Recommendations/examples of net positive cash-flow IPs?

Hey all,

Can anyway show me some good examples of net cash-flow positive IPs in Australia within the first 2 years?

Suburbs most likely to achieve this? real IP examples? stories from your past experiences etc

 

42 William street, Cohuna, Vic

Purchase
$121,000
Rents for $240 a week.
Around $80 per week positive after all expenses (no reno, no complex strategy, just buy and hold)

There is so many great suburbs but more importantly is the specific deal and when you go rural you sacrifice growth (generally)

Kind regards

Jaxon Avery

 

Buying cheapie duds with small amounts of CF a week at the expense of growth is a terrible idea imho. Especially if you have good income/serviceability.

 

Net on paper? Or cash flow?

I prefer to look at the gross yield here as everyone’s borrowing for the IP would be different ie 80% lend versus someone borrowing 100% of all costs related to the acquisition etc

IMO for resi rentals, majority would be at a loss on paper with at least an 80% lend - interest expense would typically be the biggest expense for associated with any rental.

 

and your better purchases are?

 

All depends on a person's income/serviceability and goals. But imho rarely will the $20 a week PCF properties with minimal growth get most people anywhere .

 

"Suburbs most likely to achieve this? real IP examples? stories from your past experiences etc"

Mate you clearly have your own ideas and path but the property generates $4000 PA after expenses and that is on a 20% loan,

with stamp duty I think it was $29,000 outlay (maybe less).
thats a 13.7% return not even including the P and I loan, so its closer to $6000 first year including the PnI (20% return), now yes this is not liquid in any way comparative to a stock. but I am getting a far more likely return than betting on capital growth and I have less downside and still have the benefits of reno's etc for building equity.

Knocking this strategy when I am literally getting a 20% return on my money and also buying in an area where the occupancy is higher than 99% of the country is crasy.

This is a no brainier and realistically I have always planned a $18,000 reno that would alter the price from 121000 to 175,000 and increase rent by $30 a week which would make it
$100 pw CFP
Return even higher than 20%

Mate maybe your a high income earner but you cannot find much better for $121,000 in this country with as little risk comparatively and more importantly it fits my long term financial goals perfectly.

 

That's all that matters then.

I stick by my comments. Those with good incomes/serviceability choosing the strategy of $20/week PCF (give or take a little) with cheapie places in woop woop and wanting to build an asset base - are likely making a serious strategic mistake.

I know quite a few individuals/couples on good incomes/zero debt who came to me asking advice for properties they wanted to buy in some obscure place. When I asked why, they said, "it doesn't take any money out of our pockets". Mistake colossal.

 

Cash return on outlay is misleading when the outlay is low. 20% return on a 29k outlay is 6k. 5% capital growth on the whole asset over the long term gives different numbers.

The investment fits your plan idea is only as good as your plan. Just because you stick to a plan of paying down debt asap and no negative cashflow doesnt mean its a good plan.

 

After nearly a decade of chasing & building PCF investments, i come to a conclusion that Capital Growth outweigh PCF if one is to build serious equity. PCF plays a part in the portfolio now to balance negative cashflow properties in bluechip areas..

 

Different strategies for different folks I think. At the end of the day it is about total returns. You have a regional property that has a gross 12% yield but low CG prospects. You have a blue chip inner city property with 2% rental yield with a 10% CG component. The returns are the same, differences are on how and when you receive them.

High income earners can afford the negative cashflow for the CG payday, low income may need more of a focus on rental yield. There is no one size fits all approach and in my opinion most of the time the market prices in these differences factors appropriately.

When you can find solid CG, solid yield opportunities is where it gets more interesting...

 

I don't believe there is a 1 size fit all golden rule. I'm a string CFP believer and have so far worked pretty well.

The danger in betting on CG is that too many macro factors that will affact your growth.

While I do believe CG is the ultimate winner in investing but that is only true if you can liquidate the asset. Otherwise I see very little point in holding a valuable asset that produce minimal or no income VS holding onto a cheaper asset that is giving you consistent dividend.

The beauty in cheapie CFP asset is that you can set and forget and just let it pay down the debt for you.

In the end unless you fully own the property its technically the Bank's asset not yours regardless of the asset value.

 

I used 10% and 2% on a 400k property over 20 years and I very roughly calculate the difference as around $800,000 in the favour of capital growth.

 

Rent is taxable yearly. Capital growth is not.

Rent usually doesnt grow faster than prices. So at a constant yield, long term the rent starts losing out.

 

Then you have added in some other assumptions. Are you factoring in tax implications? Or subtracting the rental losses each year? Or not assuming reinvestment of positive yields into other assets? There are lots of things that could change the outcome but a 12% return is a 12% return no matter how you cut it.

 

Are you factoring in the lost investment opportunities from the net losses each year? I am not trying to start a CG vs CF debate but I don’t believe you can use a one size fits all approach. There is more than one way to skin a cat, and from what I have seen there are not many +$5m property portfolios out there which don’t have some component of CF positive assets balancing them out, be it commercial, unit blocks, regional or something else entirely. If they don’t there is almost certainly a high income individual pumping cashflow in from another source.

 

There are just better asset classes for yeild than RE imo for the average investor. Add value/growth? Definitely I'd go real estate. But for yeild? nah.

Ironically, if you focus on growth with RE then yeild options in RE down the line becomes totally doable.

 

Imo the PCF pittance from woop woop properties doesn't outweigh the risk of taking on an 80% loan with zero to minimal growth deals. It just makes no sense to me. I'd rather park my money in a different asset class which gives a better yield and lower overall risk. Not to mention the calibre of tenants in these places is often a money drainer.

 

Wouldn’t some of those cheap properties even have negative growth?
I mean for a house and land at 120k, allowing for inflation it was probably worth more than that new.
After all this time, zero or even negative growth is not a quality asset.
If the returns were high it might be worth considering, but at $50/week, you’re losing money.
A few substantial maintenance issues will put you into negative cash flow for a year or 2 and negative growth if the market continues as it has.

What’s the upside?

 

After 22 years with both scenarios. All gross. Its worse for high yield of course when taking into account income tax versus capital gains discount.

10% Capital growth with 2% yield: A $3.2 Million house earning 65K rent. Earnt 628K rent over life of asset

2% Capital growth earning 10% yield: A $618k house earning 61k rent. Earnt $1.113 M rent over lifetime of asset