Positive Cash Flow Property - am I getting this right?

Discussion in 'Investment Strategy' started by Breeamy, 10th Aug, 2015.

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  1. Azazel

    Azazel Well-Known Member

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    You're right, though the key word that was trying to be expressed was "good".
     
  2. Sackie

    Sackie Well-Known Member

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    Yes I agree. Has to be 'good' and not only good but financially successful with investing in their own right, imo.

    Its not the same as a conveyancer, or finance broker, Buyers Agent etc who are only giving specialised/limited advice based on a specific part of the overall investment plan, and not shaping the entire plan pushing products that newbies may not necessarily need or want to achieve their goals. I have always believed it is common sense that when you pay a mentor, advisor, planner etc for advice on how to achieve your financial goals , they need to first be successful in their own right otherwise its the blind leading the blinder imo. I know what i'm saying is accurate because I have spoken to many, many people re this issue and I often hear the same themes of diversification, conservative investing etc etc which was not their goal and they made it clear from the beginning, but were nonetheless 'advised' to go a different/safer/mainstream route. I have heard this from countless people in great positions to invest so I know its a real issue. I am NOT saying all FP are the same. But where there's smoke, often there's fire. Its just the reality and to downplay this issue is not in the best interest of newbies imo.
     
    Last edited: 24th Aug, 2015
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  3. teetotal

    teetotal Well-Known Member

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    So when would one can expect to see an IP becoming cash flow positive, especially if it is on Interest only loan & no principal is getting paid off during I/O period.
    And how long should the I/O period be considered for an IP ?
     
  4. Terry_w

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

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    it generally happens around the 12 year mark - that income exceeds expenses on 100% borrowings.
     
  5. teetotal

    teetotal Well-Known Member

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    So does that mean one would always need to sell some properties with CG and pay off some of the principal on the I/O loaned IPs to keep them cash flow positive after the I/O period is over ?
     
  6. skater

    skater Well-Known Member

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    There are a lot of things that can change the return that you get from property, so there is no one answer for this question.

    You might have bought something with a 3% yield, and rents are stagnant, or you might have bought something with a 7% yield, and you are making money from day one. Interest rates might go up, which affects the yield, or interest rates may go down. You might put a GF on one, which makes it cashflow positive. You might rent it by the room.

    Lots of things you could do that will change the income from a property.
     
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  7. Terry_w

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

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    Not necessarily. You could just extend the IO period.
     
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  8. Terry_w

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

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    And just some more points on Financial planners - some cannot advice on property at all because of restrictions by their licence holder and/or insurer. So before signing up with one ask if they can advise on property and if so can they advise on direct property. If they cannot then consider whether you should use them, and if you do just remember their advice will be away from property.
     
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  9. PurpleTurtle

    PurpleTurtle Well-Known Member

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    So, from a complete newbie trying to get his head around everything:

    The basic idea behind using an interest only loan is that it leaves you more cash flow to put into building a larger portfolio.

    Is that right?
     
  10. Fargo

    Fargo Well-Known Member

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    Yes, but not necessarily directly, things have changed. The banks calculate your serviceability at 7%,( assume you are paying 7% interest rate) they also only count 80% of yield and don't count any yield over 7.5%. But it does mean you have more money for other things such as buffering, investing in other things such as shares or even a business, which might then be able to go back into property.
     
  11. Terry_w

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

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    Not only that it also allows you to divert excess funds to pay down non deductible debt. And to build up cash for retirement.
     
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  12. PurpleTurtle

    PurpleTurtle Well-Known Member

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