How To Get Positive Cash Flow AND Capital Growth
ARVE Error: Mode: lazyload not available (ARVE Pro not active?), switching to normal mode
When investing in property you don’t have to settle for one or the other. You can get positive cash flow AND capital growth and in this episode we want to talk about how.
0:00 – Introduction
0:36 – Why do you need both now as an investor?
1:40 – Positive cashflow minimises your risk
2:32 – These types of properties are out there, but they are more difficult to find
3:22 – Step #1: Pick your market for rental yield and growth cycle
7:31 – Step #2: You need a strategy that supports capital growth and cash flow
9:55 – Real stories of how a lack of strategy can hold you back from success
12:17 – You can get a free property strategy session – https://onproperty.com.au/session/
12:48 – Step #3: Choose the best suburb with an area
16:10 – Step #4: Choose the best properties within a suburb
17:45 – Step #5: Manufacture positive cash flow in your property
18:51 – A real granny flat example
19:53 – Aren’t granny flats hard to rent out?
22:36 – You need to research council areas and if it is legal to build granny flats
23:46 – Part of being an investor in 2019-2025 is letting go of old approaches that no longer work
25:05 – A strategy that gives you a clear path to financial freedom
26:50 – Get clear on what strategy you need to achieve your investment goals – https://onproperty.com.au/session/
2 Properties to Financial Freedom – https://www.youtube.com/watch?v=Pj8gLiDEz8Y
How To Find The Best Properties in a Suburb – https://www.youtube.com/watch?v=8-ravckzxfs
When it comes to investing in properties. So many people talk about either investing for capital growth or investing for positive cashflow. But here we believe that you should be investing for both, that you can get capital growth and you can get positive cashflow. So today I have with me Ben Everingham buyer’s agent from pumped on property. How’s it going, Ben?
Awesome mate. How you doing?
Very good. And today we’re going to talk about how you can get both, because Ben has got both capital growth and cash flow in his own portfolio as well as helps to buy properties with both cash flow and capital growth for his clients. So do you want to talk Ben, a little bit about why the Games change, why you want to get both and why it’s just not one or the other anymore?
Yeah, thank you. Um, the model that I grew up as an investor who started 11 years ago was very much by a large number of properties. How could they increase in value and work your ass off until you get to where you want to be? And I really thought that that was the model, which is why I’ve sort of, you know, in the early days followed that. But in recent years I realized that there were people buying in Sydney, you know, 10 years ago when it was still affordable who were adding granny flats or secondary dwellings and getting great cash flow, but then also getting that incredible rise in values. And I sort of thought, well if people in Sydney and doing that, why aren’t people in other parts of the country like Brisbane, south east Queensland for example, thinking about the same type of strategy. And then over the last five years you and I have sort of realize that we can get that longterm capital growth by being in that quality market, but also get exceptional returns of five to 7% from a cashflow perspective too.
Yeah. And one of the reasons that I’ve always been so passionate about positive cashflow is that it minimizes your risk because you’re making money from day one and also minimizes risks if things happen in your life. Like if you lose your job or something like that, if you’re a negatively geared and you lose your job, you can’t afford to own your property anymore. And so you’re forced to sell it. Whereas if it’s positive cashflow, you’re not. And as well, positive cashflow provides such a clear path to financial freedom, which I know so many people are all about. But yeah, in the past it was very much Steve McKnight, zero to 130 properties in 3.5 a lot of properties in regional centers and things like that, which can fluctuate more in pricing. And so to be able to get like longterm growth and stability by investing in a metro market, but then being able to manufacture cashflow so you can get both is super key. So in this video we’re going to be talking about some of the things that you need to do if you want to get both and they are out there, but they’re more difficult to find, wouldn’t you say?
Yeah, they aren’t. You don’t just going to walk into the Sydney market or your Brisbane market and see something like that on real estate.com you know, generally you have to have a bit more of an open mind and actually create that product you sell foremost.
Yeah. So we’re going to go through a bunch of steps you can follow to ensure that you get both. But I guess what we want to say from the outset is as Ben said, you can’t just walk into a market, pick any property off of the state.com dot. A U and this is going to happen. This needs to be something that you diligently seek out in the market and that you need to find and it needs to have specific criteria that suits your needs and as in line with the current market as well. So the first thing that we believe you need to do is to actually pick your market. So picking a market for both rental yields as well as for timing and the cycle is super important. So rental yields for our cash flow, timing of the market for our capital growth. Do you want to talk a bit about market cycles and things like that then?
Yes. So obviously Australia isn’t just one big map kip plays, which is sort of the way that the media is lumped it at the moment. It’s kind of like Australian property is having issues. The reality is that, you know, Perth is very different than Sydney. Melbourne is very different than Brisbane and all of these different areas work in different cycles. So what we generally find is that prices in Sydney and Melbourne, we’ll go through a very strong run and then obviously after a strong run they either level out for a while or go backwards a little bit before they kick again. Um, and then prices get too expensive in those capital cities. And once every sort of 10 to 15 years, people start exiting those cities, likewise saying now, and they start moving to areas around those cities or further north or further west to actually find a lifestyle for their family that they can actually set themselves up for in the future. So that’s been happening in Australia now for the last 60 to a hundred years. What’s happening right now is completely normal. It’s just um, you know, people forget about that history sometimes.
Yup. And also it’s very important to look at markets for rental yields as well. So achieving a positive cashflow, you need a specific rental yield on a property. And we’re going to talk about manufacturing cashflow as well and adding cashflow to a property. But something like the Sydney market, which at the moment has a very low rental yield. You’re saying properties that are renting million dollar properties running for $500 per week, which is like what, two and a half to 3% rent to too. It’s really hard. Yeah. So it’s going to be very difficult if not impossible to achieve a positive cash flow in that sort of market with a 10 to 20% deposit unless you’re putting 50% down or something ridiculous. So your loans really small, it’s going to be very difficult to get a positive cashflow in those markets. So you do need to consider the rental, you’d have a market as well as the suburbs that you’re going into.
And then the timing of the market as well as we record this in 2019 Sydney has gone through a run, peaked in 2017 and has since been going backwards and is now priced where it was two and a half years ago. So getting capital growth and as you’ll see as we talk through this video so much you capital growth is about picking your market, picking your suburb within that market, and then also picking the right property within that suburb as well. So starting with the market that hasn’t gone through excessive growth that isn’t on its way down or has it completely Pete, but that’s still has room for growth and that is set to grow into the future is going to be so key to get that capital growth.
And that’s why I love looking at history because you know there’s great reports in terms of identifying where things are at right now. You can look at the core logic videos on youtube, you can look at the Herron Todd white report, then month in review report just by googling it for free and find out where things are now. But what I’ve done and you’ve done is gone. It’s step further and looked at or how have things performed in the last 10 2050 years. And what you and I found is that those metro markets like you, Sydney’s and Melbourne’s your Brisbane’s, your purse actually perform much, much stronger than the other regional marketplaces in Australia. So I always believe a low risk investors should be looking for those quality markets. And you know, you’re effectively bouncing between your Brisbane’s in person, you Sydney’s and Melbourne’s based on the timing of the current cycle and where represents the best value. Because I think call logics February report in 2019 stated that Brisbane is now more affordable to buy or cheaper to buy than it was in 2008 when you actually factor in inflation, like as an investor who’s looking to buy as close to the bottom as I can. But once that longterm potential that is, you know, something that I like to hear.
Yeah, definitely. So after you’ve picked your market, which you can do through doing research into the current market, you can look at Herron, Todd white month in review report as well. But after you picked your market, before you start looking at your suburbs and before you start looking at your properties, you really want to have a strategy that is going to support both capital growth and cashflow. So Ben, I know that you guys offer free strategy sessions. You’re working with clients every single week in order to help them create a strategy that’s going to work for them long term. Do you want to talk about bit about what sort of strategy people need to have and why strategy is so important?
Yeah, so I think so many investors, particularly in the current market or the last five years have either bought something and made really, really good short term gains in your Sydney and Melbourne or have sat on the fence and not really done something for that period of time. And in both instances I’d find that 90% of the people we speak to don’t have a clear plan, which means they spend a lot of time being overloaded with information and freaking out about the current market as opposed to, you know, putting on nipping that in the bud and just having a clear plan in place and focusing their energy on execution over the longterm as opposed to constantly going around in circles. So identifying where you are right now and where you want to be and then what type of strategy or property strategy is going to allow you to do. That has given me massive piece of mind and confidence that I’m consistently heading in the right direction.
And because when you’re looking for these properties that have both, you do really need to narrow your focus and look for something very specific. So if you don’t have a strategy and you’re just looking at every property on the market with no clear objective in mind, it’s very hard to decide, okay, what’s better property a property B or property? See. Whereas if you have a clear strategy of what you’re trying to achieve, what sort of properties going to get you from point a to point B all the way through to financial freedom or whatever your goals are. Then when you’re looking at a market, you can look at properties a, B, and c and you can say, well, property a may be a great investment but it’s not in line with what I want to do and it’s going to be negatively geared and that’s not what I want.
So you can just discard it and spend your time focusing on properties that do have a higher chance of meeting your financial goals. And so you’re not wasting time going to open for inspections for properties that aren’t going to move you towards your goal. And I remember as a kid, my parents bought an investment property just locally around near where we lived. But again, there was no ultimate strategy to that. No strategy for how they were going to achieve financial freedom. And so they kind of went back and forth as to whether they should keep it or sell it ended up selling it. And having a loss on their investment and they just didn’t have a clear strategy of why they bought it, where it was going to get them to and when to sell it. I had a condom
session this morning, um, with an investor from Sydney now heroin, her husband run out successful photographic business down there, baby photos which had been running for the last eight years and they young good income and she had actually recently purchased a brand new piece of land and with building a home in, in Sydney. Unfortunately she bought it at the very end of 2016 she paid quite a bit of money for it, like in the mid 800 thousands and the property is basically just being handed over now. Um, but the vacancy rates in that part of Sydney have now gone up. She reckons she’s only going to get $500 a week in rent from that $850,000 spend. She’s got to now go to work to own that property outright and pay off 850 grand debt to get $30,000 a year worth of income. Where if she had had a plan in place, this would never have happened. She would have, you know, put $500,000 into an investment that gets so more like 650 to 700 bucks a week in rent and had a completely different position if she’d used, as you said before, timing and strategy as well as cashflow is part of the plan.
Yeah, and I was even talking to an investor today via email who was in a very good position, had purchased a bunch of properties in Sydney, but before the market grew, so in quite a good equity position, but had a lot of debt as well and just felt like even though they had this large amount of equity in their portfolio, that they felt like their property portfolio was holding them back and that it was tying them to their job because they had to keep paying to keep this property portfolio of float. And they had no clear strategy in mind of okay, how am I going to exit? How am I going to achieve financial freedom so I don’t need to work anymore? And so having a clear strategy can stop you from making the bad mistakes. But even with a successful investor, it can help you actually get towards your financial goals faster.
If you feel like you need some one on one help getting clear on your strategy. If you’re looking to invest in the near future but you’re not sure how to go about it or what’s going to get you from point a to point B towards financial freedom, then Ben and the team over at pumped on property are offering free strategy session. So go to on-property dot com dot a u and you can read about those free sessions over there and book a time that suits you if you want to get that one on one help getting a property investment strategy for you. So after we create our strategy, the next thing we want to do is choose the best suburbs in an area. We’ve done so many videos on this in the past, but do you want to talk about Ben, How some of the criteria you look at for choosing the best suburb within an area?
Yeah. So just like I mentioned, Australia’s not one property markets is a series of markets. Obviously a place like Sydney isn’t actually one city. It’s a series of markets. Now we know that the eastern beaches, southern beaches in northern beaches in Sydney is the most premium pocket, just like the northern suburbs of Brisbane and the eastern beaches of Brisbane or the most premium pocket. So it’s important to not just go straight to the suburb level, but to actually invest in an area where incomes are increasing, infrastructure’s going in great school districts or their transportation routes are there and jobs are there in the future
starting. We start with our market. So say we choosing the Brisbane Metro area, we then when to kind of divide that into the subsections of maybe South Brisbane, North Brisbane, he store center, and then West Brisbane, and then kind of look at those pockets, determine where we think the best chances are, and then narrow down to a suburb level.
Exactly. And then once we’ve reduced it to say North Brisbane or East Brisbane, we then want to start looking at these suburbs. So what are the demographics? Look like, what are the average incomes, what are the percentage of renters versus owner occupies? What are the demand to supply ratio scores or Dsr score’s, what are the average prices? Can I legally build granny flats in those areas as well? Um, and all of those types of things that I think, you know, based on our checklist that we’ve talked about in other videos, then might be, you know, 20 things at the suburb level and then you know, and a lot more from that moving forward.
Yeah. So the key when doing suburb research is to have criteria that you’re checking against. As Ben mentioned, income levels, percentage of owner occupiers, percentage of housing commission can be another one, vacancy rates in an area, all of this sort of stuff. But then the key went doing summer research is you’re not just looking at one suburb doing the numbers and saying, okay, this is the score. You’re actually doing it for multiple suburbs. And it’s when you get that suburb comparison to each other, that’s when you really start to see the gems in a suburb where once I’ve, I’ve just looked so much better than another suburb and so much lower risk and a better chance of return just by looking at those figures. So just analyzing one suburbs, not going to quite get you there, but by comparing suburbs to each other, that’s where you’re going to really work it out in your own mind, which suburb best suits you.
Yeah. And once you’ve got the suburb nailed, then I like to start to overlay position within the suburbs. So I just print out the map on Google and then I go to real estate.com and I’m at all of the three and four bedroom houses. Buy Cheapest, you know, middle and most expensive. And I start to get an idea of what the suburb makeup really years, where the wealthy people live. And I really want to be focusing on the middle to premium pockets of the suburb because as we’ve seen in Sydney and Melbourne, as prices increase, they don’t always increase in the exact same way across the suburb, like nine roads or places on the train lines or places directly opposite schools for example, don’t perform as well as housing. Nice quiet streets around other premium houses.
Yeah. So that comes down to the next step, which is choosing the best properties within a suburb. So choosing very high quality properties, properties with owner occupier appeal as well. Because obviously the bulk of the Australian market are people who are buying their own home. So when we’re investing we want to keep that in mind. And as Ben was saying, avoiding those less premium areas of a suburb where it might be on a train line or it might be adjacent to power lines be overhead power lines, sort of things like that that you may want to avoid in a suburb.
Yeah. And I think just, you know, putting the owner occupied cap on again or you know, if you had a family in the future where you would want to live is important at that stage because it is about ticking all the boxes from a numbers perspective, but it’s also about getting a sense or a feel for the suburb or what it could look like in 15 years time, which obviously helps you make a much better investment decision today.
Yeah, and so all of this stuff that we’ve talked about, picking your market, picking the region, picking your suburb, picking the best property within a suburb. These are key ingredients in order to get in capital growth in a property. And so what you should be doing is doing this, even if you’re just going to negatively gear and you don’t want cashflow anyway, you should be doing all of this stuff anyway to try and choose the property that has the best chance for success and also the lowest risk as well. So we’re doing all these things to ensure that we’re purchasing a property in a market that’s going to go up. That property is going to be in demand and go up in value as well. And that’s going to help us get capital growth. And then when we want to do on top of that is we want to manufacturer cashflow and we can also manufacture some equity and some growth in the process as well. So do you want to talk about this granny flat strategy that you’re implementing with clients at the moment, Ben, as a way to manufacture positive cash flow on a property?
Yeah, so as you said, there’s, you know, 50% of the people that you and I work with, they just want that really high quality singling Tom Property and the way to increase the rental return on that is the renovated or add a bedroom or a bathroom. But if you’re interested in going, you know, from that three and a half to 5% rent return to more like a six to 7% return, then we’ve got to do something else. And the way that works is going out and buying a really well located house with a nice big piece of land and then actually constructing a one or a two bedroom granny flat at the back of the property so that you can actually rent out the front house and the back house or granny flat, two completely separate tenants and therefore dramatically increase your income on the property.
Yeah. And so what sort of figures are you looking at at the moment in terms of how much are people spending to build a granny flat and then what sort of the rental return on those?
Yeah, so we helped a client from Melbourne recently by a nice big 600 square meter block with a three bedroom home for $420,000 not in Melbourne,
no, right there from Melbourne. But you didn’t buy this.
Oh sorry. We bought it in north prespen. Yeah, nice and close to the city, close to the university on the train line. Great suburb that takes the capital growth box and that $420,000 house now renting for $390 a week. We’re now helping them build a granny flat, which will cost about $120,000, which we expect based on other clients experiences should run out for somewhere between two 70 and 300 bucks a week depending on how they do it. So you know, for 20 plus one 20 is five $40,000 total spend. And for that they’re getting sorta sit 60 to six $90 a week in rent, which is a really strong return bank close to the city like that.
And something that I know a lot of people ask is like on granny flats, hard to rent out. Isn’t that a difficult thing to do? They don’t want to spend 120 grand building a granny flat and then they can’t rent out the granny flat and they can’t rent out the front house because it’s now a granny flat in the backyard.
Um, so the way that we do it isn’t, you know, just putting a granny flat in the backyard. Obviously there’s completely separate entries and exits. There’s fencing to separate the yard spaces. So think about it more like two separate houses. On one block. I actually just completed one of mine in North Brisbane. I got 26 groups of people through the property and the first weekend and I got six offers for $310 a week. So I was really happy with that. Um, you know when you’re actually looking at the suburbs statistically we should be looking at suburbs with a vacancy rate below 2%, which is a chronically under supplied suburb if no brand new product coming on.
Yeah. So I think people should know that granny flats aren’t hard to rent out. That having an affordable dwelling, that’s basically a mini kind of like a mini two bedroom house generally has its own deck or its own yard space as well. Private and fenced in and the house itself as well because you created a fencing. It has a smaller yard than it used to. Yes. But it has its own private entrance. It’s own private yard and everything as well. So have, have you ever had issues renting out? Our granny flat
a phone. I’ve had a number of granny flats now. Like I’ve got, um, I’ve had three houses with granny flats actually fall and I’m just about to do a fit. Um, I’ve actually always been able to rent the granny flat out before I’ve been able to rent the house out. I think in five years of using this strategy, I’ve probably had one weekend vacancy across all of the properties. Like because they’re self fordable and there’s no brand new affordable accommodation in Brisbane like that. They just get snapped up literally that quickly. And you know this, the example that I talked about for $400,000 is sort of within that 20 to 24 case of the city radius. But the other options for those people that are chasing that more blue chip premium area where you know for 500 to 550,000 you can be buying within 10 k’s of Brisbane right now in a really premium area and getting about four 50 a week rent return on that and then using the same granny flats strategy to get about another $300 per week in rent. So not everybody obviously wants to be that far from the CBD because of capital growth or that far off from the beach. So you can actually spend a little bit more and get a lot closer at walking distance to the beach or CBD in Brisbane by spending an extra 50 to a hundred k.
Yeah, and so I guess the key thing to highlight at this point in time is that if you are going for capital growth and cash flow, and if you want to do it through the granny flat method and not just through renovating a property, then you do need to do research before you purchase a property into the council areas and whether or not you can build a granny flat on it because there are some areas in Brisbane, is this correct? Then where are you currently can’t build a granny flat and there’s other areas where you can,
yeah, so there’s seven councils in south east Queensland and four of them, you can legally do granny flats and three of them, you can’t, one of them being Brisbane city council. So just be aware of this thing. In that particular instance.
So do your research before that. And that comes down to, I guess when you’re looking at the suburbs, not only are you looking at the best of for capital growth, but this comes back to having that strategy again, knowing your strategy and then choosing the area of the city or the area of the metro market based on your strategy. So if you didn’t have your strategy, you might invest in the wrong suburb where you can’t implement this and then you know, you start, you can’t legally do it. Whereas if you do have a strategy, you identify this early, you just cancel out those suburbs and new focus on all the other ones and find best ones there.
Yeah, absolutely. You know, part of being an investor in 2019 to 2025 is letting go of some of the things that we’ve learnt in the past that I think a really bad behaviors because the market no longer performs in the way that it did 10 years ago. And all of those people that are wealthy, like parents and grandparents or people that have been in the game for 30 years have a completely different approach that is no longer going to serve people with jobs, not increasing the way that they used to in terms of incomes. We, you know, global economic in events that affect the entire world coming a little bit more frequently with such a connected world, we need a strategy where regardless of your current annual salary or job or having that or losing that you don’t offload these properties at the wrong time so that you’ve got that security and you’ve lowered your risk to be objects. Carry these properties forward into the future so that you can own them outright and live off the cash flow, but also get those bright, you know, consistent longterm gains, which aren’t going to be a state as the ones we’ve seen in the past. Then that’s why it can be really difficult to be holding $1 million property with 500 bucks a week in rent because that’s costing you $30,000 a year to hold. Where, why not put some passive income into your pocket while you get that growth as well.
It’s really great that you said that, Ben, because we don’t want people finding themselves in hard financial positions and being forced to sell at the wrong time of the market. And we didn’t want people to have that clear trajectory towards either financial freedom or whatever their goals may be. And so we talk a lot in the two properties to financial freedom strategy about buying foundational properties that have this solid cash flow. And then once we’ve purchased them focusing on pain those properties off and once paid off, then you can live off the rental income. So it’s just a very clear strategy towards financial freedom. So if you guys haven’t checked it out, if you don’t know about the two property to financial freedom strategy, go to on-property dot [inaudible] Ford Sash six 55 which is a quick explainer video over there on exactly how this strategy works. And you can see for yourself whether or not this is something that you want to do. But yeah, we’re all about the low risk and lowering our is about getting capital growth, manufacturing growth ourselves and creating that cashflow as well.
Yeah, no, I completely agree with you. It’s sort of like you said off camera, like why wouldn’t you get capital growth plus time, the right market plus gate great cashflow and reduce your risk at the same time. Like why wouldn’t you take advantage of sentiment and you know by when not everyone else is buying rather than buying at the top and then losing some value after that.
Yup. And that just comes down to knowing exactly what your strategy is and then taking the time and having the diligence to do your market research, do your suburb research by the right property, et cetera. So first gay your strategy in order. Then make sure you do your research, you buying the right property, and then you can implement the right investment strategy to achieve your financial goals. If you need help getting clear on your strategy and how to get from where you are now to where you want to be and how to build a high quality property portfolio that achieves boats, capital growth, and cash flow. Then Ben and the team over at pumped on property, as I mentioned earlier, are offering free strategy session so you can get on the phone to them, talk about your situation and get clear on what you need to do and what your next steps are. So head over to [inaudible] dot com dot. Aui to learn more about that and to book in a time that suits you. Thanks so much for watching today. We wish you the absolute best in your property investment journey and until next time, stay positive.