Hoping someone can please clarify. I have just finished reading Steve’s first book and needless to say was very impressed. I have some investing experience, but always learning. In the past, I have relied on Capital Gain, more so than Positive Cash flow, but am now hoping to change this. My question is, when Steve refers to a Positive Cash flow scenario, are most of the deals 100% borrowed funds, and still obtaining this, or does he recommend using own cash for the 10% or 20% deposits and legals. In other words, is it recommended putting in as much cash as is needed to make the deal positive cashflow. If so, are there any hints on how to obtain this while the market is currently so flat?
Regards
MichelleIt is difficult to look at properties that will provide positive cashflow in Australia. Even renovating a property will not in most cases lift your rental return to a point where the property will be positive. I not saying they are impossible to find but they are hard. Another option would be New Zealand where there are still positive cashflow deals in main cities and also the United States, where you can get great deals providing you understand the rules.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand The United States Property Researcher and education
One Day property investment research workshop The United States. Please register your interest
http://www.changingplaces.com.au Buyers advocate.Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Hi Michelle,
For me it makes sense to do the calculation on 0% deposit, that is borrow the lot, plus all of the legals to get into the deal….using your existing equity.
Then, I simply take the nett yield of the prop and compare it against the cost of funds.
Eg ; cheapest money that I can buy right now for what I invest in is 7.10%…..so, looking at houses that have a gross yield of say 3 or 4% and then take all of the outgoings out of that, you are left with a nett yield of say 2 or 2.5%…..compared with what I am paying at 7.1% for the funds…..simple decision – no deal.
As an example, the house a couple of doors down from us sold the other day. Good big land with a recently renovated (the son spent a casual 4 years and 60K doing it up after his mother departed) 2 x 1, 1940’s house.
It’s gross yield, rented out for a max. of $ 300 per week, was 0.92%…yep that’s gross.
When you took the outgoings off, the nett yield dropped to -0.4%…..what a bargain !!!! [biggrin]
That is, with the property fully paid off, and fully rented out all year, the place would still make a loss and you could negative gear it. First time I’d ever seen that !!!
MichelleandRob,
First of all let me state that cashflow positive properties in Australia still exist and I find them quite regularly (about 1 per week on average).
When calculating cashflow positive status I take into account ALL money used to purchase eg: Loan,deposit, legals, management, insurance and any other costs. I then consider ALL income eg: Rent, depreciation (if any) and tax advantages. Simply subtract ALL costs away from ALL income and see if you are in the positive.
Todd Burns
http://www.freepropertyhelp.com.au
You must be logged in to reply to this topic. If you don't have an account, you can register here.
