Many property investors start their investment journey with various end goals, but when it comes to strategy, the majority of people tend to gravitate towards positive cash flow strategy in order to achieve their financial goals. Positive cash flow properties can help you to immediately improve the quality of your lifestyle, while providing you with a financial safety net.
Why Cash Flow is Popular
If you had started looking for cash flow properties in the early 2000's, they were as difficult to find as a needle in a hay stack. But fast forward past the GFC of 2007 and the resulting drop in interest rates and all of a sudden Australia's regional centres and major capital cities presents the investor with neutral to positive cash flow properties that still offer good capital gains potential.
Cash flow is important not only to provide you with more money in your pocket, it will allow you to hold and service the property. Most lenders will also take 80 per cent of the rent into consideration when you apply for a loan.
Are you Ready to Buy a Second Property?
Before you can go out and purchase a property, you will need to come up with a deposit. Robert Projeski, Managing Director of Australian Mortgage Options explains the pro's and con's of refinancing a bank loan and some of the possible costs involved.
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If you need more information on how we can help to structure and approve your loan, including refinancing, make a free appointment with our mortgage broker.
Positive Cash Flow Strategy
Pros
Provides passive income that enhances your borrowing capacity.
Less deposit needed to enter the property market as you're looking for cheaper properties in regional towns or in low socio-economic areas.
Generates passive income to supplement your wage or retirement income.
Cons
Cash flow properties are usually located in low socio-economic areas, are less desirable, and may not experience strong capital growth.
Your cash flow may dry up if you stop working as property expenses is needed to offset tax deductions.
How do I find Postive Cash Flow Properties?
As a general, a property that offers rental yield of 7 per cent or more is considered a positive cash flow property. However, in practice there are only a few suburbs and town, mostly in regional areas, that have strong demand and offer high rental yields. To find these areas, you will need to do some research and locate suburbs with investment potential, such as those offered by realestate.com.au/invest.
Finding Positive Properties near Major Cities
It's widely known that regional markets are cheap for a reason - they are considered high risk areas to invest in. The good news is that it's still possible to identify areas that have good potential yields with good capital growth prospect in major capital cities.
To find these areas, you will need to dig into the data and look for areas that are located in lower socio-economic areas. Essentially you're looking for areas where 80 per cent of the population can afford to buy in, such as Ipswich and Logan in Brisbane. Look for areas that have good infrastructure, and that are within walking distance to shops, schools and public transport.
You will also need to know the suburb you want to buy into, so that you can spot properties that are listed below market value. Also be prepared to negotiate hard on the purchase price, this is were you can save on the .