Buying for cash flow

Hi Im looking to buy an investment property for cash flow, I'm looking in places like Broken Hill and Mildura where houses are cheap and rents are high, is this a good idea, just want some cash flow for retirement. Having worked hard all my life the money is precious but its not doing much in the bank.

 

Why do you think regional property for yield is better than shares for yield?

 

This close to retirement (2-3yrs) shares are somewhat more risky, for me anyway, Im not looking to make a fortune, just add a bit to my retirement income.

 

As you live in Mildura, you should know the market well....

If you want resi property and you want yield , I'd consider going a few hundred metres across the river to NSW/ Gol Gol.... it gets you into NSW so you can get a Dual Occ with a granny flat there- something you cant do on the Mildura/Victorian side of the river.

but is resi property really what you need at this age / stage?

 

What's your budget?
Do you need finance or just outright purchase with your hard earned cash?
What kind of rental return are you expecting after all costs?

 

I have about $150,000 available funds, if I buy Broken Hill I can get something with a return of about 7% in Mildura I would need to borrow but then I would get some capital growth unsure how to go

 

Retirement in 2-3 years and you need a loan for Mildura, that is going be a challenge in itself. Is the 7% in Broken Hill after you factor in all property expenses and costs?
Probably best you get some financial advice to see if property really is the best option for you. Just a thought

 

Dont need a loan for Broken Hill property

 

management fees, insurance, rates, repairs.

 

may i know why do you think shares are riskier than a house in rural area?

 

... and vacancies.

I don’t understand why people focus on IP gross yield.

One should always focus on net yield. That is, after taking into account vacancies, management fees, rates, repairs, ...

Personally, I would NEVER buy in BH, too risky for me.

If I had $150,000 in cash and a few years out from retirement, I would probably look at putting it into a LIC/EFT. Good net yield and no ongoing admin work involved on my part.

Each to their own.

 

I highly doubt after all expenses you'll get 7% net yeilds.

 

Also consider liquidity. What will you do if you suddenly need emergency cash?

7 gross probably means 4-5 net, maybe. And you are exposed to a regional economy.

 

In that situation I'd probably do exactly the same.

 

Yeah, if you need say $20,000 cash, it is a bit hard to just sell off the 3rd bedroom .

Whereas, one can sell $20,000 of LIC/EFT shares.

 

Yes, we used a 1% formula that was suggested to us, rent should be 1% of purchase price, gross income multiplied by 11.5, subtract operating expenses to get net income, divide net income by purchase price to get cap rate which was 7%

 

Dont understand that 1% formula. You seem to be expecting 8.7% gross and then about 1.7% expenses to get 7% net?

 

Well thats why I'm here, I have been given so much advice from people that dont seem to have done very well out of property so I'm looking to learn

 

Check the rent with actual properties for sale and rent. Then consider how much liquidity you need. What is your living situation etc?