Reality check?
The approach that I want to implement in regards to property investment is to source positive cashflow properties which I believe may also rise in value within the first three years of ownership but should they not, the cashflow is to be used to support shortfalls for more growth based investments – blue chip properties. I understand that there are varying opinions – you can invest for cashflow, you can invest for growth, you can invest and achieve both and that is a discussion in itself. From my searches so far I do often find positive cashflow properties but they are all based on interest only loans. My fear is that once this interest only period ends – the bottom has fallen out. It’s like my strategy is based only on holding properties for the maximum period of time that I am able to pay interest only. Now the first issue I have with this is that if each of these properties hasn’t risen in value or provided cashflow that totals more than associated costs of purchasing the property – stamp duty for example – then it really wasn’t a good investment . The second issue is that if I am using the positive cashflow to support other negatively geared properties and that cashflow disappears then again I’d find myself in a detrimental position.
Looking back on my paragraph – the only way in which my strategy will work and continue to work will depend on my ability to a) source positive cashflow properties (with every interest rate point rising, this will become more difficult) and b) ensuring that each property I buy stands every chance of rising in value above the associated costs of purchasing it before the interest only period ends, and of course successfully selling each property in a timely fashion (just before payments are due to switch from IO to P&I) which in a fairly illiquid market could be easier said than done.
If I can poke holes in my strategy then I imagine you may be able to smash it to bits.
Your opinions would be very much appreciated. I am on course to soon be able to begin to make my first purchase but I’m definitely questioning my strategy.
Thanks for listening.
Sounds like your goal (what I can gather) is financial gains? yes?
so then there are a lot of ways to do this,
But one thing I do not see you realising in your post is the loan to Cashflow, all that really matters is your income verse your expenditures and also even if it is positive cashflow it does not always have to be positive cashflow for that financial year.
Answer these questions
-short term goals
-long term goals
-saving projections (estimate)
-risk factors (debts, loans, etc)happy to give my advice, I am not qualified as some others are on here but I got into this 14 months ago and already tripled my original invested (17% deposit for my first property)
bottom line, educated yourself as much as you can before you implement a plan, read as many successful books and stories and even failures as you can.
Kind regards
J Avery
Jaxon | Jaxon Avery – Financial Adviser
http://www.jpafinancialservices.com.au
Email Me | Phone MeJPA Financial Services Pty Ltd
Hi Chat,
Awesome to see you working it through. Your diligence is going to pay you handsome dividends, so do keep it up.To your concerns :-
1. My fear is that once this interest only period ends – the bottom has fallen out.
Good thought – now check things out to see if “the end of an IO period” is actually THE END – hint, there are ways around this.
2.Now the first issue I have with this is that if each of these properties hasn’t risen in value or provided cashflow that totals more than associated costs of purchasing the property – stamp duty for example – then it really wasn’t a good investment
Keep in mind the deductions that exist (benefitting investors who provide housing) that will take a lot of sting out of these costs. e.g. Did you know that it is possible to have a negative geared property that has a positive cashflow? One to think on, or read up about !!
3. The second issue is that if I am using the positive cashflow to support other negatively geared properties and that cashflow disappears then again I’d find myself in a detrimental position.
Good point – CASHFLOW is Numero Uno, and the lifeblood of investing. Cashflow can come in many forms – have a think about the many ways this can happen. Some may be in weekly dri bbles, while others can be in chunks !! And yes, you are right that losing one positive geared IP can have a snowballing effect on other IPs held.
4. Looking back on my paragraph – the only way in which my strategy will work and continue to work will depend on my ability to a) source positive cashflow properties (with every interest rate point rising, this will become more difficult) and b) ensuring that each property I buy stands every chance of rising in value above the associated costs of purchasing it before the interest only period ends, and of course successfully selling each property in a timely fashion (just before payments are due to switch from IO to P&I) which in a fairly illiquid market could be easier said than done.
Chat, to that I will simply say “Your options are nowhere near as limited as that!” Find the answer to 1. and you immediately start to undo these limitations. And way before selling would come “adding value” I would think – that adds Income and Equity if done well. Get those two working for you and Cashflow gets enhanced. With enhanced cashflow, you become unstoppable (within reason).
Keep on thinking and reading, grasshopper – to learn, much there is !! (in my best Yoda voice)
Benny
.
I can attest to what Benny is saying about having negatively geared properties being cash flow positive. I have two IPs, one positively geared by around $70/wk and the other just scrapes in to positive territory by just a few dollars per week. Even though I’m in positive territory by just over $70/wk a week across the two, by the time I take depreciation into account, on paper I’m back in negative territory so still get cash back at tax time.
cheers
Pete
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