Cash Flow Positive P&I Portfolio

Discussion in 'Investment Strategy' started by DueDiligence, 3rd Feb, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    20% yield, but think of all the repairs!
     
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  2. TMNT

    TMNT Well-Known Member

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    Nice cashflow!

    First thing that struck me was, its good while its rented but when the mine stops renting, youd need to find a agent that manages it, it almost looks like its short term lets which you are going need a full time person managing



    Edit: population of 708 is also a huge concern
     
  3. Biggbird

    Biggbird Well-Known Member

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    All those angry miners huh? Yeah, imagine there have to be some pretty significant costs to a property like that or some bad news for somebody to be wanting to get out of it.

    Yep, it's very much a one trick pony as euro73 alluded to. Once the mine goes (it has been 5 years away from closing for the past 100 years), there's really nothing much there. Further down the coast in Queenstown might do a little better if they put the new great walk in there, but there really isn't that much going for the West Coast in terms of investment currently otherwise.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That means about 3 to 4% of the town live in this one property!
     
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  5. TMNT

    TMNT Well-Known Member

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    Haha
    Gives a new meaning to night out on the town!
     
  6. euro73

    euro73 Well-Known Member Business Member

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    Those are likely to be one trick ponies . The only truly wealthy town I know of with that sort of population is Port Lincoln
     
  7. Darwin55

    Darwin55 Well-Known Member

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    Think Darwin
     
  8. The Y-man

    The Y-man Moderator Staff Member

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  9. MTR

    MTR Well-Known Member

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    I found a block of units in regional
    Centre WA achieving 7.9% gross. This was only 4 years old, population of 80,000 got snapped up by investor from east.
    Was told multiple offers investors from Melb and Syd

    this gave me an idea to look for these gems. This is not high risk product or area

    got a couple of agents looking for me, its still a buyers market. Lets see what happens
     
  10. Codie

    Codie Well-Known Member

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    Good point Euro,
    I can give a real life example with one of mine that sits around these figures
    Purchase $582k
    Loan $530k
    Rent $530pw
    Payments on P&I $538pw @3.34% / interest portion $340pw
    Rates & water $2800pa
    Insurance $968pa
    Manager $1929pa
    Depreciation $4k approx

    Sub 10km Brisbane CBD
    $6113pa out of pocket not including depreciation however has $10,300 coming off principal. Actually $4187 ahead which will be offset by depreciation and actually end up even paying a house off.
     
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  11. Beano

    Beano Well-Known Member

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    I treat depreciation as a expense and take it off the cash flow. (The expenses is real but the timing may differ)
    Over a period of about 25yrs the depreciation is equal to the capX on the property.
    It is pretty deceptive to think properties will not need capital renovations over the life of a property.
    The tax deduction on depreciation is treated as the deduction on most property expenses
     
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  12. MWI

    MWI Well-Known Member

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    No allowance for repairs and maintenance, not even little? Even my newly renovated IP had few minor maintenance or repairs over say 1-3 years....
     
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  13. Codie

    Codie Well-Known Member

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    It is freshly renovated. But no money set aside no, money building up in the offset will cover anything that needs fixed, I just don’t put a number on it until it happens.
     
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  14. MWI

    MWI Well-Known Member

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    Trust me my was freshly renovated unit in SYD too until, next door started to build a huge development, so had to do a clean, or the shower hose got loose.
    Agree minor maintenance but I think some allowance would be appropriate IMO.
    Otherwise I like your numbers.:)
     
  15. Beano

    Beano Well-Known Member

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    When you have a "mature portfolio" there is always capX every few months.
    On average over the last 3 decades 10pc of the rental goes towards repairs and capX.
    When doing net yields it is wise to allow this cost as it will occur.
    The capX (over a long period) is similar to depreciation.
     
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  16. DueDiligence

    DueDiligence Well-Known Member

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    ff
    Interesting reply. The last line you wrote (re APRA) will be an interesting one to watch. The RBA are lowering rates to stoke retail but all people want to do is get MOAR mortgages . The RBA and APRA are dancing opposite steps to the same song, who will win? Total credit growth is in the gutter, looser lending has to happen (again).

    Plenty of people seem to think we got by in 2009 because were so good 'downunda', we just did stuff and used our aussie way of 'battlin it out' to figure out a way through it...but, as you point out it was due to a number of financial factors. From memory, the governments FCS 250 k deposit scheme was a big factor too.

    Credit growth figures went mental in as little as two months back then, there was no recession here, we used mortgage debt to get out of it and flogged rocks and coal to China to back it all up....Yeahnah boys, get on with it and open the taps up from London, the game is back on nothing to see here...and literally, everyone here drank the koolaid from what I can tell, the average punter gleaned from it the hubristic aussie immunity to recession which we carried into the circa 2013 onward construction (and education imports) boom that has taken us to the current level of mortgage debt that is now the noose around our neck. It was the only game in town, check ABS series 5625 , from 2013 onwards. No new capital came to Straya so we had to import more GDPeople and engage in moar mortgage fraud to get it all cooking again.

    Only four years on Ken Henry et al cracked the lid off the fountain pen...

    "Dear Treasurer. We are writing to you as the leaders of Australia's major banks. In light of the latest wave of speculation about a parliamentary commission of inquiry into the banking and finance sector, we believe it is now imperative for the Australian Government to act decisively to deliver certainty to Australia's financial services sector, our customers and the community"..

    Translation, lets get the impending (and inevitable) investigation into mortgage fraud that we've been conducting to keep credit growth above zero for at least 15 years out of the way ASAP .... please.

    Some people may have missed the nuance in my initial post. I'm not aiming for no capital growth, I'm running it as a base scenario to test the sensitivity in the event it happens. I am very dubious to claims that were going to see record capital gains post 2021 onward. Who's buying?, whats the credit source... the mortgage debt is absurd , everyone is tapped out and retail is about to tank due to the bricks and mortar induced Dutch disease . If this occurs, there will be a consumer driven retail recession (already started) and a wave of unemployment. The only way out is moar immigration and Ponzi lending, and we've been going at that full steam since 2009, maybe Uber drivers need special mortgage rates?.

    Only way out is looser lending (which in my opinion is occurring now) to ensure the lights stay on. The RBA will go to ZIRP and QE will start up and the asset inflation will go again, still, I don't see the run we've had being repeated.

    + 1 million NOM to keep it going and mortgages for all.
     
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  17. DueDiligence

    DueDiligence Well-Known Member

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    When you say dual occ, do you mean townhouse?
     
  18. euro73

    euro73 Well-Known Member Business Member

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    no. I mean dual occ . 2 dwellings on a single title , producing 2 rental incomes .
     
  19. Perthguy

    Perthguy Well-Known Member

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    Not everyone is tapped out. There is plenty of capacity to borrow. Ot also assumes no new entrants into the market i.e. migrants, first homebuyers, upsizers, downsizers, newly divorced singles etc, etc. The market is not static, it's dynamic.
     
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