Where to next? Introduction and Strategy.

Hi All,

Long time first time. This is a mix of introduction, strategy, what to buy and where to buy.

I have been very interested in the property market since being young but decided to go down a different route of work and also blew (as most 20 somethings do) the majority of my money rather than investing.

I am now in my early 30’s and have recently sold my business and should be walking away with approx. $500,000 after tax’s etc.

I currently own 1 investment property about 15kms outside Brisbane which is 4+2+2 which was purchased OTP for $460,000 @ 10% deposit. Currently tenanted at $460 per week.

2nd property again OTP is about 15minutes outside Newcastle for $580,000 again, 4+2+2 looking to finish build mid 2020 (after 24 months of delays). My wife and I’s reason for the OTP investments were purely tax purposes in order to claim depreciation and negative gearing.

I am looking to use the proceeds from the sale of the business to purchase more property but am now looking for cash flow as our borrowing capacity has reached its ceiling.

I have been reading these forums quite in-depth over the past 6 months, listen to plenty of podcasts and have read most of the recommended books but as usual there is a lot of contradictory information out there regarding all sorts of strategies etc.

Another reason for the positively geared cash flow I.P’s is that I will need to look after my folks in retirement so will need around $500-$600 from these I.P’s per week. Otherwise would look at different strategy and grow the CG first and foremost.

My wife and I rent and are looking to build out investment portfolio both through shares and property before purchasing our own place down the track.

I would be looking at investing in either VIC, NSW, QLD or S.A as I believe these would still have decent C.G even though the main emphasis is for C.F at this point.

Would love to hear your thoughts on strategies on the above.

 

Welcome.

Imo for starters you'd want to cut that out. Any deprecation and tax benefits should always be secondary to the metrics of the underlying asset and overall deal. Never a primary factor, at least not for me.

I'd want to build my equity base before I look to convert it into meaningful cash flow. At least in Australia that's the most realistic order. Other asset classes/countries have much better rental CF from day one. Unfortunately Aussie isn't one of them. That's how I see it. You'll get 100 opinions though.

 

Generally speaking, great cashflow will be offset with low capital growth over time and vice versa.
Reason being is that once people get to a point where they like the area they are in, and rent becomes equal to or more expensive then a mortgage they will look to buy, however if they cannot afford to buy (low LVR, servicing requirements etc...) then they will keep on renting hence the higher yield and less owner occupiers driving capital growth. This is just based on my opinion haha so take from that what you will.

I would personally look at finding something older which needs some work and then renovating to increase cashflow, you might be slightly negative or neutrally geared but over time every good investment will turn into cashflow positive (not every cashflow+ investment will turn into a good investment )

 

Thanks for the feedback. My main focus is not CF and am also in the mindset of CG over CF but in saying that I have a budget of approx $500k which I will need to get rented at minimum $400 per week.

I've been looking in to the Newcastle market specifically, Fletcher, Wallsend, Gateshead and Windale.

Love to hear your thoughts if these numbers stack up?

 

Great advice, well said.

 

I also agree with the above statement and would usually invest for CG but on a property of say $400,000 - $500,000 is it possible to obtain decent rental return whilst having good c.g?

 

For that price range, it's hard to get 5% + yield unless it's a dual occupancy property. Why not considering properties around 300k. They can give you both good cash flow and capital growth. If you look at the historical data, you will find properties closer to CBD don't necessarily do better than the ones further away from the CBD

 

Hi Mark,

So the % yield is not so much the point. The main focus would be getting an investment which has between $400 - $500 return per week on a budget of 500k.

 

Isn’t that basically the definition of yield?

 

That level of rental return is not great. Particularly you mentioned that you are reaching servicebility ceiling soon.

 

You can definitely achieve great capital growth even in properties under 300k if you buy in the right market. I achieved exceptional capital growth and cash flow from my Hobart properties since I catched the wave at the right time.

It's important to analyze the data by yourself instead of trusting other people's opions. Based on my data analysis, high value properties closer to CBD do not necessarily delivery better capital growth. You can simply compare the 10 -20 year medium prices of different suburbs and then make your own assessment. A disadvantage of properties far away from the CBD is that they tend to be a little bit more volatile. Please also keep in mind that better cashflow leads to higher serviceability, which allows you to build a larger asset base.