Answers to “Where to Find CF+ Deals”

Hi VK,

Cannot agree with that statement at all,

As a property investor looking to build a portfolio you need equity and cashflow.

Some would argue you can use the surplus cashflow to pay off your loans but to do this in a reasonable time frame your cashflow needs to be extremely high (relative to property price). In reality for most people they need growth too. Without growth your portfolio building will stall.

The other question you need to consider is what is your end goal?

imagine your target is $200K/annum (using a number from another post by someone else) how will you get there?

Obvioulsy you will need to replace the $200K with your number but the same process applies. .

I agree with Derek, you need both cashflow AND capital growth.

Cashflow gets you into the market and keeps you there, but capital growth gets you out of the market in a profitable way. If you, like me, are looking at growing a portfolio and then selling a portion of it to pay off the debt then you need both. The cashflow will help you buy and build your portfolio while keeping you afloat and keeping food in the fridge, and the capital growth will mean that you need to sell as few properties as possible to wipe out your debts and live independently.

You can be more sure of good cashflow because you can do all the sums and work it out. The unknowns are future interest rates and future rents, but it’s a fair bet that if something is positive cashflow now, it will continue to be (unless interest rates rise significantly to push it into the negative).
Problem is, you can never be sure what capital growth will be – that’s crystal ball stuff. You can hedge your bets and do your area analyses, but there’s always an element of uncertainty.

Good luck with your investing!

Hey Von Krumm…

You will notice a leaning in the last few posts, towards buying for capital growth.
"Not that there's anything wrong with that."

But this post is about cashflow positive property!
When buying for cashflow, you want to buy in an area that's not likely to go backwards eg one industry small town and they close the main factory. And you may want to determine a minimum size population, so you're not somewhere tiny.

I would want to find property that is more than 2% return higher than the current interest rate you'll pay, after costs.
No use buying for cashflow and the $200,000 property gives you $1000 cashflow per year, after expenses, unless you are convinced that the rents are way under-valued for the local area, and demand is high. I don't look for marginal cashflow, but something worth my while paying stamp duty on.

Cashflow for cashflow's sake, NOT expecting a high capital growth, is still a very good strategy for creating wealth and even becoming financially free. (ie not reliant on income from your job!)     

What a great post – thanks for that Adam

You're right mattsta, regional areas tend to offer a higher percentage of CF+ properties.

You do need to be careful, however, that the area you're looking in is a viable community. Some mining towns may be booming now but they lose their "boom" and can become ghost towns in a few years. It's worth checking to see that there are enough other industries to keep the town going in the case that the major industry busts. It's these single-industry towns that are very risky – some people invest there and do extremely well, and others fare far worse.

I'm too conservative to take such risks. I tend to look for certain indicators – a McDonald's, a Bunnings and an airport that offers passenger flights, and not because of my penchant for burgers, hardware and travel. Generally, I have found that if a town is good enough for Ronald McDonald to set up shop, it's worth investigating.

I hope this helps, and good luck with your investing!

Is anybody know where can I get the Steve's "Buyer Beware" templates?? I've been looked all over the Internet, just couldn't find that…. So Frustrated….

A usually overlooked option – serviced apartments.

They can offer fantastic yields, secure tenants, little to no outgoings (depending on the lease structure) and I've seen some great ones in Melbourne over the past year for under $160,000

The down side – very little CG, can be difficult to get finance from some lenders.

DO NOT buy serviced apartments. As mentioned they have very little CG. So what's the point? On the surface they look high yielding but look closer at the management fees, cleaning fees, vacancy rates etc etc and they are not CF+.

You're not going to find CF+ places on the North Shore. Know your area, pick your streets and you'll be fine. Not everyone in an "undesirable area" is undesirable- same as not everyone in a rich area is rich.

Cheers Catalyst!
I live in SA and I am talking of the Northern Suburbs of Adelaide particularly. I have been targeting properties with potential for second residence. Of course, by the time I sus it out and chat with my hubbie about it… it's gone. It's all research and experience I guess.

Sounds like this strategy has worked for you. Seems like spending a little extra time on reno's would particularly pay off in these areas, like the sound of being fussy.

I appreciate the advice.

Agree with Catalyst on questionable strategy of trading off capital growth for reliable yield in serviced apartments. Your resale potential is limited (selling only to other investors).  Current recommendations for C+ve are Orange (based on expansion of Cadia Gold mine) and Bowen based on $9b upgrade of Abbott Point to 8 coal loading docks and a multi cargo port. Both regional centres have populations over 10,000 and diversified economies.