Cash Cows

Hi

What types of properties are cash cows?

 

Newly built boarding houses under the guise of worker accommodation.

 

People that sell/build property in regional towns spruik them.

People that sell property in dodgy US cities spruik them.

Houses near universitys rented by the room

 

Houses that are used as brothels

 

Just be aware many of these cash cows (not all) are not viewed as positively by many lenders.... and can erode you nett yield if it has to be considered outside normal residential policy

 

My personal experience is that a good rental return percentage does not necessarily mean more money in the pocket. Bad tenants can quickly reduce your overall return.

 

Properties that return more money than you invest into them, cash flow positive.

As stated by @Mark buying 100k houses with 10% yield can quickly be eroded by bad tenants or repairs such as water heaters or aircon, etc.

 

I would say a cash cow would be over 15pc yield after all costs (except interest and income tax)

 

All properties I have brought are cash flow positive! ...I have to make a profit as capital gains are never certain.

 

Commercial property on long leases.

 

A resi cash cow can come in many guises... student accommodation. small studio apartments. boarding houses. some mining town stock. are just some examples.... but many of them are either difficult or extremely difficult to get finance for .... which makes them specialised types of security. That means they can be very tough to buy - unless you are a cash buyer - and equally tough to offload, as anyone buying from you will also find it very difficult to obtain finance - unless they are a cash buyer .

This is why I prefer things like Dual Occ's. As cash cows, they aren't as potent as some of the options noted above, and they typically require a higher buy in price than a 25M2 studio apartment for example.... but they are considered standard securities so finance is readily available from all lenders ... so they are easy to buy - subject to borrowing capacity - and they are easy to offload. It doesn't mean Dual Occ's are the only cash cow.... there are plenty of alternatives for sure - but they are probably the most accessible type of cash cow for most because they are able to financed easily.

There are also from time to time, Government programs that can convert a property to a cash cow. Two recent examples would be NRAS or NDIS.... and I guess an argument could be made that Neg Gearing is also a contributor to yields for almost ALL properties less than 40 years old... certainly without it, almost every INV property ever owned , would at some stage in its life cycle at least, have been running at inferior numbers.

NRAS , combined with a single resi property can produce a handsome cash cow
NRAS combined with a Dual occ resi property can produce a very very handsome cash cow
NDIS , if you are able to get the mix right, also has the potential to create quite a cash cow.... although the issues around NDIS are that you generally need to contribute quite a lot of cash for the relevant fit out. For example, you might build a 4 bedroom house to lease it to an NDIS provider. That house may require wider doors and hallways , a wet area or ensuite to each room, a kitchenette to each room , wheelchair ramps, lifts to get people in and out of bed, independent onsite carer accommodation etc.... These are all easy to do, but a bank or a valuer are generally not going to consider that an acceptable security if you present that to them. Its unlikely it would be straightforward to get something like that funded as a resi product , with resi LVR's or resi rates. You would more than likely need to present it as a 4 bedroom house and retrofit it at your own expense later on... and if you ever needed to sell it you would either need another NDIS type investor to buy it - and probably with cash as they would find finance challenging... or youd need to strip out the fit out ..... now, given the potentially superb yields NDIS can provide for that kind of platinum level fit out, that may all prove very profitable even with a fit out and strip out factored in.... ie - you may make still make several hundred K profit from NDIS payments even if you have large expenses to make the property NDIS compliant and then large expenses again to return it to a basic 4 bedder later on for sale - but its not something everyone would have the appetite, aptitude or cash to do.... There are some members here that are starting to put together NDIS deals. They may care to chime in with some comments on the sorts of yields you can generate and the kinds of fit out costs and valuation issues and lender issues you might expect.... @RPI ?


So as far as cash cows go - the thing to remember is that there are always unconventional killer deals out there if you are cashed up enough and don't need finance.... ( boarding houses are a really great example ) as long as you understand that when you play in those spaces you have fewer exit options.


so again... we come full circle to ... some cash cows are accessible, some are not. The cash cow vehicle you will likely choose will depend on what you can /cant fund, usually .

 

as for cash cow peak vs peak, dont see how resi can beat commericial, risk vs reward i guess.

 

I would agree- resi cannot beat commercial as a general rule ... but not everyone has the cash available to be in the commercial space... and certainly not in the type of commercial space where the great yields occur. And remember, commercial is not always smooth sailing. resi occupancy rates are better during hard times. A business without a roof over its head isn't the same as a family without a roof over its head. As I said previously - there are lots of ways to do a cash cow. But not everyone can access most of them...

 

agreed, risk vs reward,

biggest difference is of course vacancy,

with single/dual occupancy, at least you can rent 50% out and still have cash coming in,

commercial going 6 months vacant is normal

 

A minor technical correction point - Negative gearing is a tax outcome and is not limited to the age of a property or even recent modifications/ additions.
I assume you are referring to capital allowance/ depreciation claims which may contribute to resulting in a negative current year profit outcome (negatively geared, but a 60 year old original inner city property in Melbourne or Sydney could still have very low yield and based on the borrowed amount still be negatively geared.

 

There are many types of residential and commercial properties.
Each with their own attributes
You can get both Residential and Commercial that have zero vacancies.

 

Yes . Depreciation . I’d be very very very concerned for anyone neg gearing from rental losses alone after 40 years of ownership

 

Ahh that makes more sense, agreed 40 years of ownership is very unlikely to be ng, but your original comment stated properties less than 40 years old.

 

Theres no other cash cow as successful as that type.