What is acceptable income on a Cashflow IP?

Hi All,
probably a bit of a vague question but here goes. We are specifically looking at a couple of CF+ IP's. Our rational is that we would take a couple of these to support a good CG place with out having to contribute from our own household income. We have one or two in areas that enjoy little or no Capital growth, however tenancy rates are quite OK. With the figures we have from our oofers for purchase we have generous wriggle room with the amount of weekly rent that our PM can ask and still not be neutral or negative. Is $30 -$40 pw income after ALL expenses covered OK for each one?
I am ready to go on with this now, however my investing partner (wife who also is very very keen to invest) gets cold feet.
Now we are at the stage of should we or shouldn't we. I am beginning to think we suffer from Analysis Paralysis.
At present we are selling all 5 of our investment blocks in Spring Farm. (these are not doing so great as I reckon we bought at the peak of the market and there has been zero improvement on prices in the later releases. We have sold one for a modest profit, another two should go this week with a small loss on both. Of the two remaining lots we will take a small 5 figure bite in the backside loss.

I guess the partners reluctance is due to her heightened risk aversion because of our foray into spring farm. As proved with the above example I guess you have to do your DD as best as you can and bite the bullet.

I joined this forum last year and have met a lot of clever and interesting people who all have fascinating insights to investing in property. So thank you.

 

If you build a house on your springform lots can you rent at neutral to positive? I'd consider this over buying two more properties were you anticipate no growth.

I would not trade $40pw cash flow for zero anticipated growth. To me you should be able to find locations that achieve 3-5% GC as well as neutral to $30 per week cash flow.

 

Agree with @Cactus...

 

You can have both cash flow and capital growth you just need to know where to look or use renovating as a viable option to create equity. $40 is better than nothing but don't forgot to factor in repairs. Only takes a hot water system to break to really cut into the profit. Good luck with it all

 

@Peter Taffa how's it going? Haven't heard from you since ranch meet up. Did you end up buying a plot of land if I remember correctly? Will improvement to the units make any difference in this market?

 

Holding 5 blocks with no income, I would want to change this ASAP. I agree with Cactus build on one/some of them or sell.
Buying for $40 pw cashflow is pointless, there needs to be the potential at some stage for CG.
If you are looking for cashflow I would consider fully franked shares, convertible preference shares, corporate notes or similar.

A new hot water system or air con would wipe out any positive cashflow.

 

I thought of buying land and holding for profit. The numbers dint work well.

People have earned a lot just by holding land in rising market in nsw.

Sometimes, it works well if you plan to build it. Check the end product price but factor in the slowdown as well.

Regards

 

Put 50k into low risk shares yielding 4% and there's your $40 a week

 

Talking about cashflow...
I have an IP near Sydney city that I Airbnb. It would be cashflow positive to the tune of about 20k per annum. Its extra work though.

Is it worth it?
Hell yeah... and an absolutely fantastic guest experience too. 4 minutes walk to Redfern Station, quiet neighbourhood, shops, pubs, cafes, 3 x unis (USYD, UTS, Notre Dame) all in walking distance nearby...

Capital Growth?
Most definitely. I'm in a great equity position with it. It was a great purchase. Gone up in value over 20% since purchase in October 2014. Though, if it has peaked for now, that's still totally ok. I can't complain.

Would I do it again?
Most certainly. Cashflow, Location, Capital Growth... can't go too wrong with that.

Now i'm not saying you have to Airbnb. But I am saying, buying something for $40 weekly cashflow with unlikely growth?.... Keep thinking... there surely must be a stronger deal out there.

 

@Gockie sorry if you've mentioned this elsewhere, do you have a PM organise things for you or do you do it yourself for the Airbnb place? What kind of cashflow would you be looking at with a normal lease?

 

Hi @eskander, I manage it myself and I have a person who will go in and do the cleans/changeovers when the changeovers happen to be scheduled for when i'm at work. The timings works for her since she starts work at midday in the city.

Weekly rent normal lease: ~$480 per week. (But you still have to deduct PM fees which would be ~$40 per week.)
Weekly rent Airbnb'ed: ~$840 per week.
But then deduct costs for time, towels etc, tissues, wifi, electricity.

Overall about 20k extra income per year... can't complain about it. Throw in the solid location... it's a keeper. Not too old of a building either (1999), its not brand new but also not old. Nice character and feel to it, design generally keeps in line with the neighbourhood which is full of terrace houses.

In addition my apartment includes a valuable undercover car space on a separate title so I can sell it to someone else in the building if I wanted to do so... I got a bit of a bargain. If I was working in the area I would like to live there... probably not worth doing that though... not worth sacrificing that cashflow!

Probably worth renting someone else's property instead

 

Great return Gockie.

 

Gockie ... did you see the article in YIP re short term rentals eg AirBnB? It stated:

The ruling, handed down late last week, effectively bans owners corporations from preventing dwellings in a strata agreement from being used as short term rentals.

 

No, I didn't see that... I note however:

"The respondents in proceeding S CI 2015 05446, Mr Paul Salter and Ms Belinda Balcombe, are the owners of Unit S909 and operate a Short-Term Letting business trading under the name ‘Docklands Executive Apartments’. Mr Salter and Ms Balcombe utilise 14 apartments within the Watergate Apartments in their business as follows:

(a) One apartment, being Unit S909, is owned by Mr Salter and Ms Balcombe.

(b) Nine apartments are leased for the purposes of Docklands Executive Apartments.

(c) Four apartments are available to be leased by Docklands Executive Apartments on behalf of the owner on a commission basis."

13 units leased or available to be leased!!!!

 

I read that and figured that was why they had taken it to Court. They are also running it under a Business Trading name. I wonder if they are able to claim the Court costs.

 

Hi Larry, have avoided meetups as work has been rather hectic and I frankly I would probably feel like a bit of a fraud after having failed to find first IP after looking for 8+ months. Will keep plugging away.

 

Come along... I think you need a kick up the backside and/or inspiration....
Perhaps you aren't looking in the right area to pull the trigger to buy an IP? I'm sure the wisdom/insights you pick up from talking with others might just get you in the position to put pen to paper...

 

Hang in there it took me 8 mths to secure my last IP but got a great deal. Was worth waiting for.

 

I have a different take on this - who cares about $2000 pa cash flow, in most cases they will be older properties, perhaps areas in whoop whoop and worse......you could possibly end up in the red. How awful

If you can buy in growth markets and buy as many as you can afford, and then sell down, ie buy 3 sell 2, I think outcome will be far superior, not only will increase cashflow, but reduce debt and servicability

 

Can I please ask what was the strategy behind buying 5 speculative blocks of land with zero cashflow coming in from them?