Can You Get Positive Cash Flow And Capital Gains (Ep251)
There are some major benefits to positive cash flow property but the majority of Australian investors are mainly focused on capital gains.
But can you actually get capital gains and positive cash flow as well?
Well the answer is yes. And in today’s episode I am going to talk about some things that you can do to increase your chances of finding a positive cash flow property that also has capital gains potential.
Benefits of Positive Cash Flow
First let’s look at the major benefits of investing in positive cash flow.
When most people invest in property for capital gains purposes they are investing in negatively geared properties. Negatively geared properties are properties that cost you money every single month in order to own them.
This strips you of your cash flow which ties you to your job and it makes it harder to grow your portfolio because the more negatively geared properties you purchase, the more cash flow you need to have to pay for those expenses. Then you eventually get to a point where you can’t buy any more properties because you can’t afford to service the loans.
With positive cash flow however the property generates more income than you have in expenses which means it gives you of surplus a cash flow. Therefore all the expenses of the property are paid including the mortgage
But then you also get this passive income coming off the top which you can use to pay down debts, to reinvest or for your lifestyle. Positive cash flow therefore has some major benefits to it. Mainly that spinning off of income.
This can be very beneficial especially if the market is stagnant or if it’s going downwards because you can still generate a profit even if your property isn’t growing in value. However if you invest in a negatively geared property then you need that to grow in value in order for you to make money.
So can you have your cake and eat it too? Can you get positive cash flow and capital gains? Yes you can actually access both.
It is harder to get positive cash flow and capital gains combined than it is to find positive cash flow in the stagnant area or to find capita growth in a negatively geared area. But it is possible if you are willing to do the work.
Here are five tips that I have for you.
#1: Find Positive Cash Flow Properties
The first tip would be to actually find lots of positive cash flow properties.
One of the issues that people have when trying to find and get a property that has positive cash flow and capital gains is they don’t actually know how to find positive cash flow properties. Therefore they are extremely limited in the potential properties they can invest in to get that growth.
That’s the number one thing that holds people back from achieving both positive cash flow and capital gains is actually being able to find positive cash flow properties.
So step number one is to find lots of positive cash flow properties all over Australia. If you need help in finding positive cash flow properties then I’ve got a free course on exactly how you can do that. Go to www.onproperty.com.au/free to get access to that course.
#2: Research the Area
Once you found these positive cash flow properties you should then do research on the area. You want to look at the area and look for indicators that that area is likely to grow. You want to look at things like:
- Population growth (make sure that the population is not declining)
- The economics of the area
- How many people rent in the area versus own (I found that if the area has an any extremely high percentage of rentals like 60%, 70% or 80% that it generally that it is a mining town. So your long-term prospects might not actually be there or it might mean that there are potential prospects for immediate growth. Obviously mining towns do come with a lot of risks so be careful there.)
Make sure you do your area research. Look into the area and look at what the government is doing in the area.
Are there jobs in the area? Is the economy growing or is it shrinking? If it’s shrinking it means more people will be leaving the area. What does the area looks like in terms of new development? Are there going to be a lot of new properties available on the market that will slow growth in the area?
#3: Research the Property
Once you have done your area research and narrow down the areas that you want to invest in you really want to do your property research.
You’ll want to look at the individual properties, how they compare to other properties in the area, if they are the right price and if they suit the market so you will actually be able to rent them.
I often find that properties that are outside of normal may limit the capital growth potential and the renal potential of that property.
So say that most people live in three or four bedroom houses. Well if you’re buying a one-bedroom unit or a studio unit that’s outside of normal it may limit the capital growth and rental potential of that property.
So research the property and look into it. Look at what it previously sold for and how long it is been listed on the market. You also want to look at discounting in the area. What do properties tend to get discounted for?
And you can check out all of this stuff by going to www.onthehouse.com.au. Or if you want more details again you can sign up for my free course where I share details about that at www.onproperty.com.au/free.
After you do your property research you want to make sure that the property isn’t overpriced and that it is right for the market. So the market does grow and the property is going to grow with it.
#4: Consider Buying Under Market Value
This is a strategy that Ben Everingham from Pumped On Property has used. He searched for properties and purchased them under market value.
So you are getting instant equity there and you are increasing your chances of generating a positive cash flow because you are paying less for the property. This means your mortgage expenses are going to be less.
And whether the area grows or stays stagnant you have already got some equity because you have actually purchased property under market value.
Now I’m not the best guy to tell you how to find property under market value. I know there is an awesome tool called Real Estate Investar and it can help you to find these properties. If you want to check them out and what they do go to www.onproperty.com.au/freewebinar and check out their webinar where I can show you what their tool does.
Basically it searches the internet and helps you find properties where the real estate agents or the sellers have used terms that indicate that it is under market value or just to stress sale which means you might be able to secure under market value.
#5: Create Your Own Growth
Rather than trying to get positive cash flow and capital growth naturally why don’t you look for a property where you can get positive cash flow but can generate your own growth?
You could generate this growth by improving the property, developing the property or through subdivisions.
Or maybe you want to flip it on its head and buy in an area that’s primed for growth but then create your own positive cash flow by improving the property, creating a dual occupancy or putting in a granny flat.
Why not consider finding a property where you can create your own growth or your own positive cash flow?
So you can find properties that are positive cash flow and have good potential for capital growth.
However it is a lot harder than just looking for capital growth by itself or just looking for positive cash flow by itself because both the cash flow and the capital growth need to line up. You are going to need to do some research in order to make sure that the property meets your standards and is going to likely achieve that.
I hope that this has been helpful to you. Again you can get my free course and learn how to find positive cash flow properties as well as how to research an area. I go into more depth about how you can research an area to ensure that there are those indicators for growth. Go to www.onproperty.com.au/free.
Until tomorrow remember stay positive!