A Property Investors Guide To Cashflow!
One of the key things we need to understand as property investors is how cash flow works for us, now and in the future.
While we all invest in property to create wealth, our short-term cash flow needs will differ wildly, and so the information or advice that works for each person may also differ.
Property investors need to understand cash flow in order to grow their wealth now and into the future in a way that will allow them to live off their passive, rental incomes.
Here we discuss the three different stages of cash flow that as a property investor you could be in.
The first is…
Negative Cash Flow
What does this look like as a property investor?
Negative cash flow means that after all your tax deductions, all of your incomes and outgoings, at the end of the day, your property is taking money out of your pocket. It’s draining your wealth and not increasing it. It’s not providing enough, or any, tax deductions and is costing you money.
A classic property of this type is an older build, or second-hand property that doesn’t depreciate in value and therefore doesn’t provide that depreciation tax deduction.
Rent wise, it’s making less than 3.5% gross rental yield, and is zapping your cash with things like repairs, maintenance and so on.
This is not the kind of property any of us should be investing in.
At the other end of the spectrum, we have the second cash flow stage which is …
Positive Cash Flow
This type of property is making around 6% gross rental yield, perhaps slightly less due to current interest rates, and as an investor you’re happy.
But, if you have bought this kind of property in a place that’s 50km from the CBD, or in a regional area that has hit its peak of growth, the rent rates won’t increase in the way you need them to in order to create wealth in your future.
If you have sacrificed location for yield, it will impact you later on in your investment journey. Location is a better indicator of future wealth than a property out in the sticks with no prospect of attracting wealthy renters.
This leads us to the third and final stage of cash flow which is smack bang in the middle…
Growth Cash Flow
To get a positive cash flow after tax, so that’s after all costs and deductions, you’re looking for a gross rental yield of between 4.5-5%.
A good kind of property for growth cash flow is brand new, because you will get a depreciation and the tax deduction that comes with that. And that doesn’t mean you’ve lost money. You’ve made money via your rental yield, but can still claim a land value depreciation tax break, which might take your overall income on that property from $2000 to $5000. A great result.
Don’t sweat the loss of land value. A great location will push unit prices up, as will the quality of a building, over time. Plus, the right location – so 1km from the beach or 10km from the CBD – will attract good tenants willing to pay high rents and able to handle regular rental increases.
That regular rent rate hike will ensure your cash flow grows into the future. The rents won’t stay static. They’ll increase as the area becomes more attractive to live in, as property prices go up and it’s more expensive to buy there, but great to rent in, and as areas are flooded with good income prospects and a high liveability score for residents.
Let’s Get Your Cash-flowing
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One of the key things we need to understand as property investors is how cash flow works. Property investors need to understand cash flow in order to grow their wealth now and into the future in a way that will allow them to live off their passive, rental incomes. Here we discuss the three different stages of cash flow that as a property investor you could be in.
Considering that all major Australian cities are coastal, and most of the richest neighbourhoods are beachside, the growing threat of severe weather incidents due to global warming throws a serious spanner in the works when considering where to buy and invest. If you’re a climate change sceptic, we’re not here to judge. But that position isn’t going to help you if the institutions you rely on to protect your assets won’t have a bar of your $3 million beachfront house.
Deciding on the right loan structure as a property investor, is a little bit like choosing the right outfit on a first date. It depends on what stage of life you’re at! If you’re new to the game, something a little daring might work best. Later on, you might want to play it safe. It’s the same for property investment and the stage you’re at reflecting how risky or safe your loan structure needs to be. Here we weigh up the pros and cons of principle and interest loans vs interest only loans for property investors.
Rules are an important part of life. And rules in most cases, are really just another word for common sense. They give us a clear framework around many important aspects of life, so it’s no surprise when it comes to selling your investment property, there’s a number of rules you need to follow in order to get the best result.
If you want to know when to sell an investment property, or even if selling an investment property is a good idea, all you have to do is read the rules.
Most of us were raised with the idea that debt is bad. Debt drags you down. Rich people are never in debt.
While that may have been true for our great grandparents, it’s no longer the case. Debt is one of the keys that can unlock future wealth as a property investor. The more good debt you have, the more income you can create.
But, before you go out and put yourself $1 million in the hole, let’s talk about the right kinds of debt. The debt that’s going to lead to success, not ruin. This is called…
I’m sure you’ve heard – data is the new currency. It’s the next big thing for business and it will be a catalyst for driving the world forward over the next few years. Learning how to harness the power of data in property investing, will be a secret weapon all investors can use to create more wealth. So, what is data? It’s information, insights and predictions that property investors can use to help them make smart property purchases.
After a lot of bad news over the past 12 months – thanks a lot COVID-19 – it’s nice to be able to kick off 2021 with some good news. There’s going to be a lending boom which, if you have your property investment strategy in place, is going to make your life a whole lot easier so you can build your property portfolio faster and cheaper.
Like a fine wine, the value of property gets better over time. Traditionally, the more time you have an investment property, the higher the value will rise.
However, unlike your favourite Shiraz, property values can go up and down, and up again.
Getting to know how, why and who is valuing your property can help us understand what property to invest in.
There are three ways to value a property – and three very different people doing the valuing.
What are your Big Rocks this year? What are your Big Rocks for your property investing journey?
If you’re scratching your head and wondering if you’ve accidentally stumbled across a blog for construction workers, bear with me.
Big Rocks is a concept often used in business or life coaching to essentially describe your priorities. The theory is, if you don’t have clear priorities, or if you have too many, chances are you’ll let smaller issues distract you and ultimately fail in your goals.
Historically real estate has always been a good place to put your cash. It’s an asset you can feel and touch – unlike stocks or shares – which makes investors feel safe. And, in the right place and time, property can grow in value while you sleep, meaning as an investor you don’t have to do much to increase your personal wealth. But as investors, how can we better predict the next hot spots for real estate investment so we can get in at the right price? How do we know the best places to buy that are guaranteed to grow in capital value, return regular rent increases and ensure future personal wealth?
Read more: positiverealestate.com.au