Cash positive property is raved about as a great investment strategy, but does it still exist and are you able to invest in these types of properties? If your goal is financial freedom then investing in property that generates a positive cash flow may just be your ticket out of the rat race.
Cash positive property, also know as ‘positive cash flow property’ or ‘positively geared property’, is property that generates you more in income than you pay in expenses, thus you have extra money left over at the end of each month. This extra money can be used to pay off the mortgage, re-invest or to eventually completely fund your lifestyle so that you don’t HAVE to work.
Should I Invest In Cash Positive Property?
As I am not a financial adviser I cannot legally say whether you should invest in positive cash flow property or not. Every situation is different and needs to be treated differently. A doctor earning over $1,000,000/year may need a different strategy to a janitor earning $33,000/year. Your situation is unique and thus you need to look at it and decide for yourself if you think it is a good decision.
However, I can offer you information on some of the positives and negatives of investing in positive cash flow property:
Gives you cash flow to fund your lifestyle –This is the best thing about positive cash flow property. It can generate you income to fund your lifestyle. Because rent is paid weekly-monthly and mortgage repayments are weekly-monthly, you are will be getting cash flow coming to you on (at least) a monthly basis, just like you would in your job. You can use this monthly income to supplement your job or to quit your job all together.
Easier to service the loan (or multiple loans) – Because the rent pays for all your expenses (including your mortgage) it makes it much easier to service your loans. If you negatively gear you might have to come up with hundreds (or thousands) of dollars every month to pay your mortgage, with positive cash flow you rarely have to come up with any money because it pays for itself. It is like someone BUYING a house FOR YOU!
Income generally increases over time – Do you think petrol is ever going to become less than $1.00/L again? NO! Petrol isn’t getting any cheaper, the price only goes up. Now let me ask you this…do you think rents in Australia (as a whole) are going to go down over the next 20 years? I bet you answered a strong NO! This is because inflation makes money less valuable and thus prices (including rent) increases. However, your mortgage payment stays relatively the same. This means that as rent goes up (and your mortgage doesn’t) you put more money into your pocket each month the longer you hold your property.
Not as reliant on market fluctuations (thus more steady) – If you negatively gear you rely on the price of your property increasing for you to make any money. This relies heavily on the market. In a good market you make a killing, in a bad market you can lose everything. If you have a cash positive property then you are making money each month from the rent so even if the price of your property decreases in value you are still making money!
Can be extremely hard to find – When you go out looking for property that generates a positive cash flow it can be like finding a needle in a haystack. You need to know where to look, what to look for and how to find it. It took me years and countless hours of trawling the web before I acquired the skill to find these properties quickly and easily. I will cover this topic in this post (just scroll down) but if you want more detailed information on how to find positive cash flow property I suggest you join my mailing list by going to the sign up page. There you will get a free eBook on how to find positive cash flow property all over Australia.
Need to do all the figures before investing – A lot of people look at a property and think that because the rent is more than the mortgage it will be positively cash flowed. EEEEENT WRONG! You need to factor in ALL your expenses. That includes maintenance, council fees, taxes, vacancies, agent commissions and the list goes on. For more help with your property calculations try out Investment Property Calculators.
One problem can turn positive into negative fairly quickly – Structural problems, pest problems, vacancies, damage and other problems can all turn a positive cash flow into a negative cash flow very quickly. Having landlords insurance is a big way to avoid this, but you it would be wise to make sure that you can afford your property even if you have a worst case scenario.
So overall is it a good investment?
Again I must say that I can’t give financial advice, but take a look at the positive and negatives above. The positives are great and can help you buy and service a lot of properties that can make you very rich. Most of negatives are trivial or can be avoided with the proper preparation and planning.
Do Cash Positive Properties Still Exist?
This is a very good question to ask. Because these properties are so hard to find, and because most websites and magazines out there earn an income from advertisers who recommend negative gearing, you will often hear people say that they don’t exist any more. That positive cash flow properties are something of the past and that you missed your opportunity to invest in them.
They still exists and they exist all over Australia, and even if they didn’t exist they can easily be created. You have NOT missed your opportunity to invest in positive geared property, in fact you have come in at the perfect time. Because NOW is the perfect time to start looking at investing in positive cash flow property! Not tomorrow, not sunday, not next year but NOW.
The short answer to the above question is YES cash positive properties do exist. But then that bids the next question:
Why Are They So Hard To Find?
If positive cash flow properties exist all over Australia then how come they are so hard to find? How come I can’t just go on realestate.com.au and click “Search Positive Cash Flow Properties“?
It is extremely easy to find investments that will lose you money, but it is much harder to find investments that will make you money. There are a lot of factors at play here, too many to cover in a short section of this article. Some I can quickly list is the fact that many people are buying a home, not an investment and that can inflate prices. Negative gearing and the tax deductions the government offers can also affect prices. Basically in most areas it is cheaper to rent than it is to buy, thus you can’t get enough rent to turn a property into positive cash flow property.
Remember the gold rush? Of course you don’t! None of us were around during the gold rush. However, the gold rush happened because a few people found gold that was easy to obtain. Then people, wanting a get-rich-quick ticket decided to go and get this easy to find gold. The more people that came, the harder the gold became to find, until you couldn’t find any. Now we leave the gold finding up to the mining companies.
The same can be true for investing in property. If positive cash flow property was extremely easy to find then a lot of people would be wanting to buy these positive cash flow properties. This would inflate the prices of the properties and, because rents won’t automatically increase, this lowers the rental yield and thus the property becomes negatively geared. If it was cheaper to buy than to rent, then most people would buy…thus increasing house prices and making it more expensive to buy than rent.
Basically what I am saying is that the market feeds on itself. The more positive cash flow properties that are available the more buyers you would have and the properties would quickly become negatively cash flowed.
Stop Focusing On The Why And Focus On The How
You can spend your days complaining that it is extremely difficult to find cash positive property in Australia and you can spend your time thinking and worrying about WHY they don’t exist in abundance, or you can focus on the HOW. By that I mean that you can focus on the HOW you can find them, not the WHY they are hard to find.
How You Can Find Positively Geared Properties All Over Australia?
Start looking – That is the short answer.
In all truth it is not a simple exercise and just like it takes practice to ride a bike it takes practice to be able to find and quickly analyse positive cash flow properties. I want to expand on my short answer and give you a few tips on how you can start looking (and start finding) cash positive properties all over Australia.
Know what a cash positive property looks like
First thing is first, how can you find any cash positive properties if you don’t know what you are looking for. A property that will generate you income (not cost you your income) must have more rent than you pay in expenses. There can be quite a few expenses to owning property, so I suggest you take them all into account before deciding whether a property is positive or negatively geared. You can use our property calculators to help you with this.
I also suggest you read other posts on this blog and read books (check out my Top 10 Positive Cash Flow Books Reviewed post). Reading books will give you a good bearing on what positive cash flow properties look like and how you can create your own investment strategy that works for you.
Having a specific investment strategy means that you can quickly and easily decide whether a property is right for you. If it fits in your investment parameters, then it is a good property for you, if it doesn’t you can forget about it. I will write a post on how you can set your investment parameters in the future.
Know where they are likely to exist
Yes positive cash flow properties exist all over Australia but there are a few areas where they are more likely to occur, or more frequently occur. Learn where these areas are and focus your time searching in those areas.
I have already written a post on this, and thus I won’t cover it in this article. Read my post: 10 Places You Can Find Positive Geared Property
Know how they can be created
Cash positive properties don’t have to exist when you buy them. You can create them. Using a little imagination and a little hard work you can turn almost any property into a positive cash flow machine.
Below are a few ways you can create positive cash flow property:
Renovate and Increase Rents – You can renovate a property so that you can increase rents and thus generate an income that way
Subdivide and Sell – If you buy a property on a good sized block of land you may be able to subdivide the land, sell it off and then put the money onto your mortgage. You will then have less interest repayments and may be able to turn a positive cash flow.
Dual Occupancy – You may be able to turn one house into two flats, or you could rent out a granny flat or a car space. By having two or more occupants paying rent in your property you could generate more income than just having one occupant.
Seller Finance – You can turn any property anywhere into a positive cash flow investment if you can sell it using seller finance. Seller finance is where, instead of selling your home for cash, you sell your home by providing a loan for your buyer. The buyer then pays you, just like they would pay the bank. You can make money because you can charge more than the bank charges (in interest rates) and you can often sell your home for above market value. I wrote an entire post on seller finance. Read the post: How To Create A Positive Cash Flow By Using Owner Finance
Increase Rents – Often, if you purchase a house that has had a tenant for a long period of time that tenant may be paying less than market value for that property. By increasing the rents to market value you can increase your cash flow. Also, rents tend to increase over time so as the market rate increases continue to increase your rent. Also, there are a few things you can do to increase rent such as providing an internal laundry with washing machine and dryer, dishwasher, air conditioning and minor renovations.
How Can I Get Started Investing?
Now that you know positive cash flow properties not only exist, but that they can also be created I bet you want to know how you can start investing. There are a few things you will need to do before you start investing.
Save a deposit – Start saving your deposit. Most banks require a 3% proven savings before they will lend you any money, that is even when you have the first home owners grant. Start saving today.
Get your finance pre-approved – Go to the bank and get your finance pre-approved. Find out how much you will be able to borrow and be ready, so when that perfect opportunity pops up you can jump on it.
Read a book – I can’t stress enough how important education is. The best return on investment you will ever get is to invest in your education. Read a book on positive cash flow property or take a course. Check out my list of Top 10 Positive Cash Flow Books Reviewed. If you absolutely cannot read books then just browse the posts on this blog or join my email newsletter
Start looking – Start trawling the web looking for positive cash flow properties. Go onto realestate.com.au and domain.com.au and see what you can find. Look for unique properties that could provide two rental incomes, or properties that have a high rental yield.
Start making offers – Even if your not ready to buy just yet it can often be a great idea to start making offers. If you are too scared to talk to real estate agents then send them an email. I used to email agents to make creative offers to see what I could get away with. often I could get the property I wanted on substantially better terms than your standard contract.
Do the figures on a variety of properties – Don’t just search for properties but do the figures for the property. Find out what rent you would need to achieve (or what price you would need to pay) to make it positive cash flowed. Factor in all the expenses and see if it will make you money or cost you money. Practice makes perfect and analysing as many deals as you can will help you to know a great investment when you see one. Use our property calculators to help you analyse deals.
Create your investment plan –There are one thousand and one ways to invest in property. Create a plan that suits you and look for properties that fit in with your plan. It is so much easier to analyse a deal if you have an investment plan. That way if the property fits within your plan then you move to stage 2 and look at it more thoroughly or if it doesn’t fit in with your plan you move on. An example of a plan: Purchase 10 positive cash flow properties in 10 years. First 3 properties under $200,000, next 3 properties under $400,000 and the remainder under $1,000,000.
Think about your exit strategy – This could be a full blown post in an of itself (that gives me an idea for later) but it is important to have an exit strategy. If you buy an investment property you should know in advance when you want to exit and how you want to exit. It may be by selling it, it may be by selling using owner finance. Create an exit strategy so if things go bad (and even if things go well) you have a plan to get out.