Call me stupid but I just don’t get it!!!
All these seminars that I go to all explain how easy it is to invest even if you don’t have any money for a deposit and yet still create positive cash flow
Im struggling to get my head around how purchasing a property in Perth it is possible to create positive cash flow on 1 income. Im a professional worker earning 60k pa
My scenario is this
I live alone, have purchased my current house for 275K, have an outstanding mortgage loan of 190k and have around 10k in savings.
The basic average villa or house around Perth is around the 250k mark. If I borrow the full amount for a average property of around 250k at the current interest rate of around 6.75% then the weekly repayments will sit around the $400.00 per week mark. You would not be able to rent a 250K property for this amount, maybe $250.00 at the most, hence having to put money into it and creating a negative geared property (not what I want to do).
The other option is to borrow against my own property however this will increase my own mortgage repayments by a few hundred bucks as well.
I don’t understand how it is possible to create a positive cash flow from property when the housing prices are as high as they are with the rental return not coming close.
Im thinking that shares are my best option.
Im reading Steve Mcknights first book but it seems that (so far into the book) that all the properties are very very cheap and the rental returns are average in todays market
Can someone give me a more simplistic opinion.
Dont you think all these property gurus would be out buying property instead of making money out of you poor smucks if it was as easy as what they lead you to believe???
I hear you. You are quite right it is very hard to find a positive property in Perth at the moment. We are where you are at now, reading, learning, looking and trying to work it out. When you read on you will see that they created opportunities for positive properties by changing deals to suit themselves.
Hello Ganakars,
I think we have all been where you are ( some still there too). But you have taken the step to learn.
When is the last time you had your property valued ?
Just quickly looking at the sums you have supplied, it looks like you have approx $68,000 in equity in your current home.
There is nothing wrong with using this equity if done wisely
Pretty good deposit actually to get creative with it.
I have a bout the same equity and about to use it to finance my next venture, commercial.
Any yes it is postive by about $ 7,000.00 a year.
I am fairly new here, suggestions to read many different books, and read the different posts here, absolute wealth of info here.
If you not have the deposit to find positive in Perth, then look outskirts, who knows might have enough equity / deposit there to fund two i/p.
Good luck
CheersHi ganakars
My best advice is to finish Steve first book and quickly read his second. That will definitely help to clear the fog slightly. I’d also suggest you only consider that the begining of your education. Keep reading whatever you can get your hands on.
In relation to the seminars you’ve been to, I’d guess you may have only attened the 1 to 2 hour promotions for the real seminars. We recently attended a seminar and with what we learned at that seminar, we ended up controlling a house for only the small cost of getting some paperwork drawn up. We then on sold the the house and walked away with a second mortgage from the new owners for $42,000. They owe us $62 per week but have elected to pay us $91 per week. Not bad for the few hundred dollars we spent on getting the necessary paperwork drawn up.
Needless to say, we’re not real inclined to call all of the real estate “gurus” out there “quick buck merchants”. But don’t spend the money on these seminars (because they are pricey), unless you commit to taking real action after the seminar is over.
Good luck.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Steve’s books were an inspiration. Showed exactly what could be done 5 years ago.
Why do you think Steve is now investing in shares, and property overseas?
The books by all the property gurus are what sent property prices to the ridiculous levels they now are. Plenty of positive cashflow propertys out there, problem is, no one wants to live in those towns.
Good luck.
Hi Paul, May I ask which seminar you attended recently and how much that cost you? From the sounds of it, you probably got all your moneys worth.. and then some.
Positive cash flow is getting very hard to come by. Most pundits advertise only new properties with ambitious rents and nearly $7-10K worth of depreciation deductions on the highest MTR only to get it to a neutral CF position. And from 06, the highest MTR threshold will move to $125K, which is about 2.5x national av. salary so doesn’t make these deals very attractive at all.
Might need to look at blocks of units or commercials to get your +ve CF. Then again, these do require a lot of capital hence +CF should be a given with these investments.
You know what they say “if it were easy..everyone would be doing it”
I believe Steve’s strategy has evolved somewhat ganakars..finding +CF IP’s is definetly harder but not impossible (speak to Westan, Auzzielad, Dazzling, QLD’s 007 etc)
Finding residential +CF IP’s in Perth nigh impossible now, even a bit further afield, though I’m sure if you startlooking in towns of 30-300 people you will still find them (would you want them though?)
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorHi Ganakars, As has already been said here, +ve CF properties virtually impossible to find except maybe in the very small towns or mining towns. Even in these property prices have been driven up by demand from +ve CF investors so they aren’t as good as they might have been even IF you were willing to overlook the lack of true growth potential in these communities. Seems to me that Steve McKnight was able to achieve +ve CF because a) he bought cheap, cheap properties readily available prior to the boom and b) he put cash in (say 20% deposit plus costs) rather than 100% lend and c) he used wraps to create passive income.
Unless you’re willing to put in a significant amount of cash or get into wraps, options etc I doubt you’ll find a true CF +ve IP. Only other possibility would be if you can find an undervalued IP with value add potential (eg. through renovation). Personally in our position I prefer to concentrate on CG potential coupled with reasonable rent yield to at least minimise as much as possible out of pocket expenses. No way would I use put cash in or redraw against PPOR mortgage (a non-deductable expense) to create +ve CF IP.
No way would I use put cash in or redraw against PPOR mortgage (a non-deductable expense) to create +ve CF IP.No I definitely wouldn;’t draw out of the PPOR mortgage either, however, I would use the equity I have as security to be able to borrow. +ve cashflow is not easy to find, in the past we have bought homes noone wants, then renovated them, to have the extra cash for deposits on others. Also found that over time, our negative ones have become positive as rents have increased, although it has taken a few years for this to occur.
PK
Hi Ganakars,
Yes welcome to the frustrating world of WA property investors. With the crazy of boom of late, it is now almost impossible to find properties returning 5% in the metro area.
If you are looking for 8%+ returns maybe you should perhaps look at Kalgoorlie or Karratha, you can find properties there easily returning 8-9%. The only catch is that someone in your position, even at those retuns will still find the property negatively geared.
For example:
Purchase price: $250,000
Rental Per Week: $400 per week
Management Fees : 12% inclusive of everything
Rates: $1600 (shire & water)
Borrowings : 100% + purchase costs
Interest Rates: 6.5% fixed for 3 years
Insurance Landlord & Building : 500
Depreciation: NOT IN EQUATIONThe numbers would look like this:
Rents: 200*52 = $20,800
Interest Repayments: 265,000* 0.065 = 17,225
Rates & Insurance: 2,100Therefore Total Cashflow:
20,800 x 0.88 = 18,304 – 19,325
Giving you a Loss of $1,021 provided that your property is tennanted for 52 weeks.
So for +vely geared property, you must get at least 10% return which are extremely difficult to get!!
Get when there’s a will, I am sure that there’ll be a way!!
Good luck!
Prakman
Originally posted by Prakman:Hi Ganakars,
Yes welcome to the frustrating world of WA property investors. With the crazy of boom of late, it is now almost impossible to find properties returning 5% in the metro area.
If you are looking for 8%+ returns maybe you should perhaps look at Kalgoorlie or Karratha, you can find properties there easily returning 8-9%. The only catch is that someone in your position, even at those retuns will still find the property negatively geared.
For example:
Purchase price: $250,000
Rental Per Week: $400 per week
Management Fees : 12% inclusive of everything
Rates: $1600 (shire & water)
Borrowings : 100% + purchase costs
Interest Rates: 6.5% fixed for 3 years
Insurance Landlord & Building : 500
Depreciation: NOT IN EQUATIONThe numbers would look like this:
Rents: 200*52 = $20,800
Interest Repayments: 265,000* 0.065 = 17,225
Rates & Insurance: 2,100Therefore Total Cashflow:
20,800 x 0.88 = 18,304 – 19,325
Giving you a Loss of $1,021 provided that your property is tennanted for 52 weeks.
So for +vely geared property, you must get at least 10% return which are extremely difficult to get!!
Get when there’s a will, I am sure that there’ll be a way!!
Good luck!
Prakman
How about when you add tax variation and its tax benefits as well as depreciation into that mix prakman?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculatorhi ganakars
couple of things
1. syndication its a word that is not mentioned in alot of investing circles due to the fact that there are a lot of regulations about what can and can’t be advertised I know what and why but advertising the word syndication and telling someone to go and have a look at this type of investing will give you some food for thought.
2. Prakman number look to be right, not run the calcutator over them but I’ll take them as right. The only thing that I would add (and I would think rather then Kalgoorlie (growth 2.4%last year and 4.5% over the last 3 years or Karratha 11.3% last year and 7% over the last 3 years) I would be looking at albury 34.2 % last year and 13.2% over the last 3 years.
and I would look for a property that can be developed into a duplex or unit site.
as for posi’s well the people who tell me that there are no posi in perth sorry your wrong and the same for brisbane or melb or for that matter sydney the only thing is you must build it, you must have a 30% gross return built in to the project,and you must have the capacity to hold the end product. and if you find a property that is a posi or close to it from the start then its even better remember to look for income or growth and if you can try for both
example
duplex
land 310k
build 320k
finished cost 640k split in half
costs 320
sale price 650k lend 80% 520k low doc
520-320 = 200k put in term deposit for 5 years @ 4 % fixed( can get higher but lets work on the low side)
rental 15k loan at 8% ( lets work on the high side)41.8k short fall 26.8k
draw down the 26.8 k for 5 years cost 134k split loan or line of credi doesn’t matter for this equation.
5 years later you still have 66k in the deposit bank and had you done this development in albury working on there three year growth levels the property is now worth in value 1.35 mil if you then sold you would have 833k and pay 50% cgt you have 416.5k plus your 66k and to get this what have you put the 5% to purchase the property at the start as I do, get the bank to lend as high as possible of the purchase price.
The above is an example but also an actual project and the figure are very close to reality as they are not built yet I just hold for longer time and don’t sell.
I would like to hear from a couple of guru’s as posted before if you sound out the letters g you are you tells me a lot about guru’shere to help
If you want to get involved in some of the projects I’m involved in email to [email protected]Prakman number look to be right, not run the calcutator over them but I’ll take them as right.Dunno grossy…I hope you run the calculator over your own deals a bit more thoroughly than that ??
Prakman has stated up the top the $ 250 K IP is renting for $ 400 p.w., and then proceeds to use a figure of $ 200 p.w. in the calculations ????
With him multiplying the figure by 52, I’m presuming of course he means weekly ?? [blink]
Sorry…I’ve been told not to nit-pick the details, but I thought a halving of the rent – or is it doubling…was probably slightly significant.
YOU LITTLE NIT PICKER YOU.
Mine is vacant land to start.
Can give it later on a property with a building on it but not finished the details.
In your neck of the woods there seems to be a couple of pockets that are very tempting to me at the moment and may be comming over to perth and flying out from there just running the figures at the moment.
Do you have a group that meets around the 15/16 dec might have a look at this rockingham, mandurah areas.
keep nit picking I must admit I like to add to a post rarther then pull it apart but it also need people to nit pick or pull apart so the figures stack up.
devil is in the detail.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]GrossRealisation, forgive me if I’m being dumb but in Ganakars original post he stated he was looking at I around $250K. Your scenario for +ve CF sounds great but you’re talking about developing with an outlay of $640K plus costs. Hardly comparable. Even if one had the necessary equity to get into a deal of this size, they would need to be able to service the loan entirely right up until the point the duplex could be sold/rented. And as I understand it, over here in Perth and SW WA there’s currently about a 14-18mth lead time on building. Am I missing something obvious?
I do agree with you about Albury though, but I would include Wodonga in mix. Most of my family lives there including my brother who is a builder (a very good one). I’d love to get JV going with him…
Hi ganakars
If you are willing to move away from the buy & hold/tenant way of thinking you will find positive cashflow real estate transactions are definitely still available out there in the market place. And many of these transactions can be done for little or no money down (like the one I mentioned above).
Have a look at:
https://www.propertyinvesting.com/strategies
http://www.financewraps.asn.au
http://www.rickotton.com
http://www.businesslawyer.com.au/fr_property.htmlGood luck.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
hi flatout
sorry no you don’t.
you need the difference of the lend against the value if you purchase a property with a building on it you need to cover that loan.
the land and construct is governed by the end product and as its commercial (unless you use nab)servicew ability is not an issue if you a term deposit in place there are more then one way to skin that cat.
you can do the example I have given with 5k and using the current no doc system.
the above system is being done with 5k and is thru nab and doesn’t have any building on it it is vacant land in low doc and the interest rate is 5.99% and there are two blocks that are being built.
So for the 250 you can keep your 245k in your pocket.
The example was to be given that using a person that knows what they are doing(not me of coarse) you can find these opportunities.
I wouldn’t say your dumb but use they lenders money as much as possible to gain your return.
in the above project I will have all and any money out with in 1 day of settlement and then leave to construct.
as for lead time you try to get as close to posi as possible but it depends the return.
you take the loan less the rental and cover that part but at 250k and I have had a look at wa( well a little more then a look)and for 250k you may not be able to purchase alot of real estate but I’m sure that a little fluid pen work you would be very surprised what is available.
I may have looked at the post wrong as I was working on the 10k cash.
Usually my deals require less then 50k in cash or 400k if equity.here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]hi PaulDobson
not sure about the first three had a quick look.
1st one is ok
2nd is wrapping and yes works for wrappers, but I would get involved with a wrapper first before getting into that market,
Its a little sticky for me and not without its litigation that hasn’t been answer to my liking.
3rd ok if you want to sign up for learning not going to help much unless you want to learn at a price.
4th good for info and if you take the information and us it correctly yes this one is very usefull for information.
Your best allie is the vendor and both are fighting the foe, the lender.
As long as you can walk the tight rope you will reach the end with the vendor walking away with a sale vendor financing back the difference between the price and the lend at just below the bank rate.This is what we call the ideal equilibriam point.
that is I owe nothing in the project, the lender is owed 100% and the vendor finance is paid after completion and from the lend, from the bank on end product and I take max profit.
They call it all happy, some happier then othershere to help
If you want to get involved in some of the projects I’m involved in email to [email protected]
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