Positively Geared Properties – How They Can Make You Financially Free
Positively geared properties are a great way to make enough money each month so that you can become financially free. Positively geared properties are properties that generate more money in rental income than they cost in expenses. So at the end of each month you have money left over that you can either live off, reinvest or spend on whatever you want.
A large majority of the super rich either made their money in real estate or they hold their money in real estate. If the super rich are investing in real estate then that is a good sign that it is an effective investment strategy and something that YOU should look into. This post is going to teach you about investing in property with the goal of creating a passive income so that you can achieve financial freedom. The best thing about this method is that anyone can use it and anyone can achieve financial freedom. Whether you are a janitor or a doctor, a waitress or a movie star, no matter what your current financial situation positively geared property can help you get out of the rat race.
How Can I Become Financially Free So I Never Have To Work Again?
To become financially free you need to be generating more passive income (that is income that you don’t have to work for) than you are paying in living expenses. This includes everything from rent (or mortgage), to car payments and petrol, to food and entertainment and anything else you may spend money on. When you earn more in passive income than you pay in expenses you can afford to live indefinitely without ever having to work again.
This would free up a lot of time to be able to do the things that are really important to you. You would have time for things like spending time with the family and your beloved spouse. Or maybe you want to volunteer you time at your favourite charity, or maybe you would prefer to travel the world and experience other cultures. When you become financially free the world is your oyster as you are no longer tied down to one place and one job where you have to work certain hours just to pay the rent!
Positively geared property is a great way to generate a passive income, this is because you don’t have to work for your income. Income comes in every month because you rent out your property for other people to live in and what they pay in rent you can use to live off (after you have paid your mortgage and other expenses of course). One property may give you an extra $100/week after a couple of years, and although that is not enough to live off in and of itself, if you get enough properties then you can generate more money than you will ever need.
What Is Passive Income And Why Is It Important?
Passive income is income that you don’t have to work for. This is different to income that you might earn from a job. When you work a job you are paid in proportion to how hard you work. In a job you can only earn so much because you can only work a limited amount of hours.
However, if you don’t have to work for your income (passive income) then the potential of what you can earn is UNLIMITED! This unlimited potential is what makes passive income and property investing so rewarding.
Would you rather earn $100,000/year working 80 hours a week or earn $1,000,000/month by just spending a couple of hours a week monitoring your properties and moving your money around?
This is NOT a get rich quick scheme!
I must emphasize that this is not a get rich quick scheme. I know because I have tried a few get rich quick schemes in my time. From different online strategies to importing and selling electronics from China. Many investors will make you think that you can get rich quick investing in property. These are usually empty promises that are near impossible to achieve.
It is true that some investors can make a lot of money quickly by investing in property. However, they have spent a lot of time investing and have a lot of experience. But for a relatively new investor like yourself it will take time to learn the ropes before you can get rich quick.
This is about generating passive income for the long term so that you can become financially free. This will not happen in one deal (although sometimes it can) but this will happen over time and over a few investment deals. The more you learn and grow (like you are learning by reading this blog post) the quicker you will make money and the less risky your investing will be.
How Can Positively Geared Properties Earn Me Passive Income?
We have already briefly covered this above but I will go into more detail here about how positively geared properties can earn you passive income. In this section I will show you how an investor can generate a GROWING passive income by investing in real estate.
There are two main ways you can grow your passive income through positively geared real estate. The first will happen naturally over time by just holding your property and the second will happen naturally but will require action.
Firstly, your passive income will naturally increase over time because rents go up over time but your major expense (your mortgage) will remain the same. If you are paying off principle as well as interest on your loan then eventually your mortgage repayments will be cease to exist. So even just by holding the property you can get closer to financial freedom without a lot of hard work.
Secondly, if you have purchased wisely then your property will also go up in value over time. This doesn’t directly effect your cash flow until you realise the rise in value either by getting cash from selling your property or by borrowing against the equity. Capital growth can dramatically increase your cash flow if you take the money and use it as a deposit to invest in more positive cash flow properties.
If you have one positive geared property and you increase rent by $10/week then your income will go up by $10/week (minus some small expenses, eg. Rental management fee around 8% or $0.80). But if your property goes up in value and you take that money and reinvest in more property and eventually you get to owning 10 properties then a $10 increase in rent on all your properties now gives you an extra $100/week or OVER $5,000 per year EXTRA just for holding onto the properties and increasing rents over time.
As you can see positively geared property can earn you an increasing passive income that (if you give it enough time) can make you completely financially free and no longer dependent upon a job. This means less time working just to make ends meet and more time living your life.
What Are The Major Benefits Of Positively Geared Properties?
There are a number of major benefits to cashflow positive property that you do not achieve with any other property. These are exciting benefits that can make investing less risky and more profitable. A few of the major benefits are:
Less risk because you make cash from day #1 – If you are negatively gearing your property you are putting all your eggs in one basket, capital growth. You are paying money every week that you will only see come back to you once your property goes up in value. This can be risky because if the market goes down you can be losing money every month without capital gains. However, with positively geared property you make money from day one! Because your rent is higher than your expenses you get to put money in your pocket every month. Then if the market goes up that is a bonus for you. Because you make money from day one investing can be less risky as you are not relying on capital gains for all your profit.
Increased income over time – As mentioned early a major benefit is that you income is likely to increase over time due to inflation and the rising of rent prices. While your income stream (rent) increases, your major expense (your mortgage) stays the same. Thus over time you become richer by default. This larger income can be used to pay off your loan quicker, to reinvest or to use for your own living expenses or enjoyment.
You can afford to service more loans – If you negatively gear your properties you can only afford a certain amount of properties. This depends on how much they cost you and how much you earn. But let me ask you this:
How many properties could you afford to own if they COST you $1,000/month?…….and
How many properties could you afford to own if they PAID you $1,000/month?
Because the properties pay the mortgage in full (plus a little extra) you can afford to service more loans. The amount of properties you own is then determined by how much the banks will let you borrow and how many deposits you can come up with for the investments you want to buy.
You can use the income from your property for fun things – Negatively geared property costs you money every month to own. This is money you cannot spend on yourself or your friends and family. Because positively geared property INCREASES your income the more you invest the more money you will have each month for fun things. And the more fun you are having the more likely you are to keep investing.
What Are The Major Risks of Positively Geared Properties?
There are no major risks of investing in cashflow positive property as opposed to say any other type of property, however there are some traps that investors can get caught in if they aren’t careful. Most of these traps can be avoided through education and experience (and being aware of them so read on). Also, if you are unfortunate enough to fall into one of these traps then you should be able to find a way to get yourself out of it and start generating a positive cash flow again.
Buying in a bad area – Bad areas can provide higher rental incomes than good areas and can be a good earner as long as the property is managed well and problems are dealt with quickly. Bad areas increase your chances of bad tenants, theft and damage and this can affect your monthly cash flow. These areas can still be great investments but always do your research before buying. Sometimes it pays to find a property in a better suburb that you can turn into a positive cash flow property but renovating or increasing the income through another method.
Buying in a low population area – Low population areas (such as small country towns) also tend to have higher rental yields. Always do your research before buying in smaller areas. You need to make sure that the rental demand is high enough so you can rent out your property, you don’t want to have your property empty and costing you money every month. Low population areas can also fluctuate in price a lot more, so be careful to buy at the right time when the property is a good price.
Dominance on one major industry – Areas that rely heavily on one major industry or corporation can be risky. Mining towns for example can be high risk if the mine was to close down. Properties would drop significantly in value as would the rental demand. Also areas that rely on one major industry can be risky if that industry suffers loss. As an example, drought can cause a drop in the agricultural sector. Less jobs means less people means less rental demand. Always do your research first before deciding on the area.
Not calculating all your expenses and thus being negatively geared – I see this all the time. People who think they are buying a property that is positively cash flowed because the rental income covers the mortgage. But they didn’t take into account maintenance, insurance, council rates, water rates, rental managers fee, vacancies and other unexpected expenses. Always look ahead and try to think of ALL the expenses before buying. Our property calculators can help you with this.
Other unforeseeable circumstances – Sometimes bad luck can cause you to suffer a financial loss. But this is no different in positively geared properties as it is in negatively geared properties. Doing your research and getting a proper building a pest inspection can eliminate a lot of unwanted surprises.
How Can I Begin Investing?
Finding positively geared property for sale is the first step to your investment career. You have to find the properties before you can invest in them and start earning a passive income from them.
It took me years of hard work and a lot of searching to work out where the cash positive properties are located. I was shocked when I discovered that they are located all over the country. Positively geared property doesn’t only exist in small rural towns with only 200 people living in them, they exist everywhere if you know where to look. For example you can find positively geared property in large rural centres, in larger rural towns, in the inner city, in parking lots, in the city suburbs and even NEAR THE BEACH!!! They exist everywhere if you know where to look.
If you want to begin investing in positively geared property then you first need to know how to find them. To describe how to find them would make this blog post too long. You can get my eBook “How To Find Positive Cash Flow Properties” for free. Just sign up for my newsletter in the sidebar >>>>>>>>>> and you will get your free copy instantly. Alternatively you can sign up on the free course page.
Secondly, I suggest you get educated by reading books. I have read many many books on property investing and each have been worth more than their weight in gold. I haven’t written a book yet so I created a list of my most recommended books for people interested in positive cash flow real estate investing. Go to my property books page to see the list and buy the books from a reputable online store. Get reading and get educated so that you can invest with wisdom and get the best return on investment possible.
Thirdly, start searching for properties and start making offers. Now it’s time to start looking for positively geared properties. Go onto realestate.com.au or domain.com.au and get searching. Do the numbers on each property you find. If you find it hard to calculate the numbers then you can use the online property calculators we provide on this website. The simple calculators are free, the more complex ones will have a small fee.
If you find a property that you like and it looks like it is going to turn a positive cash flow then why not make an offer on it? Most people don’t invest because they are held back by fear. The easiest way to beat fear is to get out there are start talking to real estate agents and inspecting properties and making offers. If you are extremely nervous (like I was at first) then simply contact the agents through the online forms provided on realestate.com.au and ask questions and make offers through email. You don’t have to give your phone number and even if you give it you don’t have to answer it if they call.
Make different offers for different properties. Try low offers and creative offers and see what people are responsive to. As I have made a lot of offers in my time I can craft an offer that is likely to get accepted and often I can get the owner to provide some sort of finance or delay of payment on the property.
Good luck and I hope that you can start investing soon and become financially free. If you have any questions or comments please leave them in the comments section below.