What is the worst negative cash flow position you have been in with your IPs?

Hi All,

Thanks for the responses.

I suppose to mitigate our risk, we could always buy something cash flow positive (easier said than done) to reduce the negative cash flow even further. We would have the equity in our current home to buy both and still be under 70% LVR (assuming we spend $800k and $300k).

Aim would be to hold long term and slowly add value as we live in it if we bought in Coburg/Brunswick.

If we go further north we would probably stay where we are and just rent out the IP.

 

It's not just about a variance in rent, it allows for property management, maintenance and vacancies.

 

My concern is not so much the negative cash flow as it is the negative cash flow on 1 property only. Having said that, if you have a combined income of 250kplus then this whole thread could change in a second. Work out your investment goals and timeframes, and choose a strategy/ies that is sustainable for your income and will get you to your goals. I would suggest reading some books to get the basics down imo. Education coupled with action is the key to success, imo.

 

Yeah I've been doing a lot of reading, but there is just so much conflicting information. Some people say negative gearing is wrong, others swear by it. Some people refuse to buy anything that isn't cash flow positive. Happy to take suggestions of what I should be reading.

Combined gross income is 150. We haven't allowed for any increases in salary in our budget, but barring an economic meltdown, that should rise to 200 in the next 5 years.

Goal is to retire in 25 years with a $10M portfolio with less than 50% LVR. And hopefully live off the equity. Wishful thinking?

So I guess, if I am being conservative and not relying on pay increases, my strategy would have to be alternating negative cash flow properties with positive cash flow properties every couple of years to keep cash flow in check.

Alternatively, I could just buy the 1 really negative cash flow property, because that is where we want to live. Buy a cash flow positive property to help offset it. Then from there, focus on less extreme negative cash flow properties, or cash flow neutral properties.

Thank you all again for the responses, I really appreciate it. Definitely learning a lot here.

 

Tigers Leagues club?

 

I purchased a vacant block of industrial land as a development site.

Couldn't get a tenant until it had been fenced and services connected.

Turned a big negative into a positive.

 

You could argue exactly the same point about being assessed at interest rates that are 2.5% higher than actual rates.

 

[QUOTE"juzzy, post: 45522, member: 2637"]Yeah I've been doing a lot of reading, but there is just so much conflicting information. Some people say negative gearing is wrong, others swear by it. Some people refuse to buy anything that isn't cash flow positive. Happy to take suggestions of what I should be reading.
I totally get what your saying and there is definitely what seems to be conflicting info out there. From personal experience, what I found was that the more I read, the more I was able to compartmentalise in my head (I actually made notes) what topics most agreed on, eg building and pest reports, property managers of tenants etc, and which topics had wide variations and which ones were mixed. The ones which most agreed on I cemented those basic facts in my head and that was easy. the ones where there were wide variations, I found that eventually you will gain your own perspective as to what's best for your own situation by continuing to read case studies and also talking to investors on forums etc to clarify these ideas and strategies in your mind. Once you come to a place where you can put it all into perspective, its game over. You are free from all bias and agendas and you will be empowered to make sound decisions based on your goals, knowing which strategies to pick and when to use them etc. That's what I found at least.


Combined gross income is 150. We haven't allowed for any increases in salary in our budget, but barring an economic meltdown, that should rise to 200 in the next 5 years. Sounds like decent income to me for investing, assuming no major debt.

Goal is to retire in 25 years with a $10M portfolio with less than 50% LVR. And hopefully live off the equity. Wishful thinking?
I don't think its wishful thinking at all and definitely attainable imo. But to me what it does mean is that you are going to want to be a 'professional investor' and learn as much as you can because that goal for most people is no kindergarten race, especially when your talking about 10mil, 50% equity in 25 years with today dollar values.


So I guess, if I am being conservative and not relying on pay increases, my strategy would have to be alternating negative cash flow properties with positive cash flow properties every couple of years to keep cash flow in check.
I would agree that a balanced portfolio is important, otherwise you simply cant sustain the negative cash flow and banks will stop lending you sooner or later.


Alternatively, I could just buy the 1 really negative cash flow property, because that is where we want to live. Buy a cash flow positive property to help offset it. Then from there, focus on less extreme negative cash flow properties, or cash flow neutral properties.

You could do that - there is no right or wrong, it really depends on your goals. Just know that putting 800k in a ppor MAY slow your investment goals in the beginning. May not, but it may, depending how fast that 800k property will have equity and how fast your incomes grows, imo. Also because its a PPOR if you emotionally buy it and not at a good price it could further increase the time it takes to see growth.

Thank you all again for the responses, I really appreciate it. Definitely learning a lot here.
Personally, can I also suggest you watch some clips on mindset , eg jim rohn, les brown etc. Wanting to build 5mil net worth in 25 years with todays value imo will take a certain mindset. I have first hand seen average Joe's with average incomes and outlooks on life suddnely have a massive shift in mindset and the success which almost immediately followed was staggering. I know others disagree, this is just my opinion based on a lot of readings I have done on highly successful people in all industries. Yes there are the exceptions but I never want to bank on them.
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For around 5 years we had over $1M of property grossing around 3.5% yield.

This was with interest rates of around 8.5% - the result was a negative cash flow of around $60K p.a.

Very ugly - we were going to sell as it was chewing up all our funds but instead turned them both into dual occupancy (granny flats). With interest rates coming down this was enough to make them slightly CF+.

Then the Sydney boom came and all was forgiven.

 

A combination of different strategies from different books from different authors such as the standard Margaret Lomas and Steve McKnight et al.
There are a heap of real estate books you can find at the library, I find that a good option because a lot of them I probably won't read again. But I usually get at least something from each book.

 

i'm guessing the CG potential is looking quite strong at least in the medium terms?

 

Fair enough, I read the OP as a buy and hold investor as nothing was mentioned about further development.

 

Nice. Do you think you were able to buy it under market value at all?

 

I'm glad to hear I'm not completely insane then. Thanks Y-man.

Will definitely look in to it. Thanks.

Further development is a possibility down the track, depending on what we end up with. Just not in the short term. We may turn a single garage/carport in to a double garage immediately, if the property permits. Not sure how much monetary value that would add though.

 

Nice work @The Y-man !

Deleted second part - too many variables.

 

Question is if you didn't already have substantial assets and possibly income would you recommend similar for an initial purchase for a buy and hold investor who is looking to grow a 10 million portfolio and retire on rent?