Positive Cash Flow Property

Spoiled for choice hey!

Sometimes one property can mix multiple strategies (such as reno and also subdivision).  Sometimes just one strategy.  You can't necessarily use all strategies in every deal.  No need to get upset because this is so.

Much of the current sentiment is to go for positive cashflow.  Why hope for capital growth with a negatively geared property and then whine that the capital growth takes way longer than you thought.

Apart from that, it will come down to your risk profile and personal preference.  Some people are happy to invest in locations with high yields in high risk locations.  I would stress too much and have a heartattack, so I've gone for a different strategy. 

Personally I want a bit of everything.  I want good yields, low vacancy AND capital growth.  Personally I go for properties that have proven historic growth and pointers to more of it in the immediate future.  I am happy for such a property to be slightly negatively geared, but for no more than about a year.  I then expect it to stand on its own two feet so I can go shopping again.  But ideally I like things I can immediately add value to and thus shoving them into positive cashflow terrain.

Hi Crows!

We are also in Adelaide and I can guess which areas you are speaking of. Are you sure that they don't have much in the way of CG? I looked in the back of some investment magazines and found some great CG figures, which surprised me. I am not expecting much CG there in the next couple of years though.

Also, Have you considered becoming familiar with those areas? We are currently researching the northern suburbs. By attending opens, speaking to agents, popping into shops, driving and observing,  and we are slowly beginning to recognise the nicer areas within the district.

I can understand your hesitation to invest in these areas, it's taken us a while to get out head around it also. We've put in a few offers on the low side recently and got knocked back. We'll keep on trying.

Best of luck!

A lot of our clients are using their 6% offset mortgage money and purchasing properties in the US that are generating 15-20% net.

If you do the sums, you will actually take 10-15 years off the life of your Aussie loan.

Pretty good result if you don't want to rely on a job to service this loan in the future!

Hey Crows,

You mentioned that you had the problem of finding positive cashflow properties but many of them were in areas that had no real CG prospects and were known to be troubled areas, and you were confused about what to do.

I agree that there are some CF+ properties that are located in those kinds of areas. In my opinion, what I do is that I look at the potential cash-on-cash returns, and if the returns are so high and the monthly positive cashflow is so high, I tend to favor that potential cashflow over the risk., because I could then potentially use that cashflow to manufacture increased capital growth for the property, as well as to pay for any potential repairs/insurance for any issues being in a troubled area. I suppose you need to figure out what's your risk profile and how much you're willing to have in returns to make you feel confident to take the certain risks.

If you find that a property is too risky given the rewards, then just move on and look for another positive cashflow property that is worthwhile.

Yes you can stick your money in the bank but in 10 years time you'll still be in the same position.  

You have the potential to set yourself up with a multi million dollar portfolio but you have to get over your fear of debt and a bit of negative cash flow.  Not wanting to work will seriously limit your opportunity to "make it"  though.

Everyone likes positive cash flow properties but without CG you won't be much ahead in 10 years time. Sure the rents may have gone up and you'll have $20K cashflow but if there's no CG where does that leave you? You can't retire on $20Kpa.

Seriously, you need to sit down with someone and discuss your options.

CGT is not necessarily the big beast some people make it out to be.

Warning here – rough maths being applied.

If an asset is sold in a high income year approximately 25% of the total gain is lost to CGT.  Assume a $300K profit approximately $75K is payable to CGT and this assumes top tax bracket. Even this figure can be reduced by selling an asset in a low or no income year.

Perhaps it'll be slightly negative for a year… but each year you will put the rent up so won't be long before it's positive

Hi Crows

Firstly I would write down (or at least have an idea) of what your goals are. What is your risk profile, do you like to take high risks when it comes to your money or are you more conservative?  I believe these are the key questions you need to ask yourself, you can have a bunch of people in the same financial situation but the best investment option may be different depending on their age, investment time period, risk profile etc. 

I would also sit down and do the maths for each and every scenario, I would take into account tax, capital gains projections, income projections so that you can work out what you are going to have after tax each year.

Unfortunately you won't know the "right" or "wrong" answer as these figures are all based on projections but it gives you a sense of what investment may be more advantageous to your specific circumstances.

Always do you own research and don't take the agents word for it. Some time ago I looked at investing in a positive cash flow property, it was a display home where the builder was to pay a rather large rental on the property.  I knew the rental would reduce once the builder moved out and a tenant moved in but by sitting down and doing the numbers I found the builder paid for his 12 months rental by increasing the price on the property, for example (these aren't the exact figs) the property was priced at $600,000 with a 10% rental income ($60,000) guaranteed for the first year, when I had a look at the other properties being sold in the area comparable size/quality finish they were selling for $540-550k. 

I guess, one can summarize: The SKILL defines the strategy

If you are good in one or another, you will make money there regardless. 

I'd go for a property that needs a little work paint need floorining kitchen etc(minimal outlay 5k or less) add value and increase rent. Great way to lay the foundations for a successful portfolio.