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Combined Cash Flow/CG Strategy

Discussion in 'General Property Chat' started by eng, 21st Jul, 2015.

  1. eng

    eng Well-Known Member

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    Is there anyone here that uses both positive cash flow and capital growth strategy?

    If you've used both, which strategy did you start out with when you began building your portfolio? Which one do you now prefer?
     
    Last edited: 21st Jul, 2015
  2. Sashatheman

    Sashatheman Well-Known Member

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    We only have two investment properties. But when purchasing, definitely looked at cash flow as our main reason to buy. Reason being that our salaries were not high and my wifes salary was expected to reduce after baby. We wanted to hold the property that would pay for it self.
     
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  3. sash

    sash Well-Known Member

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    I use a balanced approach strategy..which means:

    1. I look for properties which will return both a 6-7% capital growth per annum
    2. Return 5.5-6% return which should make the holding neutrally geared or positive based on current interest rates.
    3. Look to get to 7% yield in the next 2-3 year which will be cash flow positive.

    Have been using this strategy for over 10 years and it works well for me.

     
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  4. MTR

    MTR Well-Known Member Premium Member

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    Hi eng

    I started with capital growth by accident really because this is the only strategy I understand at the time.

    I built substantial equity from this and then changed my strategies, and use a combination of both.

    I now develop property, flip for short term cash flow and hold some to generate income from rental income in Australia and o/seas property.

    I think it makes sense to have both, as you need to be able to service debt and you don't want negative cash flow properties to kill your lifestyle.

    MTR:)
     
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  5. eng

    eng Well-Known Member

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    I know what you mean Sashatheman, which is why cash flow is #1. We've got 3 kids, so we have to balance part time work with family commitments too. Really limits your budget and career ... but what's more important?

    Sash, it sounds like you only look at IP's that start with either a neutral or positive cash flow, is this correct?
    At 5.5-6% don't you have to buy outside the major CBD areas, therefore limiting capital growth somewhat?
     
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  6. eng

    eng Well-Known Member

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    Nice MTR, I hope you're coming to the Sydney Meetup tomorrow, I'd love to pick your brain :).

    So with both strategies, plus flipping on the side, what's your exit strategy. I mean how do you see your strategy carrying you to retirement (or maybe you're there).

    For us, we're looking at retirement in 18 years time, spending more time with the kids, travel etc.

    I can see how positive cash flow can fund your retirement, but I'm a little uncertain how possible it is to be eating into equity. And at that age, I don't really want to find out either.
     
  7. MTR

    MTR Well-Known Member Premium Member

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    @eng
    If you are trying to work out a strategy moving forward I suggest you read various posts on PC and look at the investors that are perhaps using this strategy cash flow/CG and perhaps something may really click for you. Cant really go to wrong with Sash' strategy, there is also Skater, MichaelX been posting a fair bit etc... just some members that come to mind.

    MTR:)
     
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  8. sash

    sash Well-Known Member

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    I am comfortably getting this or higher in Brissie, Melbourne and Geelong.

    I do like it to be neutral at least though
     
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  9. eng

    eng Well-Known Member

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    Thanks Sash, hoping to pick your brain if you're going tomorrow :)
     
  10. MTR

    MTR Well-Known Member Premium Member

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    From Perth, but heard about the Syd catchup, sounds good. I am sure plenty of forum members that you can tap into, lots of people here happy to share.

    To cut a long story short I retired 9 years ago from property investing, used various strategies then around 2-3 years moved onto developing property.

    We generate substantial income from rents and sales of developments to live a comfortable lifestyle. Partner in his day job to enable us to finance the development deals. I have now replaced his income from my developments, and set up a company. This enables him to now retire, though he has just reduced his work hours, more golf time.

    My big picture is really now about my children, have 2 daughters, eldest very keen to be involved in developing property. My plan is give them a leg up and help them achieve financial freedom and a passion for property, that would be my greatest wish.

    MTR:)
     
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  11. eng

    eng Well-Known Member

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    Thanks MTR, that sounds like a position I'd like to be in.

    When you decided to retire, did you create a trust to protect & pass on your assets to your kids? Or was that something that you had in place from the beginning?

    We're taking the plunge into IP to fund our retirement, and to also have something to pass on down to our kids. I've met and talked to some great people on this forum, and I've read lots of books. I'm just trying to get a picture of the road ahead, and thinking if I've covered what I need to cover before setting off.

    Good on you for what you're doing with the kids (that's my definition of rich) :)
     
  12. KDP

    KDP Well-Known Member

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    Easier strategy, marry MTR's daughter. :p
     
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  13. MTR

    MTR Well-Known Member Premium Member

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    When I started we purchased only in our name, then when we starting purchasing in USA we set up a Trust and now we buy everything in a Trust, everything is looked at by our accountant and we use the strategy he has recommended for tax purposes and also asset protection.
    To be honest I am not the person to speak when it comes to trusts etc, that is why I use an accountant who understands how it should work.

    I would recommend you do the same, very important to get this right moving forward.

    MTR:)
     
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  14. MTR

    MTR Well-Known Member Premium Member

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    Hehe.
    well actually she just broke up with her boyfriend on her way back from London.
    Just send me your figures (assets vs liabilities):oops:, I will check them out:p
     
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  15. skater

    skater Capitalist Premium Member

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    I've mainly looked for cashflow. So long as you are buying into a larger area, the CG will come too, but sometimes you have to work really hard at the timing. If I was going to buy more, I'd be looking around QLD & SA.

    I have several IP's located in Western & Southern Sydney. In both areas I was able to achieve a high cashflow. These, of course, have had very nice CG as well. Outside of Syd we've got a bit of a mix. Some Regionals bought just for cashflow had (and still do) much better yields, but the CG hasn't been as good. BUT they still do get CG.

    For instance, a little cheapie in regional VIC, bought back in 2003 cost $67k. We've still got it! It's worth around $190k. I think it was renting for around $130pw when we bought it. It now rents for $210.:D

    My advice is to just do what YOU feel comfortable with. If you are on a low income, or have high expenses, you might be limited on what/where you can buy. Don't compare your results with someone else. Just do what you can comfortably do.
     
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  16. Tonibell

    Tonibell Well-Known Member

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    When we started out the main belief was that you get the best possible piece of land that you can afford (location, location, location !). This resulted in some serious negative gearing.

    As family demands (school fees) on the cash flow grew - the negative geared approach was not working. We then focussed on ways to increase the cash flow and put up some granny flats.

    Since then we look for a balance of CG/CF in properties and have achieved that through renovations and dual occupancies. We still look for good suburbs and blocks of land but always have a plan for increasing cash flow.
     
    Last edited: 22nd Jul, 2015
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  17. KDP

    KDP Well-Known Member

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    Well this sounds like it was meant to be then. :p Unfortunately, I don't think my fiance would appreciate it though. At the moment, she's my main cashflow positive asset so need to keep her happy. An opportunity here for some other aspiring young investor. Just invite me to the wedding!
     
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  18. Tranquilo

    Tranquilo Well-Known Member Premium Member

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    My wife and I will adopt her( that'll get us in the family):)
     
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  19. thatbum

    thatbum Well-Known Member

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    Well I go for both at the same time with my strategy so its not really an issue of which I prefer!
     
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  20. HUGH72

    HUGH72 Well-Known Member

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    We started just buying what we knew mainly for cg. Once you have a fair bit of equity cash flow becomes more important as a few very negatively geared properties start to bite, this was especially the case when rates were much higher. Buying places with a solid yield greater than 5% preferably much higher, with potential for growth means you can keep buying. Diverisfy locations and you are more likely to always be getting some growth.
    If you time a few purchases nicely it will turbocharge things also.
    I think you can have both.
     
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