Expanding a property portofolio :

Strategy 1: If one choose carefully cash flow positive invest then he/she would have to be very unlucky to select only nil growth properties.
From the one with capital growth , he/she would then be in position to refinance to carry on investing in additional cash flow positive property. A portofolio could then be created following this path....

Strategy 2: If one choose immediately cash flow negative invest then he/she need absolutely capital growth and he/she would have to be very lucky to always get it right and could get surprised.
From the negativ cash flow, he/she will find it always harder to invest further into additional cash flow negative property...The property portofolio following this path could prove very hard to expand indeed!

What is the view of the other investors on this ? I prefer strategy 1 ..but would be pleased to excange ideas , point of view about strategy 2 which seems to be the one offered here in the investment deals in Romania / Slovakia....

KR

KR,

Where in the world can you get +ive cash flow these days???

For this reason I am very bearish of most of the world's property markets. The global property boom has gone on so long and resulted in investors resorting to cash flowing interest only mortgages.

This has to be a sure sign that yields have compressed so far that a correction in many markets is long overdue.

You're assuming that you actually can refinance in these markets.

I think given the choice most investors would rather make say £20 - 30K with one years capital growth on a unit and pay a bit into negative cashflow, than have next to zero growth but make a small profit on rental income.
A balance of both would be best.

Hi Tom F , Hi Doug,

Thanks for your answer but i insist:

Tom , you can still do it ! In Poland end 2005 , you could still do it quite easily and in Romania today you have to dig a bit further as the standard off plan property.
Obviously it is far more difficult to find cash flow positive invest but on the long run, when building a portofolio of 50+ Unit , it is a sound strategy where you are building on solid basis.

Doug, when you target only cash flow positive invest , you would as i say above be very unlucky if some of those invests where not producing enough capital gain to re-invest . Also when you are on the right side of the equation with cash flow positive invest, you can add as many new invest as you want.
On the other with negative cash flow , you would end up stuck after just a few...If your target is to produce a passive income for yourself , it is not going to be very efficient to carry on with negativ cash flow.

The strategy remains build one by one on solid ground instead of speculative captital gain!

Do you believe this strategy is too cautious to be succesful?
How work the other strategy of cash flow negative on the long run?

Healthy & friendly talk.
KR

Hi Chrism

I've pondered this long and hard. I agree with your theory but also don't understand where you get cashflow positive in CEE.
I have one completed PS deal and two completing early this year. I am hoping that the two that are completing will be closer to cash flow positive but only because it has been a long time since purchase (Oct 2005) so I am hoping the rental market has grown (in Krakow) - the evidence that this has happened is variable.

My approach is slow steady growth to minimise and, ideally, avoid negative cash flow - this may extend to selling properties earlier than planned to avoid -ve cashflow.

Do you mind if I ask how you locate positive cashflow positive properties in these markets? I assume you are doing this full time and are on doing on the ground research.

(I am in full time employment which is why I have relied on PS to date)

Regards

Alex Papworth

Hi Alex

I was just reviewing my portfolio at the weekend as I'm intending to finance them now. I was also updating with current exchange rates - I knew they'd changed but it was a pleasant surprise!

Anyway, I was looking at the yields and the potential mortgage costs against the rental income. I want to borrow at a level where the rent covers the motgage cost and had a very pleasant surprise in Slovakia with the Nad Luckami units which have just completed. If they let for the amount the agent says they have interest at then the yield will be 10%. The capital gain according to PS is around 50%.

In comparison, the Polish properties at Marina and Legends are struggling to achieve 5% yield yet capital gains have been about 120% and 90% according to PS.

In my experience the chance of having a cash positive investment in Poland is pretty non-existent but in Slovakia it's a possibility.

I guess this is what's called a "balanced portfolio" and I guess I am happy with the balance.

I have always intended to hold for the medium term and I think there will now be a swing with the Slovakian properties gaining more in capital terms while the Polish properties increase more slowly but the rents (hopefully) increase. The irony is that there were always question marks about the Slovakian rental market but these appear to have eased.

So I'm not sure this answers your question but if I was investing again now I'd plump for Slovakia. In fact even though I already have 5 units there I may take the plunge again soon (when I can release some cash from the others!). I have always said the fundamentals are sound and it's without a doubt the most balanced of the E European economies with a great future. And with the chance of a cash positive investment, that's good enough for me.
Huw

Hi Huw,

You're correct - the rental yields for the Slovak Republic deals are looking very good at the moment and providing positive cashflow. Another stable market that is providing very strong rentals is the neighbouring Czech Republic.

You're correct in pointing out that rental yields have not been performing as well in Poland however we are now seeing a strengthening of rental yields as more and more people are looking at renting rather than buying. This is typical in this phase of the market as capital growth eases, rentals pick up.

I know you have been a fan of the Slovak market for a long time now Huw and if you are looking for a balance of steady capital growth and rentals as Doug mentioned, then this market is definitely worth investing in at the moment.

We are doing a Czech/Slovak property week on the website this week so expect plenty of updates and news on these markets during the week

Noreen

Hi Huw,

You probably know this already but I have been told by my mortgage broker in Slovakia (and there have been posts about this on this forum) that you can only get a mortgage on a property in Slovakia up to a maximum of 1 year from when you completed on it.

I wanted to let you know just in case.

Kos

Hi Kos

I remember a thread on this before but I'm not sure this is the case. No-one I've spoken to has suggested that this is the case and I can't see any logic for it (not that that's a reason for it not to be true!). I guess I'll find out soon and will let you know.
Huw