Understanding cash flow positive property investment
Property investment is multi-dimensional. From houses to apartments and even commercial property, there are seemingly endless possibilities. But there’s another niche category of investment that presents an attractive opportunity. Whether you’re a first-time investor or looking to refine your strategy, understanding the concept of cash flow positive property investment can be a game changer.
What is a positive cash flow property?
A cash flow positive property is one where the income generated from the property exceeds the expenses associated with owning and managing it. In simpler terms, it's a property that puts money in your pocket after all costs are covered and tax is paid.
Positive cash flow provides a safety cushion that can protect and grow your investment. It offers an opportunity to reinvest and possibly even accelerate your wealth-building journey.
On the other hand, while a cash flow negative property might grow in value over time, it requires ongoing financial support from the investor.
Cash flow positive property examples
There are a range of property types that lend themselves to cash flow positive investments. Four common ones are:
NDIS (National Disability Insurance Scheme)
The National Disability Insurance Agency (NDIA) funds speciality disability accommodation (SDA) for NDIS participants with an extreme functional impairment or very high support needs. Properties must meet specific standards and regulations but can also offer stable and attractive returns.
Dual occupancy – sometimes also referred to as dual key – properties provide two streams of income within the same property. This may be in the form of a house with a granny flat, both rented separately, or two units within a house, each with its own access. It's a strategy that maximises space and can be highly lucrative when managed effectively.
There’s growing demand for co-living properties with tenants looking to combat rising cost of living pressures. These are homes that offer shared living with private spaces and they appeal to students, young professionals and others seeking community living. Due to the nature of renting out separate spaces in the home, it can lead to higher rental yields.
Short stay rentals
In tourist hotspots, targeting holidaymakers with short-term rentals can be a successful strategy. For this type of accommodation, you can charge a higher nightly rate than for a long term tenant. You can also adjust pricing to capitalise on peak season travel.
Positive cash flow vs positive gearing
It’s important not to confuse a positive cashflow property with a positively geared property. There is a major difference between the two.
A cash flow positive investment property means that you’re generating an income from the property after you’ve claimed your tax deductions and depreciation.
Positive gearing refers to a property where the rental income covers the expenses for the property. Any surplus income is included in your tax return. A cash flow positive property may also be positively geared but a positively geared property isn’t always cash flow positive.
Both positive cash flow and positive gearing are valid strategies with different tax implications and outcomes. However, you should always seek professional advice to find the best approach tailored to your financial goals and risk tolerance.
Benefits of cash flow positive investments
The extra money in your pocket from a cash flow positive property provides financial stability and gives you added peace of mind. With a cash buffer, you’re better positioned to handle unexpected expenses or market fluctuations.
If you have a property portfolio – or you’re looking to develop one – the surplus from your positive cashflow properties can be injected into your other investments. Or you can use it to pay down debts, amplifying your wealth-building journey. As part of a broader investment strategy, cash flow positive investments may also positively impact how lenders calculate your serviceability on future loans.
Challenges and risks
For a cash flow positive property, the risks are largely the same as for any property investment. That is namely market fluctuations and interest rate increases. Unique challenges include handling tenants and maintenance.
There is no investment strategy that’s completely risk free. What I do for my clients is help them to devise a strategy that mitigates risk based on their financial goals and risk appetite. I’ll assess your current financial position, help you to define your financial goals and then provide strategic direction in the context of this. Undertaking thorough research, using tools and data that the average person does not have access to also allows me to create a buffer from this risk as every component like location and the micro economy of the area, recent yields for property type, population and demographics, profile of the individual property and future prospects for the property and area are all factored in when I create a personalised short list for you. By taking a well-considered approach, you place yourself in the best position to reap the rewards of property investment.
Finding cash flow positive properties in Australia
These types of cash flow positive properties are quite niche so you need to know what you’re looking for and where to look. This will of course vary by the type of cash flow positive property you’re considering.
For short stay rentals, tourist areas are the most likely candidates. But you also need to look more broadly at the available properties in the area and tourism projections. There may be a nearby up-and-coming gem that you can capitalise on.
Likewise with the other types of properties. Co-living houses are generally closer to the city, while NDIS specialty disability accommodation can be located in all areas around the country, depending on demand.
This is about more than just finding a property. You also need to consider rental demand, population growth and infrastructure demand to identify the best opportunities for a positive cash flow investment.
The right advice on your side
For first-time investors, cash flow positive investments are an attractive proposition. Every investment requires careful consideration and planning. And that’s what I offer my clients.
Not only can I help you to devise your investment strategy, but I’ll also find properties to match. I take the guesswork out of investing to make it easier for you to get your foot in the door. It’s the faster, smarter way to grow your wealth; putting money in your pocket without you having to lift a finger.
Book a wealth accelerator call and I can help you understand how a cash flow positive property investment may help you achieve your financial goals.
The information in this article is general in nature and does not constitute financial advice. You should seek independent legal, financial, taxation or other advice for your own unique circumstances.