterleys have already put in superb lakes and parklands that are being developed further in the next year. Also there are very strict covenants on properties and the developer provides fencing, landscaping, reticulation, and cable connection to all houses.
There is a premium being paid for completed new homes in the area as people are not prepared to wait the 12 months to have there home completed. I have purchased a cottage block (360 square metres) for $100,000.00 and are getting built a 4×2 completely finished for $100,000.00. Add on stamp duty and interest I will pay while it is being built and the total cost will be about $215,000.00. The value of the house if it was finished now would be about $275,000.00 so there is an instant $60,000.00 profit and you can conservatively add at least another $20,000.00 to this when the property is finished in 10 months time. So this will be about $80,000.00 profit in one year.
The icing on the cake though is as the loan is for the building of an investment property I am able to claim the interest I am paying as a tax deduction from the day I purchased the land. In fact I have a PAYG variation in place so the tax office are already helping me to pay for my investment property even though it hasn’t been built yet!!. The anticipated rent would be about $250.00 a week and while this is not cash flow positive I feel the initial capital gain more than makes up for this and the fact it is a new home I will be able to maximise my depreciation claims.I anticipate the property will cost me about $15.00 to $20.00 a week and should not take long to be cashflow positive as rents in Perth are predicted to rise substantially over the next few years.
ned kelly
Thanks for that ned. That seems like a great purchase.[biggrin]
Geez, 37 km from the city, 800m to the beach and a brand new house!
You would struggle to get that for 220k in Melbs……
I will have to research Perth some more.
It sounds frantic over there, do you think this frenzy has got long legs to last the distance?
Live, Learn and GrowLifexperience
My personal opinion is Perth is still very much under valued and has a lot of room for growth. I would expect at least 25% growth in the northern suburbs of Perth in the next 18-24 months, which is the market I know. This is being fuelled by a lot of immigration especially from the UK. These people are selling up in the UK converting their pounds in to dollars and buying houses and still having money left over.This will only increase as extra immigrants are being sought to fill the skills shortage in WA.
Even with all this activity things do not feel frantic as the pace of life is so easy here it is hard to feel frantic!!!. (WA = Wait Awhile) There are still many opportunities, not many positively geared now but with good potential for being positively geared with capital growth in the next couple of years.ned kelly
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