Hi everyone, I truthfully need help to understand Positive Gearing and where to find such properties – can you help?
So that I can best understand this Investment type, this is what I require:-
Location of Property (not address)
Date Purchased (year will do)
By how much is it geared positive a year (in $'s)
Your expected annual growth rate. (as a %)
Your expected vacancy factorThank you in advance – I would appreciate as many options as possible.
Jon
Hi Jon,
as you probably already know it is very hard to locate positively geared properties in this day and age. Some people have posted recently saying they have located some, but I think the location and the cap growth factor may be questionable.I'm not sure what you are asking for exactly here – are you after properties to buy that are pos geared and where they are located, or are you simply after info on how to identify them and work out the cashflow?
I own some pos geared props and would be happy to tell you the details in a private message if you need.
The other type of "positive" is the pos cashflowed after tax method; is this what you need advice on, or on both types?
Hi Marc,
Thanks for the reply. I was really wondering where people find them and wanted to know more about them.As for the pos cashflowed after tax method, I am fully aware of this method as I use it myself.
I am looking for Properties that are purchased as Positive Geared from date of Purchase without a deposit to make them positive.
I have noticed that the number of people who walk into my business asking me to show them some has increased alarmingly.
They don't seem to understand when I jokingly tell them that I have bought them all.Jon
Lots of visits but no examples – Is it as I asumed, another investor myth?
Jon
Jon,
These types of properties have not existed in capitol cities for a long time, when Steve wrote his first book 0-130 properties he was buying positively geared properties around regional Victoria, How ever property prices have grown in these areas now as well, making properties that once could be bought positive cash flow from day one to negative cash flow.
As Steve says in his latest book 0- 260+ properties, today's market has changed. you can't expect to go out and "Buy" a positive cash-flow outcome any more, ( however in certain circumstances they may still exist). But what you can do is increase your level of sopistication and find deals where you will be able to create a positive cash flow outcome.
If you can find and work deals like this into your portfolio you will excelerate your growth.
Well as far as I am concerned they do exist.
Its no myth, just rare and hard to come by.
Having said that, we specifically target such properties and so do my fellow investors, as part of a balanced portfolio, as well as to offset the 'supposed' high CG but negative geared properties in the portfolio.Of course they're not in city areas ( unless you are buying commercial with a 10% yield that is!)
Welcome to the sustainable and under supplied world of regional / mining WA and QLD.
Real example ( I have many btw)
Land price$120,000 purchased 2006
Build price $387,000 completed Feb 2007
Rent $1,500 pw four year leaseVal on completion $700,000 ( for the bank)
Market val $800,000 ( revalued last month to refinance)
Thats not atypical and we have been doing this since 2004 when we got started.
Strategy is to refinance on completion and reinvest the proceeds into more property.
Rent return STILL covers the total loan and property costs.
Now you have no money in the property and it still cashflows itself.
You get the immediate kick start CG at completion ( from $120,000 to as high as $300,000), so who really cares if you don't get ongoing CG ?
Having said that, the historical CG rates have been similar to 'low risk' city property.
Although, at these curent prices we are seeing affordability limits being stretched.Owner is a Sydney investor who lives off the rent and just keeps investing ( jobless by choice)
Is it sustainable?
As long as China doesn't fall over and we don't exhaust the resources ( theres 50 yrs + in the ground without trying to prove up more reserves) then this will go for 20 yrs or more.
Rents can HALVE and you're still doing OK.
Historically to date, rents have never halved.kp
Hi Jon, as mentioned they are hard to come by but positive cash flow properties do exist. ( I assume you will allow a commercial example?) One purchase I made goes like this. Three and half years ago I noticed that a building in the CBD of a large regional centre (Population 100.000+) had been for sale or lease for about 4 months. Asking price to buy was $230,000. The lease price being asked was $500 per week. When I enquired about the property I found out that the organisation next door was in need of more office space and possibly may be interested in leasing the bulding. On speaking to them they confirmed this, but they told me the current owner was not interested in spending any money to bring it up to the standard they required. I asked the CEO of the neighbouring organisation that if I purchased the bulding and refurbished it to meet their needs, would they do 2 things. 1) Lease the building from the day of settlement at the current asking price of $500 per week? 2) Agree to a lease price of $2750 per month once the renovation was complete. With my home complete (including renovation costings) I then made a number of offers to the agent. $220,000 was eventually accepted. My interest rate at the time was 6.5% so even if all the money was borrowed, I was making money from day one. In the end my reno costs came in at $110,000. So if you add in stamp duty and legal costs I ended up spending $344,000. The lease that was signed was for 7 years which we are now half way through. My current interest rate is 7.7% so even if my debt was at the full amount of $344,000 it would be still cash flow positive. All out goings are paid by the tenant so the only extra expense I’ve paid in three and half years is the $212 to ASIC plus my acountant.
I would not expect to walk into an agent’s office and buy my current situation off the shelf. However with a bit of leg work it all came together. Often I read on here that postive cash flow properties are created. I can only agree.Hallg
Hi KP
You're doing well and good on you. Just because minerals are in the ground it doesn't mean they continually will be mined. Mining booms come and go (at least they used to unless things have changed!) as does the unwise who don't spread their investments wider than mining shares…..and excessive property investment in risky mining areas. It's a double whammy risk and hence one does need to be particularly cautious in case the bubble bursts…as is to be expected one day (my view). An investor might have the interest payments covered by secured rental for some extra years but as soon as any crash occurs property prices are at risk of entering a downward spiral if employment in those areas tumbles in sync with mineral demand falls. I'm not trying to block people on taking risks as I have done plenty of that myself and have done very well overall including some losses but rather suggesting that newer property investment people should consider carefully their investments as one big sour investment can be disasterous…..as history also tells us.
Carpe
Rental income is not keeping up with the rise in property prices and the cost of holding property such as interest rates. In addition council rates are increasing by more than the cost of inflation.
That's why it's impossible to find a cash positive property these days.People
Stop looking for positive cash flow properties for you to BUY.
As I said in my last post you have to create a positive cash flow these days,…… as said some of the previous posts the do exist, but you will be hard pressed to find an off the shelf positve cash flow solution.
If you want a positive cashflow near a capitol city you'll have to work at doing, reno's, subdivsion, property trades to lower your total debt, invest in commerical property, wrap deals, small developments,
If your not a proactive investor willing to get out there and and think outside the box, then yes for you positve cash flows don't exist, and the only way you will make money is buying a neg cash flow investment and wait for the market to increase.
Hi All,
Some excellent answers to a very tongue in cheek question. It is as I expected, good Positive cash flow properties must be created not found.I especially like Tysonboss!'s answer:- Stop looking for positive cash flow properties for you to BUY.
Hallg, you've done well, Commercial is often a good way, the only draw back can be long time between tenants, so 5 x 5 or better should always be considered.
KP. 15% return on outlay has to be good, but you've got bigger heart than me, that top end stuff is not my bag.
regards
JonI replied to this with more detail, but it seems to have disappeared.
Maybe I was dreamin' ???
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