All Topics / Help Needed! / Build Positive Cash flow idea

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  • Profile photo of SammiSammi
    Member
    @sammi
    Join Date: 2009
    Post Count: 1
    March 10, 2009 - 9:58 am

    Hi,

     

    I am planning to buy my first property in Melbourne CBD. I do have a good income and will probably buy a property for arnd 200K, small one bedroom or studio.

     

    My plan is to stay in the property and make extra deposit on a monthly basis, e.g. instead of 1200/month I will pay say 2000k. (Rather than jumping on a 400K mortgage)

     

    My idea is to pay large monthly payments, stay in this property for X years then move out and lease it.  Obviously the idea is to buy another property at that stage.

      

    Well I’m new in this game, but would someone advise if this approach would actually work? And can a positive cash flow be created buy making extra monthly payment and after how long (X)?

     

    Share of ideas welcome.

     

    Many Thanks,

    Profile photo of SHalesSHales
    Member
    @shales
    Join Date: 2007
    Post Count: 325
    March 11, 2009 - 3:03 am

    Building equity by repaying debt quickly is, I think, always a smart move.  However, it won't necessarily result in positive cash flow all on its own.  You should talk to a finance broker about your plan, and get some advice on the best way to accomplish what you have outlined.
    good luck
    s

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    March 11, 2009 - 4:58 am

    Its a good idea, but why pay the loan down. Why not just use a IO loan with a 100% offset account.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024
    March 11, 2009 - 6:56 am

    Agree with Terry 100% however also be careful that the security will be acceptable as many lenders will run a mile when it comes to taking small 1 bedroom or studio units as security.

    Richard Taylor | Australia's leading private lender

    Profile photo of SHalesSHales
    Member
    @shales
    Join Date: 2007
    Post Count: 325
    March 11, 2009 - 7:25 am

    Richard and Terry,
    This is what I was sort of getting at, though I  thought you might be able to explain a little better than me about how this can help achieve the positive cash flow goal better than paying all those extra payments off the actual loan.  I'm aware of the theory but haven't used the I/O structure myself yet, so didn't want to give the wrong information.
    S

    Profile photo of Playa ChickenPlaya Chicken
    Member
    @playa-chicken
    Join Date: 2004
    Post Count: 128
    March 11, 2009 - 8:38 am

    At the risk of sounding really stupid, maybe I've missed something here, but ……..

    …. why wouldn't you purchase an investment property that is already cashflow positive funded at 100% now and let the tenants pay it off for you over the next 10 years?

    Vicky

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