New Investor - How do I find cash flow suburbs?

Hi everyone..

I'm 50yo and do not have superannuation. I do have some cash that I can use to buy an investment property though. (Maybe burrow some money as well)

I want to buy a house in an suburb to generate cash flow rather than capital growth..

Now If I don't know the city or state, how do I find a suburb to look at for property? How do investors know where to buy in Australia in states they are not familiar with?

Is this a simple case of using RP data to tell me the suburb with the highest cash flow / yield and thats it?

Like for example for Sydney, RP data info says that Woodcroft and Ropes Crossingare the best cash flow areas for the amount of money I want to spend.. Do I simply just look for a suitable property in those areas and thats it?? Seems too easy.

If I wanted to take it a step further I can get better yield in Tasmania.. I've never ben to Tasmania and know nothing about it.. Should I go as far as just trusting the numbers??

Any help appreciated.


-Frank

 

If you are purely after cash flow, maybe investigate things like franked dividends rather than paying for stamp duty, rates, maintenance, PM fees, insurances etc etc.

 

I hear what you're saying with the stamp duty, rates, etc.. . .But I don't know if I can stomach the volatility of shares. I've been toying with the idea though..

I do want capital growth as well so that I can leave something for my kids..

I think that even if I have the cash flow, I would be scared to 'leave' the property market for the share market f you know what I mean.


-Frank

 

Hi Frank. First off don't even think about looking anywhere near Sydney for positive cash flow cause it ain't gonna happen for at least a decade. Are you working? Newer built properties in regional areas will be best for cash flow. For a couple of reasons, depreciation will offset your income from the property and there will be less maintenance cost than something older. Try big regional towns like Wagga, Orange or Bathurst in NSW or Toowoomba or Cairns in QLD.

 

Plenty of cash flow properties out there just not in most of the capitals at the moment. Regional properties would be your best bet but you should really push for both capital growth and cash flow.

There is a lot more to selecting a good property than just having the numbers stack up, you need to have a good knowledge of the market, rental trends and long term plans for the town you are buying in.

 

Frank, we built a brand new home in a suburb next to Wyong last year. Good depreciation being new and it was cashflow positive from day 1.

They are out there.

 

Hi Inov8ive,

Due to some saved money and a bit of an inheritance I can afford to buy a house in Sydney for around $800k and own it. I was going to try to look for something I can put a granny flat on for say another $150k and collect dual rents.

Would you recommend this strategy I'm thinking considering I wouldn't have to borrow anything? Would you still put that money towards franked dividends instead? (just curious) As I say I'm after cashflow and some capital growth to leave to my kids..

And for property #2 I will borrow looking for positive cash flow. In which I'll have a look at those areas you suggested thanks..

-Frank

 

What do you define as a cashflow property? There is no strict definition. 5%+? 7%+? Then you need to look at holding costs.

I would consider buying two properties given your 800k budget. That way one vacancy doesn't wipe out all your income.

I think radson has some great advice too re shares. Capital volatility doesn't equal Cash flow volatility (dividends). I would read up on ETFs and LICs if you consider this path.

With your budget you can afford to do both.

 

>>What do you define as a cashflow property? There is no strict definition. 5%+? 7%+? Then you need to look at holding costs.

By cashflow property.. I mean a positively geared property / high yield.. Sorry I didn't say that in the first place

Good idea you suggest for having 2 properties rather than one. Thank you for that.

I think I will consider both strategies i.e., property as well as dividends. I should be able to use a portion of the 800k to put a 20% deposit on a house or house + granny flat and maybe invest the rest in franked dividends.


-Frank

 

If you are buying with cash rather than using leverage and you have a bias toward property over shares have you considered A-REITs?

I would much rather hold a diverse basket of these than one or two residential IPs to the same value - better yield, diversification, stability of earnings, divisibility, no PM or maintenance headaches, liquidity, minimal transaction costs. Worth considering...

 

On sale at the moment as well?

 

Buying property outright isn't the best investment. Property only works as it is used as a vehicle to access finance. Property is a great wealth creator as the gearing available allows you to invest with the banks money and take returns on that larger amount available thanks to finance.

You should be borrowing, to buy property or putting your money in other asset classes.

In order to hunt cashflow with a decent balance of capital growth look at the major regional centres and or some of the sketchier suburbs in Adelaide.

Consider:
Hobart
Launceston
Bendigo
Ballarat
Geelong (Corio, Norlane, Newcomb)
Albury
Wagga
Bathurst
Orange
Dubbo
Ipswitch
Logan
Elizabeth (Adelaide)
(Avoid the mining towns. I may be missing some)

I'm not saying that you should necessarily buy in these areas. But you might like to look at them, check out what these markets are doing and attempt to time the market as best you can.

The cheaper the properties in these areas, as a general rule (but obviously with exceptions) the higher the yield you may find. However, these yields are eaten up quickly by body corp fees, rates, maintenance, insurance etc, as these items represent a larger portion of the costs on a $200k house than they do on a $400k house. (For example, a $500k house with a 5.5% yield may give a better ROI after costs than a $200k unit with a 7% return.

You may also want to consider looking at houses in these areas with subdivision potential i.e. subdividing and building another dwelling out the black.

Another thing to consider is finding an area that might have negative cashflow properties, but that are in areas with high capital growth expectations with low vacancy rates and good fundamentals. You might find that rents rise faster in these areas and that in the long term you end up with a cash flow positive property that makes you more and grows faster.

Importantly, study these forums in detail. You will learn heaps. I have no doubt that your ideas of what you should do will change greatly if you do this.

 

No super but 800k that's fantastic you have that much to invest in your future

I agree with others if it was me

I would look into a margin loan and invest at least 20% in 5 top 100 shares across various avenues eg banks, health, realestate, mining etc again research is needed and be smart with the margin loan.

The other 80% I would definitely be looking at 2 investment properties
You could find a block of units in that range that would provide a lot of cashflow obviously you need to do a lot of research into holding costs maintenance etc and like others said regional or Adelaide if you aren't sure there are fantastic buyers agents about.
I would be looking for regional or block of units in tassie and buying a cheaper house with future development potential in Adelaide!

Use the banks money to do the hard work

Good luck like Beelzebub said read and read

 

Hi Beezlebub, sorry to repeat what you said I want to make sure I understand.

You're saying to borrow money to buy property and with the $800k (or so) I have left, invest that elsewhere in another asset class and use the return from that investement for living expenses/contribute towards retirement? Rather than try to own property and use rental income to contribute towards retirement?


-Frank

 

Yep, that's right. Also good to diversify too.

Check out Terry's Tax Tips for some serious learning.

 

Terry's tax tips is a great place to start for any new members.

Also agree with Beelzebub's suburbs for high yielding properties with potential growth. Would you be interested in doing renovation work to boost rent and create sweat equity?

 

If you are serious about cashflow, 8+%, you probably need to go outside the major regionals because large regionals mentioned above had growth a while ago and yields still haven't caught up. Again, not saying to just go and buy. You need to research, research, research. And in the towns you need to get below market value/median but IN A DESIRABLE AREA.
I would recommend looking in:
Parkes
Forbes
Wellington (be careful)
Junee
Cowra
for starters. They're not mining towns as such though Parkes and Forbes and Cowra do have miners (gold).
I would also look up the plans for the railway line that is intended to link Brisbane and Melbourne via Parkes within the next 10 years and take a look at the towns and cities the line will pass through - many already mentioned by me and @Beelzebub. At the very least, they are towns which will be able to transport stock and crops rapidly (food bowl) and therefore continue to provide employment in agriculture, possibly abbatoirs, animal transport, engineering, mechanics, all the primaries, etc.
However, you must be aware of the range of tenants found in these places and that's why I suggest steering clear of houso areas where possible. Towns being towns, the good, the bad and the ugly are clearly defined.
Most people are happy to recommend the large regionals and I think that makes sense. If you go the extra mile, though, and really familiarise yourself thoroughly with a smaller but similarly thriving town, you can clean up a lot quicker than the rest. You won't find a better investor than @skater who definitely got it right in the end.
P.S. fyi ... I noticed Cowra is doing well atm. Coming off a low base, it's a great place to retire. Not a great place to be young and wanting work, however. But very very pretty with the solid federation houses that you find in the central west.
And just so you know, I am biased. I have been living in Parkes for five and a half years and bought here last year (148K with a median of 240K at the time).

 

Buy a high yield ETF and long term hold.

For property yield, re.com shows average suburb yields for both houses and apartments. But remember yield does not necessarily correspond with capital growth. Indeed these may be at exact opposites.

As to where to buy, Gold Coast is where I would be looking right not for best yield/capita growth combo.

 

Better still, buy a selection of high-yield ETFs to diversify. A selection of nicely yielding blue chips too. Setup automatic dividend reinvestment.

 

@big max
From Dec 2016 HTW Report:
(I tried to link it but sadly it won't work. But Google "HTW December 2016" and you'll see a link to the 84 page pdf report they create).

Whether HTW has called it correctly is a debatable topic in itself, however i'll assume they are reliable for their call on the Gold Coast. I would not really be looking to buy in areas that are at peak or approaching peak. Too high risk of little or no CG.