Do you invest 4 capital growth or cashflow?

I invest for long term growth. But I must also admit to owning investments that yield quite well.

But the overall aim is long term wealth creation through capital growth.

Cheers,

Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

Hi all

At present I am primarily into +cash flow – buy , reno, sell. Though I am holding one for just over 12 months to lessen tax and I have one in Mandurah long term.

I like my returns realised – In the Bank!

Celeste

With you Buy, Sell, Reno, CGT costs would you not be better off accessing the equity to refinace rather than selling..you then still get the CG benefits?

“Money is a currency, like electricity and it requires momentum to make it Effective”

Online Positive Cashflow and Renovating Calculators

Hi Redwing

My formular / plan is a little complicated. My basic plan is to take 220000k LOC and turn it over as many times a possible in 1 year, building capital as I go.

I pay my self a wage each week (equal to the one I was getting working for the man). In may 07 I will pull some money out of my business account and salary sacrifies to super. We have our own super fund, hubby will them buy property and work the stock market with these funds via the super fund.

At present I am on target to make a minimium of 30% profit on my original 220k, more if I squeeze another in.[biggrin]

There are numerous reasons why I chose this path
1. hubby with a debt tolerance of 5% – I am trying to increase this.
2. A need to be creative / hands on.
3. wishing to have more time to do the school stuff – canteen etc.
4. I did the numbers on rentals, do not like the returns in Perth at the moment.

This is my short term plan, Long term I plan to have a block of units or the like that are cash positive (or near on full owned) for regular income when we retire.

I will take each property on its own merits, I may come across one or more that I feel is worth keeping long term. Like my long term property in Mandurah 5 min from the beach!

Celeste

My motto at the moment ” show me the money”[thumbsup2]

Well said that cashflow keeps you in the game where cap gains makes you rich.

Most of the deals I see are only 5-6% return so they dont pay for themselves, costing you considerable cash each week out of your pocket.

Don’t instantly think any deal will generate cashflow. Buying in an area that is due to get natural rental growth, then adding value through a reno will definitely get you a great return in this flat market.

Bought one feb last year at $100k in Kingston only getting $110/wk rent giving a measly 5.2% return. August came and the lease was up[biggrin]. Goodbye tenant hello reno. Reno was tiling the whole ground floor, painting top to bottom with gloss enamel trims and doors, rangehood, exhaust fan, downlights, carpet in the bedrooms, new loo and vanity, new taps and shower head and new curtains. $7328. So then I rented it out and got $165/wk on a 12 month lease instantly. This gave me a 7.5% return which covers the mortgage and the management rate thru the agent.

The holding costs out of pocket were $780/yr body corp fees and $1280/yr rates. So $2060/yr in yr 1 to hold the property.

Second year you have as a deduction the $2060 and any reno components legally claimable. Get a depreciation schedule on it and get between $2000 and $2500 in the first year for one of these and you average $2250 deduction. Add $2060 actual first year cost, add $2250 for your depreciation totalling $4310. Then add the actual schedule cost of $330 and you get $4640.00 as your total year 1 deduction off your taxable income. $4640 x 30% tax rate and you physically save $ 1392.00 of real $$ you dont contribute to the tax man[biggrin].

Ok so if you have followed this so far you can see I havent included the reno costs as they vary greatly depending what work you do. This would further reduce your tax but for this example I wont add them in.

Year 2 comes around and you still have $2060 actual costs to find for your property as holding costs. Your $1392.00 still in your pocket after doing year 1 tax means you would only need to find the difference of $668.00 out of your income to keep the property year 2.

All this shows is the figures based on an example of what I did.

Year 2 your depreciation figure would be less but this is then offset in your rental increases keeping it fairly stable for the next 10 years.

So this isnt actually cashflow positive, by any stretch of the measure, but personally this then become sustainable and repeatable which is what we all want. Eventually all of the costs get away from you and you have to slow down, but you never stop.

This climate is uncertain, due to high owner occupier demand and emotional buying, interest rate expectations and investors being cautious at the moment, so diligent searching is required to find those panic sellers and bargains that still occasionally make the figures work. It is getting significantly harder to find this sort of thing, but they do exist.

So with many people reading Steves first book and wanting a 10% return with cheap body corp fees and rates and great cap growth potential, think again. He addresses this in his second book but lets see what the new thrid book will bring for us all to lap up.

Happy Hunting

DD

Buyers Agent (Dip Financial Services(FP)
Don’t sweat the small stuff,and it’s all small stuff!!