Do cf+ ips still exist if so where ?

Discussion in 'Where to Buy' started by Drunkanbarbarian, 17th Aug, 2016.

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  1. Coastal

    Coastal Well-Known Member

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    You will need $200 pw rent to be cash flow positive.

    Say purchase price $100000, loan is $80000 = $4000 pa interest
    Insurance $1000
    property management $1000
    Rates $2000
    Repairs $1000

    Costs = $9000

    Allow for some vacancy say 4 weeks, you will get 48 weeks rent

    48 x 2000 = $9600

    = $600 CF+

    However maintenance can erode this quickly, but $1000 is generous I guess.

    This strategy is good if you can find a BMV property that requires renovation and you can increase your equity and leverage the equity. Probably not ideal to have property where you can't increase the rent
     
  2. D.T.

    D.T. Specialist Property Manager Business Member

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    It varies a bit. 7% might be cf+ in one place but not in another. Eg insurance, strata costs and council costs are much higher in Brisbane than Adelaide so you get a different result.

    End of the day, ensure you're making a profit (by either CF or equity) on your investments and not a loss.
     
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  3. Beano

    Beano Well-Known Member

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    Use Net Yields instead of Gross Yields and at a glance you can see if "potentially " they are CF+
    You need to take into account principal payments for real CF+
    I like to repay pretty well use all my surplus CF to principal.
     
  4. Beano

    Beano Well-Known Member

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  5. Greyghost

    Greyghost Well-Known Member

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    I don't think $1000k is generous.
    Generally cf properties "may" be slightly older in nature, sometimes with lower socio economic tenants.
    So 3 power points, a flick mixer and having a gate fixed quickly chews through 1k.

    Obviously the cf budget is just that, a budget, but I factor in at least .5-1% of the purchase price for repairs/general upgrades. It's better to keep on top of issues rather than letting them compound.

    Just like factoring interest rates at 5-6% when doing your budget, they may not come into fruition, but need to be accounted for in a conservative manner.
     
  6. Luca

    Luca Well-Known Member

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    It`s all part of the strategy you want to adopt. You can get a 60% Loan and I am pretty sure all the properties will be CF+ or stretch to 95% and it will be the opposite. Crunch the numbers and forecast @ 30 years. Find a model that works for you (CG, cheapies, development, renos) and replicate it.
     
  7. Barny

    Barny Well-Known Member

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    Easy article, cut and paste.
    Start doin some figures to work out what they are. Mostly found in fringe areas of newer development, lots in Adelaide as buy in prices are lower than Melb and Sydney. The newer the house, with features will give a higher depreciation, which will help your cashflow return.

    I always like to add the total cost of purchase plus all additionals such as stamp duty etc, minus expenses at 30% to work out my total return.

    What Is Positive Geared Property?
    Let’s start with positive geared property because that is the easiest to explain.

    Also referred to as positive gearing, positive geared properties are properties that generate a higher income (generally from rental income) than they cost in expenses, before tax is taken into account.

    For this example, let’s say you own a $300,000 property with an 80% mortgage at 8% p.a. interest rate. You are paying $19,200/year in interest repayments and let’s assume you are also paying $2,000/year in council and water rates. $500/year in maintenance, $500/year in insurance and $2,500/year in vacancy and rental management fees.

    Your total yearly expenses for the property are $24,700.

    If your rental income was more than $24,700 each year then this property would be positively geared. Because you would be earning more money in income than you are paying in expenses.

    What Is Positive Cash Flow Property?
    Positive cash flow property is property that generates a loss (more expenses than income) before tax, but then after tax deductions and refunds are taken into account your income is greater than your expenses.

    This can get a little confusing so let’s use the example above (but a little different) to make things clear:

    You buy your house for $300,000 and as worked out in the above example your expenses are $24,700. If your rental income is less than $24,700 then you would be making a loss.

    But at tax time you may be able to claim $6,000 in tax deductible depreciation. If you are paying 30% in tax then this entitles you to an $1,800 tax refund.

    Let’s say you received $23,400 in rental income. You are making a loss of $1,300 on the property. Add in the $6,000 depreciation and your on paper loss is now $7,300.00

    If you are paying 30% back then you are now entitled to a $2,190 tax refund.

    Your income now goes up to $25,590, which is greater than your expenses of $24,700. Thus after tax your property becomes positive cash flowed.

    What Is The Difference Between The Two?
    The main difference between the two is that positive geared property generates more income than expenses BEFORE TAX, but positive cash flow property ONLY generates more income than expenses AFTER TAX.
     
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  8. D.T.

    D.T. Specialist Property Manager Business Member

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    I like how people bring up maintenance issues with regards to cf properties.

    Maintenance issues occur across properties of all types.

    If you have both $3k pa positive and $3k pa negative properties, the latter isn't going to fare any better in your fabled "Halp my $1k hws asploded!" scenario.
     
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  9. beachgurl

    beachgurl Well-Known Member

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    I have one I may be selling soon in Wagga. Circa 150k with rent of $240 per week.
     
  10. Username86

    Username86 Well-Known Member

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    Thanks for the info.. I always thought it was the other way around ie.. positive geared was with depreciation and cash flow positive outright before tax
     
  11. Coastal

    Coastal Well-Known Member

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    how much maintenance do your clients in Adelaide pay on average.

    I have noticed all of the cash flow calculation in logan and Brisbane threads do not include any maintenance.
     
  12. Luke T

    Luke T Well-Known Member

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    This is a better way to look at it i agree ,
    as i see it as cash flowing into yr hand from the start ( positive cashflow) (without tax considerations)
    and
    positive gearing (after gearing in other words allowing for tax to gear it as a positive-in other words only after tax concesssion are allowed for-taken into account)
    I reckon someone got it it around the wrong way and it just stuck
     
  13. Barny

    Barny Well-Known Member

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    Either way you look at it at today's interest rates, you can find positive cashflow easily. Positive geared a little harder but still there.
     
  14. neK

    neK Well-Known Member

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    I believe all costs should be included.
    It makes for a fairer comparison.
     
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  15. mcarthur

    mcarthur Well-Known Member

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    As an example:
    • I use -4.3% for repayments (interest rate on 105% = loan).
    • Then +5.0% for income (rent yield).
    • Then -1.5% for expenses (30% of rent).
    So if you take the "CF+" concept as being before tax, then -4.3-1.5+5 = -0.8, so this is CF- (viewed on a weekly basis).

    But if you include tax in the equation, then it depends on your income, tax and the size of the loss for negative gearing, etc. Based on the above, you need to get back 0.8% to break even after tax, so for a $500k property, NG benefits would have to add to at least $4,000.

    If you ignore NG, then your example of 7% yield would garner -4.3+7-2.1= +0.6 which is likely to be CF+ before tax. Of course, after tax you may be getting only 0.63 * 0.6 = +0.38 (@37c tax rate), or about $36/wk. It's almost certainly more due to expense claiming and depreciation for tax, but even at 0.6% it's $57/wk. And that's for a $500k property, which is at the higher end of what you can probably find with a 7% yield. "cash cows" are an interesting concept!

    (actually, the +0.6 can probably be offset by the full 2.1% expenses for tax purposes, meaning 0.6-2.1 = -1.5 NG loss for tax, and with no depreciation means a 1.5 * 0.63 = 0.95 tax return from NG. So the total weekly is more likely to be 0.95 + 0.6 == 1, or about $96/wk on $500k)

    Edited: I didn't put in the 4% purchase costs in this, amortised over 5 or 10 years (so add another -0.4 or -0.8 into the equation...)
     
  16. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    Thanks for the detailed breakdown @mcarthur! Great stuff
     

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