Strategies to improve cashflow

Discussion in 'Investment Strategy' started by barnsey, 14th May, 2022.

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  1. barnsey

    barnsey Member

    Joined:
    7th Sep, 2020
    Posts:
    14
    Location:
    Melbourne
    Hi

    Love the forum and the wealth of knowledge and experience shared by everyone here.

    So I am fairly new to property investing. Would like some advice on the oncoming serviceability wall I'm about to crash into.

    My current situation:

    PPOR (currently rented): 3 bed Unit/Townhouse
    Location: Chelsea/Bonbeach VIC
    Est. Market Value: $750k
    Rent: $550pw

    IP2: 3 bed house
    Location: Armstrong Creek VIC
    Market Value: $550k
    Rent: $450pw

    Both are at 80% LVR. Staying with parents atm and paying them rent.

    I've started planning for my next IP. Just crunching the numbers on borrowing capacity I can borrow about $320k once i pay off my HECs debt next year. This would mean that i could by a property valued circa $400k.

    As you can probably see I am slowly having to buy properties that are valued less and less as my borrowing capacity becomes constrained by income. I've worked out that i need about a 9% yield for my next property to become cashflow neutral (unrealistic i know!). Im keen to still try so for my third property Id like to chuck in a cashflow deal that can boost my serviceability.

    Based on my limited understanding of borrowing capacity and the general property market I am considering a few options.

    1. Buy an old run down property with a large-ish component (~800sqm plus) somewhere in WA that can be rented out in the short term. The idea is to then focus on saving up/waiting for equity gains to demolish it and build a dual occ. Ideally within 2 years after building costs come down and the labour market frees up more. This will improve my cashflow and give me two rental properties (Not concerned about being able to subdivide the land because my primary concern atm is cashflow and because i dont planning on selling anytime soon).

    2. Buy and rent out a unit in QLD with a much smaller land component (~200sqm) with 3 bed rooms. With this strategy ill look to buy 2 of these types of properties one after the other and both will have to be positively geared.

    3. Source out land from a new estate where a house and land package has fallen through or there are a lot of buyers pulling out (because of builders going bust/inflation concerns). See if i can get the land for cheap and then over the next few years build a dual occ. I can get started with a smaller deposit. Probably somewhere coastal (thinking around Halls Head/Dudley park in WA). This one i think is a bit more riskier because ill be speculating as to whether the region will go up in value/uncertainty around whether or not im buying in a bubble market.

    Which strategy do you think is best? Am i looking at this all wrong? Should i be doing some thing completely different?

    Cheers
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    27,103
    Location:
    Sydney or NSW or Australia
    Is there any equity that you can draw down from either of these properties?
     
    barnsey likes this.
  3. barnsey

    barnsey Member

    Joined:
    7th Sep, 2020
    Posts:
    14
    Location:
    Melbourne
    Think i got about $30k i can pull out of Armstrong creek once i do a reval. Bonbeach ones maxed out. Theres about $15k in shares of my share portfolio that i am prepared to dispose as well.

    On the otherhand i got $36k left in HECs which will automatically be paid out by end of next year from salary withholding. But yeah.. im kind of forced to wait to next year before i can make my move i think.