The Story Behind On Property – Episode 500!

[arve url="https://www.youtube.com/watch?v=38_s7qzm-3A" mode="lazyload" align="center" /] In this landmark episode I want to take some time to look back over the last 8 years of the On Property blog and talk about how it all started as well as the plans for the future. Pages and Videos I Shared CashFlow Investor Initial Sales Page First Ever CashFlow Investor Blog Post First OnProperty Video On Property Plus Sales Video https://www.youtube.com/watch?v=U_B2DTIPZ_Q&t=84s Interview With Ben Everingham https://www.youtube.com/watch?v=Nd6OrpM0y_k Exporing Financial Freedom Video https://www.youtube.com/watch?v=U-nNqja8gRU&t=2s Transcription: When trying to find a positive cashflow property, a lot of people look at rental yield as the beal and endo for whether or not a property is going to be positive cashflow. If it's got a certain rental yield, they say yes, it will be. If it's below a certain rental yield, they say no. A white be. In this episode I'm going to talk about why rental yield doesn't actually matter when it comes to finding positive cash flow properties, and in fact it does matter a little bit. It can be a good tool to quickly knock out properties that just will never meet the criteria or even come close, but as we'll look through a bunch of examples today, you'll start to see that properties, even with the same rental yield, one can be positive cashflow and one can't be, and properties with Laura rental yields can be positive cashflow. Whereas properties with higher rental yield may not be so. Rental yield can be a good guideline, but it's not the be all and end all. So that's what we're going to be looking at in today's episode. Now I first came across the idea of rental yields and how important they are for finding positive cashflow property. When I read Steve McKnight's book zero to 130 properties in three point five years now, while that strategy probably won't work anymore, buying 130 properties in three and a half years on a single income. That is still a really great book and there's a lot of good concepts in there. So if you want to check out that book, go to [inaudible] Dot com.au forward slash 1:30. So a lot of good stuff in there about saving a lot of good stuff in there about the basic fundamentals of cashflow and stuff like that. So Steve McKnight has this thing in this book called the 11 second rule. So he coined it as 11 second role. I don't know why it takes 11 seconds instead of 10, but so be it. But basically the idea of the 11 second rule is that you take the purchase price of a property. So for example, if we have a property at 300,000, you then divide it by a thousand or you chop off three zeroes, so that becomes $300 and you then double that number. So that's 300 become $600 and that's the weekly rent that you're looking for. So a $300,000 property, you're looking for a rent of $600 per week. Or if you have a property that's rented for $150 per week, how much do you want to pay for it? We do the same process in reverse you times that figure or you divide that figure by two times by a thousand and so you get $75,000 and basically this gives you a 10 point four percent rental yield, which kind of it, it's not the gold standard of rental yields in positive cashflow property. But when this book was written, it kind of alluded to being that. And now when this book was written, interest rates were higher. I think there are around seven or eight percent or something like that. Interest rates at the moment are quite low, four to five percent sort of thing, so you do need to take all of these factors into account, but anyway, this was my first experience to rental yield and how important it was and it's a, it's a good idea, but it just doesn't play out perfectly as we to look at positive cash flow properties. So let's use a few examples of properties and we'll see how rental yield affects the cashflow. So let's start with this one. I've got 36 Gros ventre street in Narrandera New South Wales. So this was for sale for $149,000. So pretty cheap property and it's currently rented or it says previously rented at to 60 per week. So what I'm gonna do is go over to property tools.com dot EU and I'm going to use the advanced property calculator over there. This is a property cash flow calculator that I created myself. So you put in purchase price, rental income and it will give you an eeg, an estimated weekly and yearly cash flow. And you can also look at adjusting all the fees so you got property manager fees, expect a vacancy repairs and maintenance, insurance council rates, bank fees, all that good stuff. So basically you can go through and you can add in all the expenses and it will give you a rough estimate of the weekly cash flow of a property. So this was something that I was doing all the time, so I just made this tool to make life easier for myself. So let's have a look. One hundred and $49,000 as punch that in and then we'll punch into 60 per week. And this gives us an estimate of weekly cashflow of $34 and nine cents. And a rental yield of nine point. Oh, seven percent. So nine percent rental yield. That is a very high rental yield. You don't find a lot of properties on the market with a rental yield that high. And we can say that, Yep, nine percent rental yield leads to a positive cashflow property. Now obviously there's a bunch of other expenses that we could adjust here. Maybe because it's an older property, we will need to increase the maintenance. Cancer rates might be a bit less because it's a cheaper property, etc. So you can tailor with this sort of stuff yourself and so, but basically I want to show you that this property with a nine point. Oh, Seven percent rental yield. We're looking at $34 a week. cash flow before tax. now let's have a look at another property with a similar rental yield. This property is cheaper. Um, can you believe it? Seven manson. Australian port pirie south Australia selling for $79,000 for a three bedroom house. This is extremely, extremely cheap. I just want to have a look at the population of port pirie in south Australia because I had no idea. All right. We're going to say the population is 14,000 people, so not, it's not a country town with only 300 people in it. So that's cool. Anyway, solid investment returning nine percent with a secure tenant. And we can say that it's rented until the 22nd of May for $150 per week. So let's go back to our calculator, we're going to put in $79,000 as the purchase price. This one almost works in steve's 11 second rule because they're almost got a 10 percent rental yield. We've got a nine point eight, seven percent rental yield, but we can see that our weekly cash flow before taxes actually in the negative of about $10 per week. So this has a higher rental yield than the previous property that we were talking about, but it's negative cashflow. and what's the reason for this? Well, as you go cheaper and cheaper in the property market expenses like repairs and maintenance or insurance on council rates or bank fees become a higher percentage of your overall cost of the property. So if you're paying $2,000 in cancer rates for a $79,000 property that's only generating you how much per year is, uh, generating, that's only generating, you know, $8,000 in rental income or a bit less than $2,000 out of $8,000 is a significant amount. And so as properties get more expensive and the rental income increases, then your council rates as a percentage of your rental Income become less and less, so you're getting more rental income. Cancer rates might be going up and getting a bit more expensive, but they're not getting significantly more expensive as compared to your rental income. So as you go to the really cheap side of the market, rental yield plays less and less of a role just because of those fees that council rates and things like that. Let's go ahead and have a look at another property which is about $200,000. So a bit more expensive than that first one. we looked at at 149. And let's have a look at the rental yield. So we're getting $310 per week for this property. So let's punch that into our calculator. 200,000 dollars and we're getting 3:10 per week. so we can see that this is looking like it might have a weekly cash flow of 39, $39 per week. But something that we need to take into account, because this is a unit instead of a house, is something called body corporate fees, strata fees, body corporate levies. They go by all of those names and we can see here that the body corporate levy is 2000, $131. So this has to pay for the communal areas and things like that as well as go towards sinking funds. YOu don't have a choice, you have to pay this. It'd be part of the building. This is something that you can avoid where you have your own property, just a house because you're in charge of all the maintenance and stuff yourself. So 2000, $131. So let's go ahead and add that in into the strata or body corporate. Two thousand $131. And we can now see that this has gone from a positive cashflow, about $39 a week to negative cashflow of about a dollar 62 per week. And so this one has a rental yield of about eight percent. Eight point oh, six percent. Which is still really good, it's more expensive, but because it's a unit and it's got that body corporate fee that really stripped us of our cashflow. So that's another example, a bit of a different one about how rental yield doesn't necessarily matter when it comes to cashflow because you have to take into account so many different things. Body, corporate fees being one of those. So let's go ahead now and look at some properties with extremely low rental yields that would never, ever even come close to the ten second rule. 11 second rule. Sorry. Statement nights. 11 second role. So I've got this property here that is in Georgia, whole new south wales 40 endeavour road, george's whole new south wales for $849,