For those who have negative cashflow properties, how negative could you tolerate for each property each week? I am currently looking at a property in Bayside. Would be $1k negative in cashflow per week (ie after negative gearing). My strategy, if I do proceed, will be CG play. Potential for long term development site but the current brick house is still in a good condition. It is a very risky play I think though
Everyone has different levels of cash flow to service debt and negative cashflow. $100/week can tip someone over the edge while others can handle $10,000. You can't base your risk profile on what others call risky or non risky.
How far away is the dev? Can you manage - ve cash flow (actually more if it's 1k AFTER NG) for an extended period of time? Will the development you have in mind make up for the loss over this period of time and still give you the minimum profit margin on the build? Just some things to think about.
1K negative gearing per week is too risky. Best question to ask your self is this, how much % is your income going to be used to service this 1k?
That's a serious loss @imbi3 - is the annual cg going to exceed the loss? Do you seriously want to subsidise someone's lifestyle to the tune uf $1k/wk?
@imbi3 Depends on where the property is located; is the yield in line with the area's average yield for the type of property you are looking at?; whether you are ok with that sort of cash flow, and how it ties in with your goals; if there is an upside with the property, and as long as you can afford the negative cash flow, it is all good.
I do not like the idea of losing money for some future gain, unless there was a clear plan that can be followed, I know people who had so much good property and lost it all by being bled dry, only you can know if it is truly affordable for you and acceptable, I am glad you went to monthly away from weekly
I would say the yield is typical for the area. Yes, I agree the amount of negative cashflow is really dependant on the person's cashflow/income. However, has anyone invested in a NG property without other second wayout apart from betting on CG? Some might say it is akin to betting in casino
Don't just look at this property in isolation. What is the opportunity cost of an extra $1k/month out of pocket? It is likely to have pretty serious consequences to your serviceability and hence additional purchases/investments. If this is the last purchase you are going to be able to make in the foreseeable future - you would want it to be a good one. Blacky
Good point. Well, we will probably won't look at anything else for the next 5 years, upon which we will either sell the property or would have got more servicing after paying down PPOR. Something to think about what you said re opportunity cost
On rough numbers it costs 5% to buy a property and 2% to sell. Plus your cash-flow short fall of $60k over 5years. You would want to be very confident of fairly significant levels of CG in the next few years to make this transaction worth while.
12k a year behind AFTER neg gearing? Sounds like my Cairns house. Too much of a loss imo on the limited info.
I am curious, for those who apply NG strategy in their investments, what were your considerations, apart from potential CG which may or may not happen? Adding value to the property I am looking at (such as painting etc) will only add minimal rent. I could, I suppose, extend the property, however net increase in value may not make it worthwhile.
All my stuff is negative, but I'd prefer it weren't. It's never been part of the consideration, simply my old PPORs that I have moved on with. As it turns out, most are development (of some sort) sites in good to very good locations, so the CG has recently outweighed any loss. I get very little relief from NG as most is in my wifes and now trusts.
Im not sure. I would guess a very long term outlook (10years ++) where time in the market can relinquish the -ve gearing impacts. Also don't forget we are currently in a low interest rate environment. What happens in a few years when rates are back up to 8%+? (not saying this will happen, but it might). Blacky
I would not look for places that are negative, so am not the person to supply the answer, but even in areas where negative is most likely, I look at how to get to positive or neutral, so buy price and income/outgoings are looked at. The only persons I have known that purposely go for negative properties had very large incomes, not sure what they are doing now, but to give you an idea they would look to buy complete blocks of units, and they were always buying. Another was a professional with too much income, did not even bother with tenants half the time.
Many if not most development deals are NG in the beginning until the development is finished and the stock becomes PG or Pcashflowed, unless the feasibility was shot to hell along the way. I would think, very, very carefully before putting yourself in a 1k/month negative situation without a clear plan. If your buying in an area with very, very good fundamentals and possibly on the verge of exploding then that's one thing but if your buying in any ol area then be very careful. This brings me to negotiating. I have long believed that it all starts from negotiating well on a deal. If you can negotiate well from the beginning, you can buy a deal at a great price which reduces holding costs, reduces risk, possibly creates a buffer of equity and makes the numbers work better on the feasibility if developing. Just my opinion.
