10 Advantages of Positive Cash Flow Property
Positive cash flow property has some major advantages over negatively geared property. Here are 10 reasons positive cash flow property is awesome.
2 Properties to Financial Freedom – https://onproperty.com.au/2properties/
0:00 – Introduction
0:45 – #1: You can start making money from day 1
1:54 – #2: They can pay themselves off
2:54 – #3: They can help you when life gets hard
4:20 – #4: You don’t need capital growth in order to make money or achieve financial freedom
5:07 – #5: It can help you to finance more properties
5:55 – #6: You can get capital growth AND cash flow
6:59 – #7: Cashflow tends to improve over time
8:13 – #8: They can protect you from future interest rate rises
9:03 – #9: You can even make money in a downturn
9:54 – #10: Positive cash flow properties can give you financial freedom
Resources Related To This Article
Advanced Suburb Research – https://onproperty.com.au/suburb/
The Problems with Positive Cash Flow Properties – https://www.youtube.com/watch?v=xTdIXWi-SPw
If you’re considering whether or not you think positive cashflows, a good strategy for you, then it’s important to look at some of the advantages and disadvantages. I remember doing this back in the day when I was looking at which investment strategy too I want to take, what do I want to pursue? What are the advantages of positive cashflow? What are the advantages of negative gearing? What are the disadvantages of each, so it’s really important that you consider these and then consider how they fit into your financial goals and your investment strategy. So in this episode we’re going to look at 10 advantages of positive cashflow. Hey, I’m Ryan from on property, helping you achieve financial freedom that let’s get into it and look at the 10 advantages of positive cashflow. The first advantage is that you can start making money from day one. If you invest into negatively geared property, you’ll be losing money from day one and you need that property to go up in value in order to make money.
You also have cost to get into the property expenses like solicitor fees and mortgage fees as well as stamp judy. There’s a lot of costs to get into the property and if you want it to sell to liquidate your equity, then you’ve obviously got real estate agent fees as well, so you need that property to go up a significant amount before you make any money. However, with positive cash flow properties, because they’re making their money in rent, so the rent coming in is more than the expenses going out. You have potential to make money from day one. If your property is rented or if it’s not rented on day one, then a couple of weeks in you can turn into a positive cashflow property. This is really exciting to see yourself making money from the very outset of your property and obviously you can have potential for capital growth as well.
The second reason is that they can pay themselves off. Me and Ben Everingham, the buyer’s agent from pumped on property have taught a lot. We Bang on the drum of the two properties to financial freedom strategy. We’ve purchased two properties build to granny flats. You have for incomes coming in and then if you pay off that debt over time, eventually own those properties outright and that rental income can create financial freedom for you. One of the awesome things about positive cash flow properties is that they can pay themselves off because you’ve got extra money coming in in the form of rent, so your rent is more than your expenses. That leaves extra money left over to put on your mortgage and to pay off your property. You might start with an interest only loan so you’re not really paying off the property are you just putting little amounts into the offset, but eventually as your cashflow increases, you can switch over to a principal and interest line and then that property can affectively pay itself off, which is a really exciting idea.
The third reason is that they can help you when life gets hard. Now, I’ve recently been through some difficult stuff. If you’ve been following the channel for a while, you’ll know what that is, but expenses went up and business income dips. Now I have a bunch of assets online that generate me passive income and they actually helped me through this circumstance. I’ve got the cashflow coming in, which is keeping me afloat during this difficult time. The same is true for positive cash flow properties. If you lose your job, if you need extra money, if you fall on hard times rather than having a property that you need to pay to keep afloat, a property that’s eating you alive, you have a property that can help support you in the midst of that hard time in your life. Now maybe your property’s only $20 per week positive cashflow, but that’s $20 per week.
They you’re able to pull out of that property and able to use for your living expenses and to pay for some food that week. Or if you have a situation where you’ve bought a few properties, you’re in a much better position and you’re getting $200 or $500 per week positive cashflow than rather than using that money to pile up on your offset account, you could potentially use that money to live your life and to pay for your expenses until things improve for you. So having that there to help you when life gets hard is extremely valuable and I found that really valuable recently. The fourth reason is that you don’t actually need capital growth in order to make a profit or in order to achieve financial freedom. So a lot of the investment strategies out there, you’re required capital growth in order to make money.
Property might go up $100,000 or $200,000, which is awesome, but what happens if you purchase a property, it’s negatively geared and the market stays flat or what happens if you purchased a property is negatively geared and the market goes down. You’re not making any money. In fact, you’re losing money. One of the benefits with positive cash flow properties is that you don’t need the market to go up in order to make money, your making money through the positive cash flow on that property and as well overtime that property you can also pay itself off. The fifth reason is that it can help you finance more properties. Now, back in the heyday of Steve McKnight and his zero to a hundred and 30 properties in three point five years. This works absolutely epic for him to be able to finance so many properties because they are paying for themselves.
Now. Lending climates have changed, so you will need to speak to a mortgage broker about this. I’m not a licensed mortgage broker, so I can’t give mortgage advice, but having a property with a good rental yield can help you to jump into the next property versus a property that has an extremely low rental yield. That’s something to go into more detail with your mortgage broker about, but the fact that you have enough money coming in to pay for your mortgages is only going to help not hinder you getting future mortgages in the future. The sixth is that you can actually get capital growth and cash flow. You don’t need to settle for just one or the other. You can actually have your cake and eat it too. You can get both. Now. This requires a decent amount of research before you buy your property. You need to identify a good suburb to invest in a suburb that has good rental yield and you may need to actually generate that cashflow yourself by doing something like a renovation or by building a granny flat, but you can actually get both.
You can get cash flow so you’re getting that money every single week. Taking advantage of all of these advantages we’re talking about today, making money from day one, paying off your debt. You can get that, but then if you buy it in the right area, you can also get cashflow as well and make those big chunks of money, so that just means you need to do your research from the get go and invest in a good area which you should be doing anyway. And if you need help doing that, check out my course on advanced suburb research at on-property dot com, forward slash research. The seventh advantage is that cashflow tends to improve over time. Generally when you purchased the property, it’s going to be in the worst cashflow position it’ll be in, unless interest rates go up or unless the area goes down, vacancy rates increase, and you can’t rent your property generally when you purchased your property, you’re going to be in your cashflow position in the beginning.
But what happens overtime, if you bought in the right area, then rents tend to go up and as rents go up, your cashflow is going to improve because your mortgage is likely going to stay the same amount of interest rates don’t go up. You’re not getting more income coming in, but you don’t have as many expenses so your income is going up faster than your expenses, meaning the difference between your income and your expenses grows, making your cashflow better. So you might start with just five or $10 per week, positive cashflow. But as that rent goes up, $10, $20, you’ve moved from five to $10 into 20 to $30 positive cash flow per week, and then overtime as rents continue to go up, you get in a better and better cashflow position and then as you pay off your debt, and especially when your debt is completely paid off, then your cashflow position drastically improves.
The eighth benefit or positive cash flow properties is that they can actually protect you from future interest rate rises. As you may know, interest rates are pretty low at the moment, but a lot of investors are in a situation. If interest rates go up half a percent, one percent or two percent, that would severely affect their cashflow position and they would no longer be able to afford their properties and they will be forced to sell. If you’re in a positive cashflow situation, however you can survive, a few interest rate rises before cashflow gets tight. Obviously, the better your cashflow position, the more interest rate rises. You can survive. You won’t be making as much money in terms of positive cashflow, but continue to be able to pay your mortgage, continue to own that property, continued to hold it, and you won’t be forced to sell.
The ninth reason, and we’re getting towards the end now, is that you can even make money in a downturn. If you’re negatively geared, required to make money solely of capital growth, then you can only make money as the markets going up. However, if you’re a positive cashflow and you’re making money from the rental income of that property, even if the market goes down for a time, which it does from time to time, we see markets go up. We see markets go down. If you’ve purchased and then the market goes down, you’re still making money anyway. Ideally you want that property increase in value and you do that by buying in the right area at the right time of the market, but if for some reason the market’s going down, you can still make money. You can weather that storm. You can make money in the downturn and then hopefully over time that will stabilize and then go back up and the 10th reason, the last reason and my absolute favorite reason as one of the advantages of positive cashflow property is that it can give you financial freedom.
I am all about financial freedom. I achieve financial freedom at age of 28 through passive income from my online businesses. I’m back at work now. That only lasted for a short period of time, but that’s what I love about positive cash flow properties is they can deliver you that longterm financial freedom if you purchase enough properties or if you purchase a few and then go ahead and pay off the debt on those properties so the majority of the income gets to go into your bank account. You can achieve financial freedom and even if you don’t have huge amounts of equity, even if you don’t have millions of dollars in the bank, you have these properties where the rents coming in that’s funding your lifestyle. You have achieved financial freedom. You can then choose to quit your job if you want. You can then go and live the life that you want. You can pursue things that you love and it doesn’t stop there either. Just because you’ve achieved financial freedom doesn’t mean you can’t continue to build your wealth, so that’s a 10th advantage of positive cash flow properties is it’s just a very clear way to financial freedom and to you being able to live the life that you want, so they have 10 major advantages or positive cashflow properties. I hope that this helps you to consider which investment strategies going to be best for you. Thanks so much for watching and until next time, stay positive.