Hi forumites,
I have wanted to get into investing inoroperty like most people on here to supplement some if not all of their income. I thought I would go down the path of buying cash flow positive properties in regional areas and buying below value,rennovating etc for improvements/equity gain. Recently I have read quiet a bit about this not necessarily being the best option for long term wealth generation. My confusion comes from the fact that I do not understand how you can generate an income stream by buying property that is negatively geared and relying on capital growth for equity. I figured if you are constnatly borowing money(equity) then all you are doing is paying off a loan……or am I really confused! Any advice is always appreciated.Richard I assume you will have some words of wisdom……..hahaha
Hi Wake
I understand the confusion.
To me – generating wealth via property is about finding balance.
You need the capital growth to continue growing the portfolio – but you also need the cashflow to sustain it.
I have adopted a similar strategy to yours – except most of my purchases are in and around Canberra.
I buy properties that I can add value to (so I don't need to rely on time and capital growth to kick in) – the value add also means I can bump up the rent which improves the yield and leaves the properties close to being neaturally geared. I then tap into this newly created equity and move on to the next.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks Jamie
It is not sustainable buying negatively geared property, as they cost money to maintain the loans, there is a finite amount of properties that you can purchase before you reach your limit. Then you are forced to wait for capital gains, and wait for rent to increase enough to make it positively geared and pay itself off.
I guess that is why most people who negative gear property as an investment, normally only have a couple properties in their portfolios.
Buying positively geared property is something you can do every day, literally every day of the week you can purchase a positively geared property and it will pay itself off. I do not see a reason why your strategy cannot bring you significant wealth down the line. Of course it will take a lot of work but if you are prepared to work hard then it should work effectively. But as Jamie said it is all about balance, there are definitely good oppurtunities in property that may be negatively geared.
The issue with purchasing regional property is typically there is no capital gains, but I do not see how it matters if the property is paying for itself. If you find a true positively geared property, then with some management on your part, it will simply pay for itself, and need no financial input from yourself after the initial purchase and renovations.
Cheers stream
streamlineinvesting wrote:The issue with purchasing regional property is typically there is no capital gains, but I do not see how it matters if the property is paying for itself. If you find a true positively geared property, then with some management on your part, it will simply pay for itself, and need no financial input from yourself after the initial purchase and renovations.The thing is if you only have regional properties that have no CG you can't get far. Paying down the property with CF will take MANY years. Having another property that is negative (as long as it's not hugely negative) will win out if it has CG and should be CF neutral after the first few years.
I adopt a similar strategy to Jamie.
I agree with the above posters that you need to have balance. In order to have a decent portfolio you need CF + CG.It simply isn't so that there is no capital gains in any regional properties at all. Certainly more remote towns might provide less capital growth, but I have no issue with major regional cities. I'm enjoying capital growth in the suburbs of Geelong VIC, and also yields that make the property close to cashflow neutral at time of purchase without lifting a finger. Then you renovate and/or put the rents up at the one year mark and bam you're cashflow positive. Why not take a look at regional cities that have hospitals and universities and are within an hour's drive of a capital city, and take a look at the stats pages at the rear of Australian Property Investor magazine to see how the growth has performed historically.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi Wake
We went looking for a positive cash flow real estate model in 2002 and stumbled on vendor finance. We got started in 2003 and have stuck with it to date.
We've always believed that our long term wealth is in the equity we have in property so we use the positive cash flow from our vendor financed properties to support our long term by and holds (until they become neutral and positive). Luckily for us this positive cash flow from vendor finance also supports our lifestyle. It may be a strategy worth researching.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
JacM makes a good point up there. I do not look at investing into a town where the population is around 2,000, and has not changed over the past couple of decades, where there is no significant industry around. In these places your property will only go up by inflation if you are lucky.
There are still regional centres that are growing significantly enough to achieve decent capital gains. Towns particularly with universities should always be a decent place to start.
And as for accessing equity, I also believe that renovating a property or adding cosmetic improvements is a good way to gain access to equity, instead of just waiting for for equity to grow naturally, you can force it to happen by improving the property. Of course if this is your strategy, you need to purchase a place where you can make a significant difference, no point buying a newly built apartment where you can’t make any changes.
At the end of the day, some properties will still be negative geared, if the capital gains is significant it can still be worth it, just make sure the amount of money that comes out of your pocket is minimal and does not leave your pockets empty!
Thanks everyone for your feedback, your posts have been very informative and helpful, cheers
I prefer postiive cash flow investing. It may be more of the get rich slow strategy – but its more safe and secure. Negative gearing takes money out of your pocket
I agree with the comments recommending caution with small regional town that don't have the infrastructure and demographics for the long term. There always needs to be a balance between growth potential versus rental return … research, research, research. The deals are out there but you need to know how to identify them and how to negotiate win/win scenarios. <moderator: delete advertising>
i've found a number of income generating properties from regional centres… it can be very exciting when you find them
Hey friends, i was going through this thread, and i hope you shall welcome my opinion. There are other investing options too, i believe gold to be a wise choice as well. the investment is as secure as it can get, and according to the economy trends, the rates seems to be only showing an upward hike:)
wakebrownb wrote:Recently I have read quiet a bit about this not necessarily being the best option for long term wealth generation.Hi Wake,
Cashflow V capital growth is one of the never ending property debates.
People who tend to follow one strategy over the other is often in a position to make a good case for their preferred strategy and, at the same time, raise doubts/issues about the 'other' strategy. often these statements are made based on the extreme end of the spectrum. For example regional towns have no growth or negative gearing costs too much.
In my opinion is that each strategy has their place and it isn't a case of either/or – it is more a case of working our what your situation is and working out which strategy is best suited to you. Bottom line – you'll probably find that a more of an eclectic approach is most appropriate with as someone else said 'balance'
Just remember your point of balance may well be different to mine and so on.
Buying for cash flow is a great idea. You need to properly set aside money for reserves to take care of any maintenance issues that may arise. I would suggest putting the first 3 months of rent in a reserve account. Paying cash for low priced property is the best way to go in my opinion. Some of the properties I buy in Mississippi USA produce over 18% roi.
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