Hi Fellow Mentorees
Don’t know about you but I am starting to get abit confused about which strategy is best.
In the Kickstart Folder Week 1, Steve created a matrix to determine how many CFP we would need to replace our income. As an example I would need 49 properties paying $20pw to get $50,000 pa.
In the present market it is difficult to get great CFP properties without there being greater risk of vacancy and/or things going wrong (maintenance) which may eat into the $20pw profit. You are also going $200-$300,000 into debt to get this $20pw with not much chance of getting any capital gains return when you sell.
Here’s my point – I was approached the other week to invest approx $135,000 for one year on a new housing development in a rapidly growing area with the guarantee of getting 15% return or profit share. Correct me if I am wrong but this would give me $390 pw at least (at 15%) so even if I was to pay bank back at 7% I would still be quids in PLUS no tenents! no rents to worry about! no risk of vacancies! no huge outlay!
Now I am wondering what the benefits of buying cash flow props are. Can anyone enlighten me?
Regards
AnitaHi Anita,
The deal sounds great as long as it is legitimate and the developer doesn’t run away with your money. CF+ property isn’t the only way to invest so if I you can find another way to invest (with minimal risk) why not go for it. Direct investment in a property does offer a lot of safeguards though (compared to the 15% deal that you mentioned).
Todd Burns
http://www.freepropertyhelp.com.auHi Anita,
It sounds like you have been approached to provide Mezzanine finance. The return on this sort of investment should be 20%+ because it is high risk, as many investors in Westpoint have found out. Be careful.
Regards
Alistair PerryHi Anita,
I can understand why you’re confused. Our personal strategy at this point is for high CG’s in 2-3 years. The trade off is that we have negatively geared IP’s. One IP has increased in value by about 40% since offer date. I settled 2 months later so in 5 months I’m looking at a $60K net profit after selling fees and CGT. It’s only costing me $30 p/wk out of pocket – or approx. $700 in total so far. Off course this kind of high growth is the exception not the norm…Also, my goal in life isn’t necessarily not to have to work because I’m fairly accepting of this fact of life. My aim and that of my partners, is to be able to supplement our salaries from investing so that we can afford some of the nice things in life, have a comfortable, financially stress free retirement, hopefully give our kids a hand-up in life and be free of the financial burden of making ends meet day to day (eg. can we pay the power bill on time?).
As for CF+ IP’s my personal take on that is that Steve is a standout example of what can be achieved BUT he was at the beginning of trend. The populaity of CF+ investing and the boom has dried up supply of good quality, sound CF+ IP’s. Plenty on this forum who say they are still around you just need to look harder and they may well be right, but good luck trying to find 49. My next point is to be very careful what you buy. For instance, I travel around rural WA quite regularly and just lately I’ve been amazed at some of the prices properties in some towns are bringing. And quite frankly, so are the locals – many of them can’t believe their luck. There has been an influx of mostly eastern states investors seeking CF+ IP’s who are pushing prices up and many buying sight unseen. I seriously doubt that they know what they are buying into and I fear that many of them will enjoy only short term +CF before realising that they are stuck with a property that they ultimately can’t rent and can’t sell. Of course, my comments are restricted to much of rural WA and may not be applicable to the generally larger, less remote rural townships in the eastern states. Lastly, remember that a property that is CF+ to the tune of say $20 per week will very quickly become CF- if even a relatively minor repair is required.
It seems to me that both forms of investing have their merits and downsides. All I can suggest is that you do your homework very carefully, maybe start out close to home where you have better knowledge of the state of play and be honest with yourself about why you’re investing. If you’re after quicker, lum sum CG then CF+ investing may not be the way to go. However, if your goal is to replace your income and look on CG’s as a possible upside then CF+ investing might be a better option.
Flatout
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