SYDNEY PROPERTY INVESTING
Welcome!
page 4 of 5
In property investing there are no smoke and mirrors. Therefor if someone tells you something that sounds so complicated or advanced that you can't understand it; it is probably a smoke and mirror deal and worth your while to steer clear of. Further I put it to you that if it makes sense to you, thats probably because its on the level and conversly if it doesn't stack up; its not because you don't understand a valid concept; its because its not a valid concept in the first place. In short. Trust your instincts, they will serve you well.
The backbone of a property investors viability is a day job and a home. If you don't have these things I strongly suggest you aquire them preferably for several years before you buy an investment property.
That said, if you dont have much money and you want to generate some money fast, the way to proceed is to purchase your investment property 20% below market valuation and in need of renovation of a fairly superficial kind (dont buy a unit in a building that leans like the tower of Pisa!) splash on a coat of paint, renovate and tidy the garden and proceed to sell at a profit as quickly as you possible.
The backbone of a property investors viability is a day job and a home. If you don't have these things I strongly suggest you aquire them preferably for several years before you buy an investment property.
That said, if you dont have much money and you want to generate some money fast, the way to proceed is to purchase your investment property 20% below market valuation and in need of renovation of a fairly superficial kind (dont buy a unit in a building that leans like the tower of Pisa!) splash on a coat of paint, renovate and tidy the garden and proceed to sell at a profit as quickly as you possible.
Positive Cash Flow
Also termed Cash-flow positive property, CF(+) is property that produces a net income rather than a net loss. This figure is determined by several factors. The rent, the mortgage payment and the other expenses such as insurance and council rates. In this day and age there are very few Cash-flow positive investment opportunities in Sydney let alone Australia. However in the future there will be again. The last golden period for CF(+) property in Sydney occured in the early 1990's, because interest rates of 18% and house prices of say $150 000 were the norm in the 1980's.
As time moved forward the house prices stayed sluggish for about 5 years yet during this time interest rates dropped from 18% down to6 or 7%. This meant previously prohibitive mortgage costs were lifted and property ownership became much cheaper, even though the housing prices stayed much the same. This is because the weekly budget required to service the mortgage decreased substantially. Rents remained more or less stable and this perfect storm created a great opportunity to become rich! Had you bought an investment property around 1994, you could have rented it to a tennant who would pay you rent and this rent would prove sufficient to meet the mortgage repayments on the property, hence cash flow positive.
You would then repeat the process - providing you could obtain credit from the bank and basically a person in this situation could have accumulated 100 properties on a blue collar wage. And many did.
Then during the late 1990's the government introduced a marvellous stimulus to the real estate market in the guise of what was and remains "the first home owners grant" a $7000 payment to any first home buyer. This acted as a major catalyst to growth and appreciation in property prices and by the year 2008 property has appreciated approximately 300% in Australia. This teaches us a valuable lesson about timing...TIMING IS EVERYTHING! Remember the real estate market proceeds in a cycle like a wave it rises and falls as it moves forward. Currently the market is at a peak and so investing value is difficult to find. For cash flow posotive deals to once again come about I predict the following conditions will need to occur: First a recession which lasts long enough to make housing difficult for the average joe to own, forcing many who bought at huge prices recently to sell up as their recession wage can not service the mortgage debt.
I doubt interest rates would go back up to 18%, but in a way the effect on consumers is the same today applying mortgage stress to the same degree. This is because although rates are stable, property prices are so high they are the equivilent stress factor to the old 18% rates of the 1980's. To sumise this perspective it sufice to say: 1980's low price property, but disgustingly high interest rates; 2007'8's low interest rates (6.75% currently) but disgustingly high property prics. Thus the result is the same, albeit from different factor contributions. So for that golden 1990's cash flow positive situation to repeat what I call 'ownership stress' would rise to the point many owners became motivated to sell. At this TIMING if you yourself didnt have to sell, you could pick up some bargains at 30% below market value from motivated sellers. Someone who bought a property in 2006 for $350 000, might become a motivated seller if wages dried up or rates increased or both ie recession. Then they might sell to you for $250 000. Then some years after the recession wages would have to climb to diminish the prohibitive heights that house prices have currently reached and this TIMING is the start of a cash flow positive golden period once again just as the 1990's proved to be after the hardship of the late 1980's. In the mean time be patient keep educating yourself and as they say strike when the iron is hot, however right now the iron is frozen ice cold - its not a good time to invest. However thats good news, because it give you the time you need to save your deposits and to build financial security so that when a rainy day strikes in several years time in the form of a recession, you may be one of the priviledged few who can snap up all the bargains from motivated sellers and find yourself cash flow positive wealth.
Also termed Cash-flow positive property, CF(+) is property that produces a net income rather than a net loss. This figure is determined by several factors. The rent, the mortgage payment and the other expenses such as insurance and council rates. In this day and age there are very few Cash-flow positive investment opportunities in Sydney let alone Australia. However in the future there will be again. The last golden period for CF(+) property in Sydney occured in the early 1990's, because interest rates of 18% and house prices of say $150 000 were the norm in the 1980's.
As time moved forward the house prices stayed sluggish for about 5 years yet during this time interest rates dropped from 18% down to6 or 7%. This meant previously prohibitive mortgage costs were lifted and property ownership became much cheaper, even though the housing prices stayed much the same. This is because the weekly budget required to service the mortgage decreased substantially. Rents remained more or less stable and this perfect storm created a great opportunity to become rich! Had you bought an investment property around 1994, you could have rented it to a tennant who would pay you rent and this rent would prove sufficient to meet the mortgage repayments on the property, hence cash flow positive. You would then repeat the process - providing you could obtain credit from the bank and basically a person in this situation could have accumulated 100 properties on a blue collar wage. And many did.
Then during the late 1990's the government introduced a marvellous stimulus to the real estate market in the guise of what was and remains "the first home owners grant" a $7000 payment to any first home buyer. This acted as a major catalyst to growth and appreciation in property prices and by the year 2008 property has appreciated approximately 300% in Australia. This teaches us a valuable lesson about timing...TIMING IS EVERYTHING! Remember the real estate market proceeds in a cycle like a wave it rises and falls as it moves forward. Currently the market is at a peak and so investing value is difficult to find. For cash flow posotive deals to once again come about I predict the following conditions will need to occur: First a recession which lasts long enough to make housing difficult for the average joe to own, forcing many who bought at huge prices recently to sell up as their recession wage can not service the mortgage debt.
I doubt interest rates would go back up to 18%, but in a way the effect on consumers is the same today applying mortgage stress to the same degree. This is because although rates are stable, property prices are so high they are the equivilent stress factor to the old 18% rates of the 1980's. To sumise this perspective it sufice to say: 1980's low price property, but disgustingly high interest rates; 2007'8's low interest rates (6.75% currently) but disgustingly high property prics. Thus the result is the same, albeit from different factor contributions. So for that golden 1990's cash flow positive situation to repeat what I call 'ownership stress' would rise to the point many owners became motivated to sell. At this TIMING if you yourself didnt have to sell, you could pick up some bargains at 30% below market value from motivated sellers. Someone who bought a property in 2006 for $350 000, might become a motivated seller if wages dried up or rates increased or both ie recession. Then they might sell to you for $250 000. Then some years after the recession wages would have to climb to diminish the prohibitive heights that house prices have currently reached and this TIMING is the start of a cash flow positive golden period once again just as the 1990's proved to be after the hardship of the late 1980's. In the mean time be patient keep educating yourself and as they say strike when the iron is hot, however right now the iron is frozen ice cold - its not a good time to invest. However thats good news, because it give you the time you need to save your deposits and to build financial security so that when a rainy day strikes in several years time in the form of a recession, you may be one of the priviledged few who can snap up all the bargains from motivated sellers and find yourself cash flow positive wealth.
Copyright . skink. All rights reserved.