Choosing an investment strategy can be difficult. Many people consider positive geared properties as an investment strategy, but few take the plunge and begin investing.
I want to show you the aspects of positive geared property that makes it such a great money making vehicle for many investors and I will also touch on the risks of positive geared properties.
1. They Make Money While You Sleep
This is my favourite part about this investment strategy, it generates passive income while you sleep.
I love waking up in the morning knowing that while I was asleep money was coming in to my bank account and that is the feeling you get when you invest in positively geared properties.
Because they largely take care of themselves, and you hire property managers for the rest, there is very little work to do except to check in and make sure everything is ok every now and then.
2. They Pay Off Your Mortgage For You
Because your income is greater than the sum of all of your expenses this means you have money left over each month which you can use to pay off your mortgage.
Over time the rent that your tenants pay you slowly pay off your mortgage. As rent increases over time you can speed up the rate at which you may of your mortgage with every rent increase you have.
Eventually, you will make your final payment on your mortgage and will own the property outright. You tenants paid for all the repayments and now you own the property free and clear!
The best thing about this is that now the money that went towards paying your mortgage now goes straight into your back pocket and increases your passive income.
3. They Make Money Even When The Market Declines
The Australian property market goes through peaks and troughs. There are times when your property will go down in value.
If you are negatively gearing your investments then you can only make money when your properties increase in value, but if you own positive geared properties then you can make money even when your property decreases in value.
See, positive geared property generates passive income – which is directly tied to the rental income you receive. So even if the value of your property goes down by $100,000 as long as rent isn’t affected you will continue to earn the same amounts of passive income.
4. You Can Still Get Capital Growth
Many financial advisors tell people to steer clear of positive cash flow properties because it is “either positive cash flow or capital gains” and they believe that you cannot have both.
I call BS on this. You can find positive cash flow properties that generate capital growth. You just need to actively research the area you are buying in (use a tool like RipeHouse) but you can definitely get both positive cash flow AND capital gains
The Risks of Investing in Positive Cash Flow Property
I covered the risks in more detail here but I still wanted to touch on them here. Positive geared properties are not without risk and you need to be aware of these risks before you begin investing.
Here are some of the risks you may like to consider:
- Rental vacancies
- Management problems
- Tenant not paying
- Unexpected maintenance bills
- Rental value decline
- Interest rates rising
There are other risks but they are much less common than the above.
It is important to note that the above risks exist for all investment properties, not just positive cash flow properties.
I strongly believe that positive cash flow is one of the best investment mediums for achieving financial freedom. However, everyone’s investment goals are different. So alway seek professional advice before making any investment decisions.